BALANCE OF PAYMENTS MANUAL INTERNATIONAL MONETARY FUND （iv）

Contents
Foreword ix
Preface xi
CONCEPTUAL FRAMEWORK
I. Introduction 3
Purposes of the Balance of Payments Manual 3
Changes from the Fourth Edition 3
Uses of Balance of Payments and International Investment Position Data 4
Structure of the Manual 5
II. Conceptual Framework of the Balance of Payments and International
Investment Position 6
Definitions 6
Principles and Concepts 6
Double-entry System 6
Concepts of Economic Territory, Residence, and Center of Economic Interest 7
Principles for Valuation and Time of Recording 7
Concept and Types of Transactions 8
Changes Other Than Transactions 9
III. Balance of Payments and National Accounts 10
Introduction 10
Relationship Between the SNA and Principles Underlying the Balance of Payments 10
Classification 11
Integrated Economic Accounts 11
IV. Resident Units of an Economy 20
Concept and Definition of Residence 20
Economic Territory of a Country 20
Center of Economic Interest 20
Resident Institutional Units 21
Residence of Households and Individuals 21
Residence of Enterprises 22
Residence of Nonprofit Institutions 24
General Government 24
Regional Central Banks 25
V. Valuation of Transactions and of Stocks of Assets and Liabilities 26
Concept of Market Price 26
Transactions and Market Price 26
Valuing Transactions in the Absence of Market Price 26
Market Price Equivalents 26
Affiliated Enterprises 27
Noncommercial Transactions 28
Financial Items 28
Valuation of Stocks of Assets and Liabilities 28
VI. Time of Recording 30
Principle of Timing 30
Application to Goods 30
Exceptions to the Change of Ownership Principle 31
Applications to Other Transactions 31
Other Timing Adjustments 32
VII. Unit of Account and Conversion 33
Unit of Account 33
Conversion Principles and Practices 33
Multiple Official Exchange Rates and Conversion 34
Black or Parallel Market Rates 34
STRUCTURE AND CLASSIFICATION
VIII. Classification and Standard Components of the Balance of Payments 37
Structure and Classification 37
Standard Components 37
Net Errors and Omissions 38
Major Classifications 38
Detailed Classifications 38
Balance of Payments: Standard Components Table 43
Selected Supplementary Information Table 49
IX. Structure and Characteristics of the Current Account 51
Characteristics and Classification 51
Gross Recording, Valuation, and Time of Recording 52
X. Goods 54
Coverage and Principles 54
Definitions 54
Change of Ownership 55
Goods Classified Under Other Categories 57
Special Types of Goods 57
Time of Recording 58
Valuation 58
CONTENTS
v
XI. Transportation 61
Definition and Coverage 61
Passenger Services 61
Freight Services and Conventions for Recording 61
Rentals of Transportation Equipment with Crew 62
Supporting and Auxiliary Services 62
XII. Travel 64
Nature of Travel Services 64
Definition 64
Types of Travel 64
Goods and Services Covered 65
XIII. Other Services 66
Coverage 66
Definitions 66
XIV. Income 70
Coverage 70
Definition and Classification 70
Time of Recording of Investment Income 72
Measurement and Recording of Direct Investment Earnings 72
Stock Dividends, Bonus Shares, and Liquidating Dividends 73
XV. Current Transfers 74
Definition and Coverage 74
Distinction Between Current and Capital Transfers 74
Classification 75
Valuation and Timing 76
XVI. Structure and Characteristics of the Capital and Financial Account 77
Coverage 77
Capital Account 77
Financial Account 78
Liabilities Constituting Foreign Authorities’ Reserves 82
Valuation and Timing 82
XVII. Capital Transfers and Acquisition or Disposal of Nonproduced,
Nonfinancial Assets 83
Coverage 83
Capital Transfers 83
Classification 83
Acquisition or Disposal of Nonproduced, Nonfinancial Assets 84
CONTENTS
vi
XVIII. Direct Investment 86
Concept and Characteristics 86
Direct Investment Enterprises 86
Direct Investors 87
Direct Investment Capital 87
Extent of Net Recording 88
Valuation of Flows and Stocks 89
Other Special Cases of Direct Investment Enterprises 89
Selected Supplementary Information 89
XIX. Portfolio Investment 91
Coverage 91
Classification and Definitions 91
Selected Recording Issues 92
Valuation 94
XX. Other Investment 95
Coverage 95
Classification 95
Definitions and Recording 95
XXI. Reserve Assets 97
Concept and Coverage 97
Identification of Reserve Assets 97
Exclusion of Valuation Changes and Other Adjustments 99
Classification 99
Valuation 100
Interpretation of Changes in Reserve Assets 100
XXII. Supplementary Financial Account Information 101
Coverage 101
Liabilities Constituting Foreign Authorities’ Reserves 101
Exceptional Financing and the Balance of Payments 102
Balance of Payments Accounting for Selected Exceptional Financing Transactions 102
Foreign Sources of Financing 103
XXIII. International Investment Position 104
Concept and Coverage 104
Classification 104
Valuation of Components 105
Relationship of the International Investment Position to External Debt 106
Investment Income, Rates of Return, and the International Investment Position 106
International Investment Position: Standard Components Table 108
CONTENTS
vii
REGIONAL ALLOCATION
XXIV. Regional Statements 115
Regional Allocation Principles 115
Problems and Limitations 116
Analytical Implications 117
Selection of Regions 117
APPENDICES
I. Relationship of the Rest of the World Account to the Balance of Payments
Accounts and the International Investment Position 121
II. A Note on Sectors 145
III. Balance of Payments Classification of International Services and the Central
Product Classification 146
IV. Accounting for Exceptional Financing Transactions 150
V. Selected Issues in Balance of Payments Analysis 158
INDEX
CONTENTS
viii
Measurement of the external positions of member
countries has been a central feature of International
Monetary Fund operations since inception. Such
measurement is conducted in the dual context of Fund
responsibility for surveillance of countries’ economic
policies and provision of financial assistance in support
of adjustment measures to correct balance of payments
disequilibria. Consequently, the Fund has a compelling
interest in developing and promulgating appropriate
international guidelines for the compilation of sound
and timely balance of payments statistics. Such
guidelines, which have evolved to meet changing
circumstances, have been embodied in successive
editions of the Balance of Payments Manual (the
Manual) since the first edition was published in 1948.
Because of the important relationship between external
and domestic economic developments, timely, reliable,
and comprehensive balance of payments statistics
based on an appropriate and analytically oriented
methodology are an indispensable tool for economic
analysis and policy making. Indeed, with the growing
interdependence of the world’s economies, the need
for such statistics—which reflects in part the underlying
movement towards greater liberalization and integration
of markets—has increased over time.
I am particularly pleased to introduce the fifth edition
of the Manual, which addresses the many important
changes and innovations that have occurred in
international transactions since the fourth edition was
published in 1977. The fifth edition of the Manual also
addresses, for the first time, the important area of
international investment position statistics. In addition,
concepts in the Manual have been harmonized, as
closely as possible, with those of the revised System of
National Accounts 1993 and with the Fund’s
methodologies pertaining to money and banking and
government finance statistics.
The revised Manual has been prepared by the Fund’s
Statistics Department in close consultation with balance
of payments experts in member countries and
international and regional organizations (including the
Statistical Office of the European Communities, the
Organisation for Economic Cooperation and
Development, the United Nations, and the World
Bank). The process underlying the revision of the
Manual demonstrates the spirit of international
collaboration and cooperation, and I would like to
thank all of the national and international experts
involved for their invaluable assistance. In this regard, I
am particularly grateful to Mr. Pierre Esteva, chairman
of the Fund’s Working Party on the Statistical
Discrepancy in World Current Account Balances, and to
Baron Jean Godeaux, chairman of the Working Party on
the Measurement of International Capital Flows. Their
assessments of the effects of the unprecedented
changes in the conduct of international transactions
contributed significantly to the revision of the structure
and classification of the international accounts.
I would like to commend the Manual to compilers
and users around the world and to urge member
countries to adopt the conceptual guidelines of the fifth
edition as the basis for compiling balance of payments
and international investment position statistics and for
reporting this information to the Fund.
Michel Camdessus
Managing Director
International Monetary Fund
ix
Foreword
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The fifth edition of the Balance of Payments Manual
(the Manual) continues the series of international
standards that have been issued by the International
Monetary Fund (IMF) for providing guidance to member
countries in the compilation of balance of payments and
related data on the international investment position.
Since the fourth edition of the Manual was published
in 1977, important changes have occurred in the manner
in which international transactions are conducted.
These changes are, in particular, a result of the liberalization
of financial markets, innovations in the creation
and packaging of financial instruments, and new
approaches to the restructuring of external debt. In
addition, there has been unprecedented growth in the
volume of international trade in services. All these
developments have necessitated changes in the treatment
and classification of such transactions within the
structure of the balance of payments accounts. Furthermore,
since publication of the fourth edition, experience
with application of that edition has brought to light a
number of instances in which guidelines could usefully
be augmented and recommendations clarified. An
additional impetus to the preparation of the fifth edition
of the Manual was the work undertaken to revise the
system of economic and financial statistics encompassed
in the System of National Accounts 1993 (SNA). There
was the need to achieve, to the maximum extent
possible, harmonization between the two systems and
with IMF statistical systems pertaining to money and
banking statistics and government finance statistics.
The fifth edition of the Manual provides international
guidelines for the compilation of data for an articulated
set of international accounts encompassing the measurement
of external transactions (balance of payments), on
the one hand, and the stock of external financial assets
and liabilities (the international investment position) on
the other. This edition of the Manual provides explicit
links between the outstanding stock of external financial
assets and liabilities and corresponding changes that
occur, during specified periods, in these external financial
instruments. The changes reflect transactions,
valuation changes, and other adjustments in the relevant
financial instruments. The delineation of an articulated
set of international accounts represents a major shift in
orientation from the fourth to the fifth edition. The fifth
edition also differs from its predecessor in other important
respects. First, the current account of the balance of
payments is redefined to exclude capital transfers,
which are included in an expanded and renamed capital
and financial account. This change provides for a
greater degree of harmonization and integration with
the SNA in terms of the underlying concepts and the
identification of major aggregates. Second, within the
current account, clear distinctions are made among
goods, services, income, and current transfers. As a
reflection of the heightened analytical and policy
interest in data on international trade in services
(particularly in the context of the General Agreement on
Tariffs and Trade negotiations on services) considerable
disaggregation is introduced in the classification of
international services transactions.
The classification of the financial account follows a
hierarchical structure for functional categories, asset or
liability distinctions, instrument specification, sectorization,
and the distinction between long- and short-term
instruments. In addition, the classifications underlying
the income components of the current and financial
accounts and the international investment position are
closely aligned to enhance analytic potential.
Despite the extensive revision of the Manual, IMF
recommendations for balance of payments compilation
maintain a high degree of continuity. Thus, compilers
who have been producing statistics that conform
reasonably well to the standards established in previous
editions should not experience great difficulty in adapting
procedures for data collection or in reporting
according to the recommendations of the fifth edition.
The basic concepts and principles in the Manual remain
generally valid and any necessary adjustments may be
readily effected within a largely unchanged theoretical
framework.
The fifth edition of the Manual was produced by the
IMF Statistics Department—primarily through the work
of a consultant, Mr. Jack Bame (formerly the associate
director for international economics at the Bureau of
Economic Analysis, U.S. Department of Commerce), and
through close consultation with national compilers of
xi
Preface
balance of payments statistics and experts from
interested international and regional organizations. The
reports of the IMF working parties on the Statistical
Discrepancy in World Current Account Balances and on
the Measurement of International Capital Flows also
contributed to the development of the Manual. In
addition, an advisory group of IMF staff provided
assistance in articulating IMF operational and analytic
needs in the area of balance of payments statistics. The
members of the group were Mr. Bruce Smith, senior
advisor in the Southeast Asia and Pacific Department;
Mr. Peter Clark, assistant director in the Research
Department; and Mr. Michael Kuhn, division chief in the
Policy Development and Review Department. The
project was supervised by Mr. Mahinder S. Gill, assistant
director for the Balance of Payments and External Debt
Division in the IMF Statistics Department. Most of the
original drafting was done by Mr. Bame. He also was
responsible for subsequent redrafting undertaken to
reflect comments received from national compilers and
concerned international and regional organizations and
to incorporate conclusions that were reached at the
meeting of balance of payments experts held at IMF
headquarters in March 1992. Through comments on
earlier drafts or through drafting of selected chapters
and appendices, staff of the Balance of Payments and
External Debt Division made specific contributions: Mr.
Gill (Chapter 3 and Appendix 1), Mr. Jan Bové and Mrs.
Florencia Frantischek (Appendix 4), and Mr. Abul
Siddique (Appendix 3). Mr. Clark of the Research
Department made a particularly valuable contribution by
preparing Appendix V, which addresses selected issues
in balance of payments analysis. Ms. Nancy Basham,
Statistics Department, edited and coordinated print
production and Ms. Suzanna Persaud, administrative
staff of the Balance of Payments and External Debt
Division, typed the various drafts and the final version
of the Manual.
The IMF benefitted immensely from the contributions
and comments made by experts who participated in the
March 1992 meeting of balance of payments experts.
Their deliberations culminated in a set of conclusions
that, coupled with further consultation through correspondence,
formed the basis for redrafting and finalizing
the fifth edition. The IMF staff wishes to acknowledge,
with thanks, indebtedness to the following experts in
national balance of payments offices and to representatives
from regional and international organizations who
participated in the meeting and contributed to the
preparation of the Manual.
Australia Ms. Barbara Dunlop
Brazil Ms. Maria Oliveira Nabao
Canada Ms. Lucie Laliberté
Chile Mrs. Teresa Cornejo Black
China Ms. Wang Lingfen
France Mr. Jacques Cuny
Dr. Marc Auboin
Germany Dr. Rudolf Seiler
Hungary Mrs. P. Horvath
Iran Mrs. Mehrangiz Tavassoli
Italy Dr. Antonello Biagioli
Japan Mr. Shinichi Yoshikuni
Mr. Takashi Kori
Kenya Mr. Pius P. Kallaa
Libya Mr. Ali Ramadan Shnebesh
Mexico Mr. Jorge Carriles
Netherlands, The Dr. Marius van Nieuwkerk
Saudi Arabia Mr. Mohammed Al-Hakami
Mr. Mohanna Al-Mohanna
Sweden Mr. Gunnar Blomberg
United Kingdom Mr. John E. Kidgell
Mr. Bruce Buckingham
United States Dr. J. Steven Landefeld
Zaire Ms. Nkobafily Marie
Marthe Lebughe
EUROSTAT Mr. J. C. Roman
OECD Mr. Erwin Veil
UN Mr. Jan van Tongeren
World Bank Datuk Ramesh Chander
John B. McLenaghan
Director, Statistics Department
International Monetary Fund
PREFACE
xii
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B A L A N C E O F PAY M E N T S
CONCEPTUAL FRAMEWORK
Purposes of the Balance of Payments Manual
1. Like editions issued in 1948, 1950, 1961, and 1977,
this 1993 edition of the Balance of Payments Manual
(the Manual) serves as an international standard for the
conceptual framework underlying balance of payments
statistics. The Manual also functions as a guide for
member countries submitting regular balance of
payments reports to the International Monetary Fund
(the IMF or the Fund). In preparing this fifth edition,
the IMF made every effort to ascertain the needs and to
reflect the viewpoints of national compilers and various
users of balance of payments statistics and international
investment position data.
2. The primary purposes of the Manual are
(i) to provide standards for concepts, definitions,
classifications, and conventions and (ii) to facilitate the
systematic national and international collection, organization,
and comparability of balance of payments and
international investment position statistics. A companion
volume, the Balance of Payments Compilation Guide
(the Guide), provides practical guidance to national
compilers on the collection, presentation, and
systematization of external statistics. The Guide is
particularly useful for countries in which statistical
systems are in the early stages of development or in
transition.
Changes from the Fourth Edition
3. The scope and orientation of this Manual differ
from those of the fourth edition in a number of
respects. One important change is the expansion of the
conceptual framework to encompass balance of
payments flows (transactions) and stocks of external
financial assets and liabilities (the international
investment position). A clear distinction is made
between (i) transactions and (ii) other changes in the
accounts—valuation, reclassification, and other
adjustments. Transactions or other changes may result
in changes in stocks, but only transactions are reflected
in balance of payments accounts. For example, in the
fifth edition, the allocation or cancellation of special
drawing rights (SDRs) and the monetization or
demonetization of gold (each with counterpart entry)
are not included among transactions in the balance of
payments accounts but as adjustment items affecting
the international investment position.
4. Additionally, linkage of the international investment
position and balance of payments accounts to the rest
of the world account in the System of National
Accounts (SNA) is strengthened and harmonized to the
maximum extent possible. Cases in point are identical
treatments, in the two systems, of residence, valuation,
timing, and reinvested earnings on direct investment.
Also, to increase harmonization with the SNA, a
distinction between current and capital transfers is
introduced in the Manual. As a result of the change,
the former balance of payments capital account is
redesignated as the capital and financial account.
These and other changes reflect the efforts of
international experts and coordinating groups, including
national accountants and balance of payments
compilers. Their efforts also serve to integrate the
balance or payments more effectively with other IMF
statistical systems such as money and banking,
government finance, and international banking.
5. There are also changes in the treatments of
international services, income, and certain financial
transactions. First, in contrast to the fourth edition, the
fifth edition makes a clear distinction in the current
account between international transactions in services
and transactions in income. In the fourth edition, labor
and nonfinancial property income were grouped
together with services other than shipment, travel, and
transportation, and investment income was covered
separately. In the fifth edition, the two main
components of income flows between residents and
nonresidents—compensation of employees and
investment income—are separately identified as components
of the current account. This treatment
harmonizes with the concept of income presented in
the System of National Accounts 1993 (SNA) and
strengthens the links between the balance of payments
income account and financial account and between
balance of payments flows and the stocks of assets and
liabilities comprising the international investment
position. Second, the component list of transactions in
services is expanded to reflect the growing importance
3
I. Introduction
of services and the contributions of various international
fora to the development of a codified list that
satisfies the requirements and provides links between
separate statistical systems.
6. In the fifth edition, coverage of financial flows and
stocks is significantly expanded and restructured. The
modification reflects, first, an orientation towards
compatibility with other IMF statistical systems and the
SNA and, second, widespread alterations in the nature
and composition of international financial transactions
since publication of the fourth edition in 1977. These
changes include the emergence of financial innovations,
new instruments, and transactors that are partly
associated with a trend towards increased asset securitization.
Such developments tend, in many instances, to
blur the distinction between long- and short-term
maturities and to make it more difficult to identify
resident/nonresident transactions, especially when such
transactions involve a number of currencies and a
variety of actual and contingent financial instruments or
arrangements. Together with the easing or abolition of
exchange controls in many countries and the progressive
deregulation of national financial markets, these
developments create new challenges and problems for
compilers and data users. Further complications arise as
a result of external debt problems experienced by a
number of countries (e.g., accounting for arrears, debt
forgiveness or debt reduction schemes, and associated
innovative financial arrangements). Partly in response
to such developments, classification of the financial
account is re-oriented. To cover new financial
instruments, coverage of nonequity portfolio investment
is broadened to include long- and short-term securities,
and supplementary classifications covering exceptional
financing transactions (with selected arrears-related
entries for balance of payments accounts) and other
items of analytical interest are introduced.
Uses of Balance of Payments and International
Investment Position Data
7. Balance of payments and international investment
position data are most important, of course, for national
and international policy formulation. External aspects
(such as payments imbalances and inward and outward
foreign investment) play a leading role in economic
and other policy decisions in the increasingly interdependent
world economy. Such data are also used for
analytical studies; that is, to determine the causes of
payments imbalances and the necessity for implementing
adjustment measures; relationships between
merchandise trade and direct investment; aspects of
international trade in services; international banking
flows and stocks; asset securitization and principal
market developments; external debt problems, income
payments, and growth; and links between exchange
rates and current account and financial account flows.
In addition, external data are utilized extensively, along
with other variables, for balance of payments
projections and the relationship of these projections to
changes in countries’ stocks of external assets and
liabilities. Finally, balance of payments and
international investment position data constitute an
indispensable link in the compilation of data for
various components of the national accounts (e.g.,
production accounts, income accounts, capital and
financial accounts, and the related measurement of
national wealth).
8. Previous brief references to changes in coverage,
classification, and orientation do not represent an
all-inclusive list of differences between the fourth and
fifth editions of the Manual. Other modifications in the
treatment of specific components will be evident—and
thoroughly covered—in appropriate chapters. In direct
investment, for example, changes are effected in criteria
for flows between affiliated banks (and related stock
positions) and in the distinction between long- and
short-term intercompany transactions. Aspects of
regional presentation, covered in an appendix in the
fourth edition, comprise a chapter in this Manual to
reflect growing international interest in this area. To
address the expanded conceptual framework that
encompasses stocks of external assets and liabilities,
the fifth edition presents a new chapter on the
international investment position and a full exposition
of the classification, components, and links to balance
of payments accounts and balance sheet aspects of the
SNA.
9. In contrast to a rather central position in the fourth
edition, the discussion of selected issues in balance of
payments analysis is presented in Appendix 5 of the
fifth edition. Such issues and the nature and limitations
of various presentations can be better understood after
the concepts, structure, and classification of standard
components have been covered. A thorough treatment
of analytic material requires more extensive coverage
than would be appropriate in this Manual. Therefore,
only selected issues are highlighted to help identify
causes of payments imbalances, to determine financing
requirements, and to focus on appropriate adjustment
measures.
10. Although there are significant differences between
the fourth and fifth editions of the Manual, the latter
CONCEPTUAL FRAMEWORK
4
preserves the continuity of the data collection framework
and IMF reports. Every effort has been made to
delineate principles and concepts clearly; to relate these
appropriately to practical considerations and limitations;
and to establish conventions that may be applied, when
data sources allow, within a consistent framework.
Because the development of statistical systems varies,
standard components and classification schemes
presented in the Manual may be excessively detailed for
many IMF member countries and inadequately detailed
for others. The framework provides flexibility in this
respect. The former group may provide limited data on
selected components—and subsequently add to these, if
possible—and the latter group may be encouraged to
provide supplementary data.
Structure of the Manual
11. Part one of the Manual covers the conceptual
framework of international accounts. Part two deals
with the structure and classification of accounts, and
part three is concerned with regional allocation.
CHAPTER I
5
Definitions
12. Part one of this Manual deals with the conceptual
framework of balance of payments accounts and the
international investment position. Part one covers the
framework’s relationship to national accounts; to
concepts of residence, valuation, and time of recording;
and to the unit of account and conversion.
13. The balance of payments is a statistical statement
that systematically summarizes, for a specific time
period, the economic transactions of an economy with
the rest of the world. Transactions, for the most part
between residents and nonresidents,1 consist of those
involving goods, services, and income; those involving
financial claims on, and liabilities to, the rest of the
world; and those (such as gifts) classified as transfers,
which involve offsetting entries to balance—in an
accounting sense—one-sided transactions. (See
paragraph 28.)2 A transaction itself is defined as an
economic flow that reflects the creation, transformation,
exchange, transfer, or extinction of economic value and
involves changes in ownership of goods and/or
financial assets, the provision of services, or the
provision of labor and capital.
14. Closely related to the flow-oriented balance of
payments framework is the stock-oriented international
investment position. Compiled at a specified date such
as year end, this investment position is a statistical
statement of (i) the value and composition of the stock
of an economy’s financial assets, or the economy’s
claims on the rest of the world, and (ii) the value and
composition of the stock of an economy’s liabilities to
the rest of the world. In some instances, it may be of
analytic interest to compute the difference between the
two sides of the balance sheet. The calculation would
provide a measure of the net position, and the measure
would be equivalent to that portion of an economy’s
net worth attributable to, or derived from, its
relationship with the rest of the world. A change in
stocks during any defined period can be attributable to
transactions (flows); to valuation changes reflecting
changes in exchange rates, prices, etc.; or to other
adjustments (e.g., uncompensated seizures). By
contrast, balance of payments accounts reflect only
transactions.
Principles and Concepts
15. The remainder of this chapter deals with the
conceptual framework of international accounts; that is,
the set of underlying principles and conventions that
ensure the systematized and coherent recording of
international transactions and stocks of foreign assets
and liabilities. Relevant aspects of these principles,
together with practical considerations and limitations,
are thoroughly discussed in subsequent chapters.
Double-entry System
16. The basic convention applied in constructing a
balance of payments statement is that every recorded
transaction is represented by two entries with equal
values. One of these entries is designated a credit with
a positive arithmetic sign; the other is designated a
debit with a negative sign. In principle, the sum of all
credit entries is identical to the sum of all debit entries,
and the net balance of all entries in the statement is
zero.
17. In practice, however, the accounts frequently do
not balance. Data for balance of payments estimates
often are derived independently from different sources;
as a result, there may be a summary net credit or net
debit (i.e., net errors and omissions in the accounts).
A separate entry, equal to that amount with the sign
reversed, is then made to balance the accounts.
Because inaccurate or missing estimates may be
offsetting, the size of the net residual cannot be taken
as an indicator of the relative accuracy of the balance
of payments statement. Nonetheless, a large, persistent
6
II.
Conceptual Framework of the Balance of Payments and
International Investment Position
1The exceptions to the resident/nonresident basis of the balance of payments
are the exchange of transferable foreign financial assets between resident
sectors and, to a lesser extent, the exchange of transferable foreign financial
liabilities between nonresidents. (See paragraph 318.)
2The definitions and classifications of international accounts presented in this
Manual are intended to facilitate reporting of data on international transactions
to the Fund. These definitions and classifications do not purport to give effect
to, or interpret, various provisions (which pertain to the legal characterization of
official action or inaction in relation to such transactions) of the Articles of
Agreement of the International Monetary Fund.
residual that is not reversed should cause concern.
Such a residual impedes analysis or interpretation of
estimates and diminishes the credibility of both. A large
net residual may also have implications for interpretation
of the investment position statement (See the
discussion in Chapter 23.)
18. Most entries in the balance of payments refer to
transactions in which economic values are provided or
received in exchange for other economic values. These
values consist of real resources (goods, services, and
income) and financial items. Therefore, the offsetting
credit and debit entries called for by the recording
system are often the result of equal amounts having
been entered for the two items exchanged. When items
are given away rather than exchanged, or when a
recording is one-sided for other reasons, special types
of entries—referred to as transfers—are made as the
required offsets. (The various kinds of entries that may
be made in the balance of payments are discussed in
paragraphs 26 through 31.)
19. Under the conventions of the system, a compiling
economy records credit entries (i) for real resources
denoting exports and (ii) for financial items reflecting
reductions in an economy’s foreign assets or increases
in an economy’s foreign liabilities. Conversely, a
compiling economy records debit entries (i) for real
resources denoting imports and (ii) for financial items
reflecting increases in assets or decreases in liabilities.
In other words, for assets—real or financial—a
positive figure (credit) represents a decrease in
holdings, and a negative figure (debit) represents an
increase. In contrast, for liabilities, a positive figure
shows an increase, and a negative figure shows a
decrease. Transfers are shown as credits when the
entries to which the transfers provide the offsets are
debits and as debits when those entries are credits.
20. The content or coverage of a balance of payments
statement depends somewhat on whether transactions
are treated on a gross or on a net basis. The Manual
contains recommendations on which transactions
should be recorded gross or net. The recommendations
are appropriately reflected in the list of standard
components and in suggested supplementary
presentations.
Concepts of Economic Territory, Residence,
and Center of Economic Interest
21. Identical concepts of economic territory, residence,
and center of economic interest are used in this
Manual and in the SNA. Economic territory may not
be identical with boundaries recognized for political
purposes. A country’s economic territory consists of a
geographic territory administered by a government;
within this geographic territory, persons, goods, and
capital circulate freely. For maritime countries,
geographic territory includes any islands subject to
the same fiscal and monetary authorities as the
mainland.
22. An institutional unit 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 the country,
the unit engages and intends to continue engaging
(indefinitely or for a finite period) in economic
activities and transactions on a significant scale. (One
year or more may be used as a guideline but not as an
inflexible rule.)
Principles for Valuation and Time
of Recording
23. A uniform basis of valuation for the international
accounts (both real resources and financial claims and
liabilities) is necessary for compiling, on a consistent
basis, any aggregate of individual transactions and
an asset/liability position consistent with such
transactions. In this Manual, the basis of transaction
valuations is generally actual market prices agreed
upon by transactors. (This practice is consistent with
that of the SNA.) Conceptually, all stocks of assets
and liabilities are valued at market prices prevailing at
the time to which the international investment position
relates. A full exposition of valuation principles;
recommended practices; limitations; and the valuation
of transfers, financial items, and stocks of assets and
liabilities appears in Chapter 5. (The exposition
includes cases in which conditions may not allow for
the existence or assumption of market prices.)
24. In the Manual and the SNA, the principle of accrual
accounting governs the time of recording for transactions.
Therefore, transactions are recorded when
economic value is created, transformed, exchanged,
transferred, or extinguished. Claims and liabilities arise
when there is a change in ownership. The change may
be legal or physical (economic). In practice, when a
change in ownership is not obvious, the change may be
proxied by the time that parties to a transaction record
it in their books or accounts. (The recommended timing
and conventions for various balance of payments
entries, together with exceptions to and departures from
the change of ownership principle, are covered in
Chapter 6.)
CHAPTER II
7
Concept and Types of Transactions
25. Broadly speaking, changes in economic
relationships registered by the balance of payments
stem primarily from dealings between two parties.
These parties are, with one exception (see footnote 1),
a resident and a nonresident, and all dealings of this
kind are covered in the balance of payments.
Recommendations for specific entries are embodied in
the list of standard components (see Chapter 8) and are
spelled out in detail from Chapter 9 onward.
26. Despite the connotation, the balance of payments
is not concerned with payments, as that term is
generally understood, but with transactions. A number
of international transactions that are of interest in a
balance of payments context may not involve the
payment of money, and some are not paid for in any
sense. The inclusion of these transactions, in addition
to those matched by actual payments, constitutes a
principal difference between a balance of payments
statement and a record of foreign payments.
Exchanges
27. The most numerous and important transactions
found in the balance of payments may be characterized
as exchanges. A transactor (economic entity) provides
an economic value to another transactor and receives
in return an equal value. The economic values
provided by one economy to another may be
categorized broadly as real resources (goods, services,
income) and financial items. The parties that engage in
the exchange are residents of different economies,
except in the case of an exchange of foreign financial
items between resident sectors. The provision of a
financial item may involve not only a change in the
ownership of an existing claim or liability but also the
creation of a new claim or liability or the cancellation
of existing ones. Moreover, the terms of a contract
pertaining to a financial item (e.g., contractual maturity)
may be altered by agreement between the parties. Such
a case is equivalent to fulfillment of the original
contract and replacement by a contract with different
terms. All exchanges of these kinds are covered in the
balance of payments.
Transfers
28. Transactions involving transfers differ from
exchanges in that one transactor provides an economic
value to another transactor but does not receive a quid
pro quo on which, according to the conventions and
rules adopted for the system, economic value is placed.
This absence of value on one side is represented by an
entry referred to as a transfer. Such transfers (economic
value provided and received without a quid pro quo)
are shown in the balance of payments. Current
transfers are included in the current account (see
Chapter 15) and capital transfers appear in the capital
account. (See Chapter 17.)
Migration
29. Because an economy is defined in terms of the
economic entities associated with its territory, the scope
of an economy is likely to be affected by changes in
entities associated with the economy.
30. Migration occurs when the residence of an
individual changes from one economy to another
because the person moves his or her abode. Certain
movable, tangible assets owned by the migrant are, in
effect, imported into the new economy. The migrant’s
immovable assets and certain movable, tangible assets
located in the old economy become claims of the new
economy on the old economy. The migrant’s claims on,
or liabilities to, residents of an economy other than the
new economy become foreign claims or liabilities of
the new economy. The migrant’s claims on, or liabilities
to, residents of the new economy cease to be claims
on, or liabilities to, the rest of the world for any
economy. The net sum of all these shifts is equal to the
net worth of the migrant, and his or her net worth must
also be recorded as an offset if the other shifts are
recorded. These entries are made in the balance of
payments where the offset is conventionally included
with transfers.
Other imputed transactions
31. In some instances, transactions may be imputed
and entries may be made in balance of payments
accounts when no actual flows occur. Attribution of
reinvested earnings to foreign direct investors is an
example. The earnings of a foreign subsidiary or
branch include earnings attributable to a direct
investor. The earnings, whether distributed or
reinvested in the enterprise, are proportionate to the
direct investor’s equity share in the enterprise.
Reinvested earnings are recorded as part of direct
investment income. An offsetting entry with opposite
sign is made in the financial account under direct
investment-reinvested earnings to reflect the direct
investor’s increased investment in the foreign
subsidiary or branch. (Reinvested earnings are
discussed in chapters 14 and 18.)
CONCEPTUAL FRAMEWORK
8
Changes Other Than Transactions
Reclassification of claims and liabilities
32. The classification of financial items presented in
this Manual is designed to reveal the motivation of
creditor or debtor. Financial items are subject to
reclassification in accordance with changes in
motivation. A case in point is the distinction between
direct investment and other types of investment. For
example, several independent holders of portfolio
investment (in the form of corporate equities issued by
a single enterprise located abroad) may form an
associated group to have a lasting, effective voice in
the management of the enterprise. Their holdings will
then meet the criteria for direct investment, and the
change in the status of the investment could be
recorded as a reclassification. Such a reclassification
would be reflected, at the end of the period during
which it occurred, in the international investment
position but not in the balance of payments. Similarly,
claims on nonresidents can come under, or be released
from, the control of resident monetary authorities. In
such cases, there are reclassifications between reserve
assets and assets other than reserves.
Valuation changes
33. The values of real resources and financial items are
constantly subject to changes stemming from either or
both of two causes. (i) The price at which transactions
in a certain type of item customarily take place may
undergo alteration in terms of the currency in which
that price is quoted. (ii) The exchange rate for the
currency in which the price is quoted may change in
relation to the unit of account that is being used.
Valuation changes are not included in the balance of
payments but are included in the international
investment position.
CHAPTER II
9
10
III. Balance of Payments and National Accounts
Introduction
34. Conceptually, balance of payments accounts and
related data on the international investment position
are closely linked to a broader system of national
accounts that provides a comprehensive and systematic
framework for the collection and presentation of the
economic statistics of an economy. The international
standard for this framework is the System of National
Accounts (SNA), which encompasses transactions,
other flows, stocks, and other changes affecting the
level of assets and liabilities from one accounting
period to another. Linkage of the balance of
payments and the SNA is reinforced by the fact that,
in almost all countries, balance of payments and
international investment position data are compiled
first and subsequently incorporated into national
accounts.
35. The SNA is a closed system in that both ends of
every transaction are recorded; that is, each transaction
is shown as a use for one part of the system and as a
resource for another part. Stocks of assets affected by
transactions are covered as of the beginnings and ends
of appropriate periods. Stocks of assets also are
affected by valuation and other volume changes (such
as uncompensated seizures or destruction of assets)
that occur during the period and cause additional
differences in stock value.
36. In the SNA, transactors and holders of stocks are
the resident economic entities of a particular economy.
For the SNA to be closed, there must be a segment to
capture flows that involve uses or resources for
nonresident entities. That segment is known as the rest
of the world account. The segment for resident entities
or sectors consists of accounts for production, income
generation, primary and secondary distribution of
income, redistribution of income, consumption, and
accumulation. Since the system is closed, the rest of the
world account is constructed from the perspective of
the rest of the world rather than that of the compiling
economy. Consequently, entries in the balance of
payments and the international investment position are
reversed in the presentation of rest of the world
accounts.
37. In this chapter, the balance of payments and the
international investment position are described in
relation to the SNA and links between those international
accounts and relevant segments of the SNA
are discussed.
Relationship Between the SNA and Principles
Underlying the Balance of Payments
38. As the balance of payments and the international
investment position are integral parts of the SNA, there
is virtually complete concordance—between the Manual
and the SNA—on such issues as the delineation of
resident units (producers or consumers), valuation of
transactions and the stock of external assets and
liabilities, time of recording transactions and stocks,
conversion procedures, coverage of international
transactions in real resources (goods, services and
income), and transfers (current and capital). There is
concordance, as well, on external financial assets and
liabilities and coverage of the international investment
position.
Resident units
39. The SNA and the Manual identify resident
producers and consumers in identical fashion. Both
invoke the concepts of economic territory and the
center of economic interest to identify resident units.
(These concepts are elaborated in Chapter 4.)
Valuation
40. In the Manual and the SNA, market price is the
primary concept for valuation of transaction accounts
and balance sheet accounts. (The market price concept
is defined and elaborated in Chapter 5.)
Time of recording
41. Balance of payments and national accounts are
constructed, in principle, on an accrual basis. The two
systems employ essentially identical applications of the
accrual basis in specific categories of transactions.
(Chapter 6 provides a full discussion on application of
the accrual basis underlying balance of payments
accounts.)
Conversion procedures
42. Both systems employ consistent procedures for
converting transactions denominated in a variety of
currencies or units of account into the unit of account
(usually the domestic currency) adopted for compiling
the balance of payments statement or the national
accounts. (See Chapter 7.) There also is concordance
between the two systems on conversion procedures
used in constructing balance sheet accounts.
Classification
43. It would be convenient, for some purposes, if the
classification of transactions in the balance of payments
and the rest of the world account of the SNA were
identical in all respects. Differences are justifiable,
however, because the two statements have different
uses. Whereas the classification scheme of the rest of
the world account maintains the basic, fundamental
distinction between production flows, income flows,
and accumulation flows, that subclassification is of
lesser importance in the context of balance of
payments analysis. Congruence of underlying principles
makes the balance of payments consistent with the SNA
framework and permits the balance of payments to be
described in the context of the SNA. This overall
congruence is more important than exact, detailed
concordance between the balance of payments and
SNA accounts pertaining to relationships of resident
units with the rest of the world.
44. Before examining the relationship between the SNA
rest of the world account and the balance of payments
accounts and international investment position, readers
may find it useful to consider how the broad elements
of the latter two statements relate to integrated
economic accounts for the economy as a whole, as
well as to institutional sectors of the economy.
Integrated Economic Accounts
45. Integrated economic accounts (see pages 14–19)
in the form of T-accounts provide an overview of
structural elements of the SNA by depicting various
facets of economic phenomena (e.g., production,
income, consumption, accumulation, and wealth) in
three types of accounts: current accounts, accumulation
accounts, and balance sheets. Details for the total
economy and various institutional sectors are presented
separately in these accounts. Resources, stocks of
liabilities, and net worth (and changes thereof) are
shown on the right side of the accounts; uses and
stocks of assets (and changes thereof) are shown on
the left side in the tabular presentation. However, in
the account for goods and services, the sources of
supply (resources) from the economy’s output and
imports are shown on the left side, and the distribution
of that supply (uses such as exports, intermediate
consumption, and final consumption by the economy)
is shown on the right side. For each category of
transactions, the sum of the entries on the right side of
the accounts is equal to the sum of the entries on the
left side. Because the SNA is closed, external flows are
portrayed or measured from the perspective of the rest
of the world to achieve this equality. Thus, for example,
payments of compensation to employees (uses) by
various institutional sectors may exceed receipts
(resources) for the household sector because some
payments are made to nonresidents (resources for the
rest of the world). The inclusion of payments to
nonresidents on the resources side (for the rest of the
world sector) ensures that both sides of the account are
equal.
46. SNA current (transactions) accounts—the first set of
integrated economic accounts—portray (i) output,
intermediate consumption, and value added for each
sector and the total economy, as well as the
disposition of domestic production and imports of
goods and services; (ii) distributive, from the
viewpoint of producers, transactions that are directly
linked to the process of production or, alternatively,
the composition of value added; (iii) primary income
distribution showing how gross value added is
distributed to factors of labor, capital, and government
and, when appropriate, reflects flows to and from the
rest of the world; (iv) secondary income distribution;
(v) income redistribution covering, in principle,
current taxes on income, wealth, and other current
transfers and allowing for the derivation of disposable
income and adjusted disposable income; and (vi) use
of income. Saving is a balancing item for all
transactions accounts and provides a link to
accumulation accounts.
47. Accumulation accounts of the SNA show changes
in assets and liabilities and net worth (the difference,
for any sector or for the total economy, between assets
and liabilities) and follow a presentation similar to
balance sheets. A first group of accounts covers
transactions that would correspond to all changes in
assets, liabilities, and net worth if saving and voluntary
CHAPTER III
11
transfers of wealth were the only sources of change in
net worth. A second group of accounts relates to
changes—in assets, liabilities, and net worth—that are
due to other factors. The first group of accumulation
accounts contains the capital account and the financial
account. These two accounts are distinguished to show
a balancing item (i.e., net lending/net borrowing)
useful for economic analysis. The second group covers
changes—in assets, liabilities, and net worth—that are
a result of other factors affecting the values and
volume of assets and liabilities. Examples of such
changes are discoveries or depletion of subsoil
resources, natural catastrophes, uncompensated
seizures of assets, etc., and price and exchange rate
changes that affect only the values of assets and
liabilities.
48. Flows reflected in the balance of payments affect,
in important ways, the total economy’s activities
associated with production, generation and distribution
of income, consumption, and accumulation activities.
For instance, credit and debit entries for goods and
services in balance of payments accounts are equivalent
to flows of exports and imports of goods and services.
These flows are reflected in the economy’s account for
goods and services and consequently affect the
measurement of gross domestic product (GDP) and its
composition in terms of final demand components
(e.g., final consumption, gross capital formation, etc.).
When measured from the final demand side, GDP is
equivalent to the sum of entries in the uses column of
the goods and services account less imports (the first
entry on the resources side of the account) in the
integrated accounts. Flows of exports and imports of
goods and services are defined, in terms of coverage,
in virtually identical fashion in the SNA and the
Manual.
49. In viewing—for both institutional sectors and the
total economy—the generation of income, the
allocation of primary income, the secondary distribution
of income, and the redistribution of income in kind,
readers should note that, apart from income flows
generated domestically and included in the measure of
gross value added or GDP, there are income flows to or
from the rest of the world. These flows (in the form of
compensation of employees; property income; taxes on
production and imports; current taxes on income,
wealth, etc.; and other current transfers) constitute
additional sources of income. These additional sources
of income are included in the measurement of sectoral
and national disposable income and, consequently, in
sectoral and national saving—the balancing item
between disposable income and final consumption. In
terms of the balance of payments, compensation of
employees and property income flows comprise the
income category, while taxes and other current
transfers are identical with the coverage of current
transfers.
50. Accumulation activity of the total economy and
domestic institutional sectors is portrayed, in the SNA,
in the capital and financial accounts. The capital
account shows (i) sources of financing accumulation
(saving and net capital transfers) on the changes in
liabilities side; (ii) the composition of investment (gross
or net) which takes into account the consumption of
fixed capital (capital formation) on the changes in
assets side; and (iii) acquisitions less disposals of
nonproduced, nonfinancial assets. Changes in net
worth that result from saving and net capital transfers
represent the sum of sources of financing accumulation.
The balancing item between sources of financing and
the sum of net capital formation and net purchases of
nonproduced, nonfinancial assets constitutes net
lending/net borrowing for each sector and the nation
as a whole. Net capital transfers (capital transfers
receivable less capital transfers payable) for each
sector contain both intersectoral flows and transactions
with the rest of the world. Within the total economy,
however, intersectoral flows cancel each other so that
the net flow constitutes transactions relating only to
the rest of the world. In the balance of payments, net
lending/net borrowing for the total economy
corresponds to the sum of the current account
balance and the balance on capital account
transactions within the capital and financial account.
The measure of net lending/net borrowing for the
total economy also represents net financial investment
vis-à-vis the rest of the world. In the integrated
accounts, net lending/net borrowing for the total
economy is equivalent to amounts shown in columns
for the rest of the world. However, because the rest
of the world columns are viewed from the perspective
of nonresidents and balance of payments accounts
are viewed from that of the compiling economy,
changes in assets of the rest of the world represent
changes in liabilities of the compiling economy, and
vice versa.
51. According to the guidelines for residence (see
Chapter 4), transactions in land can only take place
between resident entities. When a nonresident entity
(other than a foreign government or international
organization acquiring land for use as an extraterritorial
enclave) acquires land in the domestic economy, the
CONCEPTUAL FRAMEWORK
12
acquisition is considered a financial investment
(included in net incurrence of liabilities) in a notional
resident enterprise.
52. The financial account of the SNA shows the net
acquisition of financial assets and the net incurrence of
liabilities. Transactions in financial assets and liabilities
for each institutional sector and the total economy
encompass those among domestic sectors and those
related to the rest of the world. Consolidated domestic
flows cancel each other so that transactions for the
economy as a whole are (i) accounted for by
transactions vis-à-vis the rest of the world and
(ii) equal to flows shown in columns for the rest of
the world. In the balance of payments, transactions
(from the viewpoint of the compiling economy) in the
financial account of the capital and financial
account correspond to entries in columns for the
financial account of the rest of the world, but changes
in assets of the rest of the world represent changes in
liabilities for the compiling economy and vice versa.
53. The linkage between key aggregates of accounts
of the total economy and balance of payments flows
can, by the use of symbols, be summarized
algebraically within a savings/investment framework.
C = private consumption expenditure
G = government consumption expenditure
I = gross domestic investment
S = gross saving
X = exports of goods and services
M = imports of goods and services
NY = net income from abroad
GDP = gross domestic product
GNDY = gross national disposable income
CAB = current account balance in the balance of
payments
NCT = net current transfers
NKT = net capital transfers
NPNNA = net purchases of nonproduced, nonfinancial
assets
NFI = net foreign investment or net lending/net
borrowing vis-à-vis the rest of the world
Balance of payments flows are italicized in the
following equations.
GDP = C + G + I + X–M
(X–M = balance on goods and services in the balance of payments)
CAB = X – M + NY+NCT
GNDY = C + G + I + CAB
GNDY – C – G = S
S = I + CAB
S – I = CAB
S – I + NKT – NPNNA = CAB + NKT–NPNNA = NFI
(NKT – NPNNA = balance on the capital account of the balance of
payments)
54. Balance sheet accounts for the total economy and
domestic institutional sectors depict the level and
composition of the stock of assets and liabilities at the
beginnings and ends of appropriate reference periods.
55. The difference between the sum of assets and the
sum of liabilities equals the net worth of the economy
and the sectors. In the integrated accounts, financial
assets and liabilities recorded in columns for the total
economy are an aggregation of the financial assets and
liabilities of individual sectors; balance sheet accounts
of a nation as a whole are not fully consolidated. If
accounts were fully consolidated, the financial assets
and liabilities of domestic sectors would cancel each
other, and the economy’s financial assets and liabilities
would refer to the stock of external assets and liabilities
(the international investment position). From that
perspective, the national wealth or net worth of an
economy consists of its stock of nonfinancial assets plus
the net international investment position (stock of
external assets minus stock of external liabilities). The
IIP also may be derived from the integrated accounts
column for assets and liabilities of the rest of the world.
As the IIP viewpoint is that of the compiling economy,
the assets of the rest of the world represent liabilities of
the compiling economy and vice versa.
56. Appendix 1 contains a discussion of the relationship
of (i) various SNA accounts pertaining to the rest
of the world to (ii) balance of payments accounts and
the IIP. Because there is concordance between the
underlying principles of the two systems, the focus of
Appendix 1 is on classification issues and ways of
constructing bridges to derive relevant national
accounts flows and stocks from balance of payments
accounts and the IIP.
CHAPTER III
13
14
INTEGRATED ECONOMIC ACCOUNTS — CURRENT ACCOUNTS
USES
S.15
Nonprofit S.13 S.12 S.11
Goods and S.2 S.1 institutions S.14 General Financial Nonfinacial
services Rest of Total serving House- govern- copor- corpor-
Accounts Total (resources) world economy households holds ment ations ations
I.
PRODUCTION/
EXTERNAL
ACCOUNT OF
GOODS AND
SERVICES
II.1.1
GENERATION
OF INCOME
ACCOUNT
II.1.2.
ALLOCATION OF
PRIMARY INCOME
ACCOUNT
II.2
SECONDARY
DISTRIBUTION
OF INCOME
ACCOUNT
II.3
REDISTRIBUTION
OF INCOME IN
KIND ACCOUNT
II.4
USE OF INCOME
ACCOUNT
S.15
S.11 S.12 S.13 Nonprofit Goods
Nonfinan- Financial General S.14 institutions S.1 S.2 and
cial corpor- corpor- govern- House- serving Total Rest of services
Code Transactions and Balancing Items ations ations ment holds households economy the world (uses) Total Accounts
P.7 Imports of goods and services I.
P.6 Exports of goods and services
P.1 Output PRODUCTION/
P.2 Intermediate consumption EXTERNAL
D.21-D.31 Taxes less subsidies on ACCOUNT OF
products GOODS AND
SERVICES
B.1g/B.1*g Value added, gross/Gross
domestic product
K.1 Consumption of fixed capital
B.1n VALUE ADDED, NET/NET
DOMESTIC PRODUCT
B.11 EXTERNAL BALANCE OF
GOODS AND SERVICES
D.1 Compensation of employees II.1.1
D.2-D.3 Taxes less subsidies on
production and imports GENERATION
D.21-D.31 Taxes less subsidies on OF INCOME
products ACCOUNT
D.29-D.39 Other taxes less subsidies on
production
B.2g Operating surplus, gross
B.3g Mixed income, gross
B.2n OPERATING SURPLUS, NET
B.3n MIXED INCOME, NET
D.4 Property income II.1.2.
B.5g Balance of primary incomes, ALLOCATION
gross/National income, gross OF PRIMARY
B.5n BALANCE OF PRIMARY INCOMES INCOME
NET/NATIONAL INCOME, NET ACCOUNT
D.5 Current taxes on income, II.2
wealth, etc.
D.61 Social contributions SECONDARY
D.62 Social benefits other than DISTRIBUTION
social transfers in kind OF INCOME
D.7 Other current transfers ACCOUNT
B.6g Disposable income, gross
B.6n DISPOSABLE INCOME, NET
D.63 Social transfers in kind II.3
B.7g Adjusted disposable income, REDISTRIBUTION
gross OF INCOME IN
B.7n ADJUSTED DISPOSABLE KIND ACCOUNT
INCOME, NET
B.6g Disposable income, gross II.4
B.6n DISPOSABLE INCOME, NET
P.4 Actual final consumption USE OF INCOME
P.3 Final consumption expenditure ACCOUNT
D.8 Adjustment for the change in net
equity of households in
pension funds
B.8g Saving, gross
B.8n SAVING, NET
B.12 CURRENT EXTERNAL BALANCE
15
INTEGRATED ECONOMIC ACCOUNTS — CURRENT ACCOUNTS
RESOURCES
16
INTEGRATED ECONOMIC ACCOUNTS — ACCUMULATION ACCOUNTS
CHANGES IN ASSETS
S.15
Nonprofit S.13 S.12 S.11
Goods and S.2 S.1 institutions S.14 General Financial Nonfinacial
services Rest of Total serving House- govern- copor- corpor-
Accounts Total (resources) world economy households holds ment ations ations
III.1
CAPITAL
ACCOUNT
III.2
FINANCIAL
ACCOUNT
III.3.1.
OTHER CHARGES
IN VOLUME OF
ASSETS ACCOUNT
III.3.2
REVALUATION
ACCOUNT
S.15
S.11 S.12 S.13 Nonprofit Goods
Nonfinan- Financial General S.14 institutions S.1 S.2 and
cial corpor- corpor- govern- House- serving Total Rest of services
Code Transactions and Balancing Items ations ations ment holds households economy the world (uses) Total Accounts
B.8 SAVING, NET III.1
B.12 CURRENT EXTERNAL BALANCE
P.51 Gross fixed capital formation CAPITAL
K.1 Consumption of fixed capital (–) ACCOUNT
P.52 Changes in inventories
P.53 Acquisitions less disposals
of valuables
K.2 Acquisitions less disposals of
nonproduced, nonfinancial assets
D.9 Capital transfers, receivable
D.9 Capital transfers, payable (-)
B.10.1 CHANGES IN NET WORTH DUE TO
SAVING AND CAPITAL TRANSFERS
B.9 NET LENDING (+)/NET
BORROWING (–)
F Net acquisition of financial assets III.2
F Net incurrence of liabilities
F.1 Monetary gold and SDRs FINANCIAL
F.2 Currency and deposits ACCOUNT
F.3 Securities other than shares
F.4 Loans
F.5 Shares and other equity
F.6 Insurance technical reserves
F.7 Other accounts receivable/payable
K.3 through Other volume changes, total III.3.1.
K.10 and
K.12 OTHER
K.3 Economic appearance CHANGES IN
of nonproduced assets VOLUME
K.4 Economic appearance OF ASSETS
of produced assets ACCOUNT
K.5 Natural growth of non-cultivated
biological resources
K.6 Economic disappearance of
nonproduced assets
K.7 Catastrophic losses
K.8 Uncompensated seizures
K.9 Other volume changes in
nonfinancial assets n.e.c.
K.10 Other volume changes in financial
assets and liabilities n.e.c.
K.12 Changes in classifications and
structure
Of which
AN Nonfinancial assets
An 1 Produced assets
AN 2 Nonproduced assets
AF Financial assets/liabilities
B.10.2 CHANGES IN NET WORTH DUE
TO OTHER CHANGES IN
VOLUME OF ASSETS
K.11 Nominal holding gains/losses III.3.2
AN Nonfinancial assets
AN.1 Produced assets REVALUATION
AN.2 Nonproduced assets ACCOUNT
AF Financial assets/liabilities
B.10.3 CHANGES IN NET WORTH DUE
TO NOMINAL HOLDING
GAINS (+)/LOSSES (–)
17
INTEGRATED ECONOMIC ACCOUNTS — ACCUMULATION ACCOUNTS
CHANGES IN LIABILITIES AND NET WORTH
18
INTEGRATED ECONOMIC ACCOUNTS — BALANCE SHEETS
ASSETS
S.15
Nonprofit S.13 S.12 S.11
Goods and S.2 S.1 institutions S.14 General Financial Nonfinacial
services Rest of Total serving House- govern- copor- corpor-
Accounts Total (resources) world economy households holds ment ations ations
IV.1
OPENING
BALANCE
SHEET
IV.2
CHANGES IN
BALANCE
SHEET
IV.3
CLOSING
BALANCE
SHEET
S.15
S.11 S.12 S.13 Nonprofit Goods
Nonfinan- Financial General S.14 institutions S.1 S.2 and
cial corpor- corpor- govern- House- serving Total Rest of services
Code Transactions and Balancing Items ations ations ment holds households economy the world (uses) Total Accounts
AN Nonfinancial assets IV.1
AN.1 Produced assets
AN.2 Nonproduced assets OPENING
AF Fnancial assets/liabilities BALANCE
SHEET
B.90 NET WORTH
Total changes in assets IV.2
AN Nonfinancial assets CHANGES IN
AN.1 Produced assets BALANCE
AN.2 Nonproduced assets SHEET
AF Financial assets/liabilities
B.10 CHANGES IN NET WORTH, TOTAL
B.10.1 SAVING AND CAPITAL TRANSFERS
B.10.2 OTHER CHANGES IN VOLUME
OF ASSETS
B.10.3 NOMINAL HOLDING GAINS (+)/
LOSSES (–)
AN.1 Nonfinancial assets IV.3
AN.2 Produced assets
AF Nonproduced assets CLOSING
Financial assets/liabilities BALANCE
SHEET
B.90 NET WORTH
19
INTEGRATED ECONOMIC ACCOUNTS — BALANCE SHEETS
LIABILITIES
Concept and Definition of Residence
57. Residence is a particularly important attribute of an
institutional unit in the balance of payments because
the identification of transactions between residents and
nonresidents underpins the system. Residence is also
important in the SNA because the residency status of
producers determines the limits of domestic production
and affects the measurement of GDP and many
important flows.
58. The concept of residence used in this Manual is
identical to that used in the SNA. The concept is not
based on nationality or legal criteria, although it may
be similar to concepts of residence used for exchange
control, tax, and other purposes in many countries. The
concept of residence is based on a sectoral transactor’s
center of economic interest. Moreover, country
boundaries recognized for political purposes may not
always be appropriate for economic purposes.
Therefore, it is necessary to recognize the economic
territory of a country as the relevant geographical area
to which the concept of residence is applied. An
institutional unit is a resident unit when it has a center
of economic interest in the economic territory of a
country.
Economic Territory of a Country
59. The economic territory of a country consists of the
geographic territory administered by a government;
within this territory, persons, goods, and capital
circulate freely. In a maritime country, economic
territory includes islands that belong to the country and
are subject to the same fiscal and monetary authorities
as the mainland; goods and persons move freely to and
from the mainland and the islands without any customs
or immigration formalities. The economic territory of a
country includes the airspace, territorial waters, and
continental shelf lying in international waters over
which the country enjoys exclusive rights and has, or
claims to have, jurisdiction over fishing rights and rights
to fuels or minerals below the sea bed. The economic
territory of a country also includes territorial enclaves in
the rest of the world. These are clearly demarcated land
areas (such as embassies, consulates, military bases,
scientific stations, information or immigration offices,
aid agencies, etc.) located in other countries and used
by governments that own or rent them for diplomatic,
military, scientific, or other purposes with the formal
political agreement of governments of countries where
the land areas are physically located. While goods or
persons may move freely between a country and its
territorial enclaves located abroad, such goods or
persons become subject to control by governments of
the countries where the goods or persons are located if
they move out of the enclaves. In addition, economic
territory includes free zones and bonded warehouses or
factories operated by offshore enterprises under
customs control. (These are considered part of the
economic territory of the country in which the free
zones, etc. are physically located.)
60. The economic territory of an international organization
(see paragraph 88 for characteristics) consists of
territorial enclave(s) over which the organization has
jurisdiction; these are clearly demarcated land areas or
structures that the international organization owns or
rents and uses for organizational purposes formally
agreed upon with the country, or countries, in which
the enclave(s) are physically located.
61. Therefore, although territorial enclaves used by
foreign governments or international organizations may
be physically located within a country’s geographical
boundaries, such enclaves are not included in the
country’s economic territory.
Center of Economic Interest
62. An institutional unit has a center of economic interest
within a country when there exists, within the economic
territory of the country, some location, dwelling, place of
production, or other premises on which or from which
the unit engages and intends to continue engaging, either
indefinitely or over a finite but long period of time, in
economic activities and transactions on a significant scale.
The location need not be fixed so long as it remains
within the economic territory.
63. In most cases, it is reasonable to assume that an
institutional unit has a center of economic interest in a
20
IV. Resident Units of an Economy
country if the unit has already engaged in economic
activities and transactions on a significant scale in the
country for one year or more, or if the unit intends to
do so. The conduct of economic activities and
transactions over a period of one year normally implies
a center of interest, but the choice of any specific
period of time is somewhat arbitrary. The one-year
period is suggested only as a guideline and not as an
inflexible rule.
64. Ownership of land and structures located within a
country’s economic territory is sufficient qualification for
the owner to have a center of economic interest in the
country. Land and buildings can only be used for
purposes of production in the country where they are
located and their owners, in their capacity as owners,
are subject to the laws and regulations of that country.
However, an owner who is resident in another country
may not have any economic interest, other than
ownership of land or buildings, in the country where
the land or buildings are located. In that case, the
owner is treated as if he has transferred his ownership
to a notional institutional unit that is actually resident in
the country. The notional unit is treated as being owned
and controlled by the nonresident owner—much as a
quasi-corporation is owned and controlled by its owner.
Rents and rentals paid by the tenants of the land or
buildings are paid to the notional resident unit; in turn,
this unit transfers the income to the actual nonresident
owner.
Resident Institutional Units
65. The sectors of an economy are composed of two
main types of institutional units: (i) households and
individuals who make up a household and (ii) legal
and social entities, such as corporations and quasicorporations
(e.g., branches of foreign direct investors),
nonprofit institutions, and the government of that
economy. These institutional units must meet certain
criteria to be considered resident units of the economy.
Residence of Households and Individuals
66. A household has a center of economic interest
when household members maintain, within the country,
a dwelling or succession of dwellings treated and used
by members of the household as their principal
residence. All individuals who belong to the same
household must be residents of the same country. If a
member of an existing household ceases to reside in
the country where his or her household is resident, the
individual ceases to be a member of that household.
67. If a resident household member leaves the
economic territory and returns to the household after a
limited period of time, the individual continues to be a
resident even if he or she makes frequent journeys
outside the economic territory. The individual’s center
of economic interest remains in the economy in which
the household is resident. Treated as residents are
travelers or visitors—individuals who leave an
economic territory for limited periods of time (less
than one year) for business or personal purposes
(see paragraphs 71, 243, and 244);
workers or employees—individuals who work some
or all of the time in economic territories that differ
from those of their resident households. Such
individuals are
workers who may, because of seasonal demand
for labor, work part of the year in another country
and then return to their households;
border workers who regularly (each day) or
somewhat less regularly (e.g., each week) cross
frontiers to work in neighboring countries;
staff of international organizations who work in
the enclaves of those organizations;
locally recruited staff of foreign embassies,
consulates, military bases, etc.;
crews of ships, aircraft, or other mobile
equipment operating partly or wholly outside an
economic territory.
68. An individual may cease being a member of a
resident household when he or she works continuously
for one year or more in a foreign country. If the
individual rejoins his or her original household only for
infrequent short visits and sets up a new household or
joins a household in the country where he or she
works, the individual can no longer be treated as a
member of the original household. Most of the
individual’s consumption takes place in the country
where he or she lives or works, and the individual
clearly has a center of economic interest there.
69. Even if an individual continues to be employed and
paid by an enterprise that is resident in his or her home
country, that person should normally be treated as a
resident in the host country if he or she works
continuously in the host country for one year or more.
In these circumstances, the person should be treated as
an employee of a quasi-corporation owned by the
enterprise and resident in the country where the work
takes place. Technical assistance personnel on long-term
CHAPTER IV
21
assignments should be treated as residents of the
countries where they work and as employees of their
host governments, of international organizations
functioning on behalf of governments, or of international
organizations actually financing the technical assistance
work. Transfers of funds should be imputed from the
governments or international organizations that actually
employ the technical assistance personnel to the host
governments to cover the cost of salaries, allowances,
transportation expenses, administrative costs, etc. related
to the technical assistance personnel.
70. The situation differs for military personnel and civil
servants (including diplomats) employed abroad in
government enclaves. Those enclaves—military bases,
embassies and the like—form part of the economic
territory of the employing government, and the
personnel often live as well as work in the enclaves.
Therefore, government employees working in such
enclaves continue to have centers of economic interest
in their home countries while, and however long, they
work in the enclaves. They continue to be residents in
their home countries even if they live in dwellings
outside the enclaves.
71. However long they study abroad, students should
be treated as residents of their countries of origin, as
long as they remain members of households in their
home countries. In these circumstances, their centers of
economic interest remain in their countries of origin
rather than in the countries where they study. Medical
patients staying abroad are also treated as residents of
their countries of origin, even if their stays are one year
or more, as long as they remain members of
households in their countries of origin.
72. Some individuals have several international
residences where they may remain for short periods
(e.g., three months in each of four countries) during a
specific year. For these individuals, the centers of
economic interest often are international rather than
designated economies. While consideration should be
given to such factors as tax status, citizenship (can be
dual), etc., this Manual and the SNA do not
recommend a specific treatment. The choice is left to
the discretion of the economies concerned. The
treatment should be coordinated, if possible, to foster
international comparability.
Residence of Enterprises
73. An enterprise is said to have a center of economic
interest and to be a resident unit of a country
(economic territory) when the enterprise is engaged in
a significant amount of production of goods and/or
services there or when the enterprise owns land or
buildings located there. The enterprise must maintain at
least one production establishment in the country and
must plan to operate the establishment indefinitely or
over a long period of time. Together with other
considerations covered in paragraph 78, a guideline of
one year or more, to be applied flexibly, is suggested.
Definition and activity
74. The term enterprise, as used in this Manual , is
inclusive of the terms corporation and quasi-corporation
as defined in the SNA. A corporation is a legal entity
created for the purpose of producing goods or services
for the market. A corporation may be a source of profit
or other financial gain to its owner(s). A corporation is
collectively owned by shareholders who have the
authority to appoint directors responsible for the general
management of the corporation. Owned by a resident or
a nonresident institutional unit, a quasi-corporation is an
unincorporated enterprise that is operated as if it were a
separate corporation with a complete set of accounts.
The de facto relationship of a quasi-corporation to its
owner is the same as that of a corporation to its
shareholders. (For purposes of sectoring, in the SNA,
quasi-corporations are treated as corporations—that is, as
institutional units separate from the units to which the
quasi-corporations legally belong.)
Types of enterprises
75. Enterprises may be either privately owned and/or
controlled, publicly owned and/or controlled, or
controlled by residents and/or nonresidents. Enterprises
may be financial or nonfinancial institutions.
76. In accord with the preceding definition, private
enterprises include (i) incorporated enterprises (e.g.,
corporations, joint stock companies, limited liability
partnerships, cooperatives, or other business
associations recognized as independent legal entities by
virtue of registration under company and similar acts,
laws, or regulations); (ii) unincorporated enterprises;
and (iii) nonprofit institutions.
77. Public enterprises are (i) unincorporated
government enterprises and (ii) public corporations
incorporated by virtue of company acts or other public
acts, special legislation, or administrative regulations.
Public corporations hold and manage the financial
assets and liabilities, as well as the tangible and
nonfinancial intangible assets, that are involved in
corporation business. Both government enterprises and
CONCEPTUAL FRAMEWORK
22
public corporations sell to the public most of the goods
or services they produce. The principal public
monetary institution, which issues currency and
(sometimes) coin and is commonly the chief holder of
the country’s international reserves, is usually the
central bank—the publicly owned and/or controlled
monetary authority.
Attribution of production
78. Production undertaken outside the economic
territory of a resident enterprise by the personnel,
plant, and equipment of that resident enterprise is
treated as part of host country production and the
enterprise is treated as a resident unit (branch or
subsidiary) of that country if the enterprise meets the
conditions noted in paragraph 73. In addition, the
enterprise must, among other considerations, maintain a
complete and separate set of accounts of local activities
(i.e., income statement, balance sheet, transactions with
the parent enterprise), pay income taxes to the host
country, have a substantial physical presence, receive
funds for enterprise work for the enterprise account,
etc. If these conditions are not met, the activity should
be classified as an export of services by a resident
enterprise. Production can generate such an export
only if the production is classified as domestic
production (undertaken by a resident even though the
physical process takes place outside the economic
territory). These considerations also apply to the
particular case of construction activity carried out
abroad by a resident producer. Special mention should
be made of construction involving major specific
projects (bridges, dams, power stations, etc.) that often
take several years to complete and are carried out and
managed by nonresident enterprises through
unincorporated site offices. In most instances, site
offices will meet the criteria that require site office
production to be treated (as would that of a branch or
affiliate) as the production of a resident unit and as
part of the production of the host economy rather than
as an export of services to that economy.
79. Offshore enterprises engaged in manufacturing
processes (including assembly of components
manufactured elsewhere) are residents of the
economies in which the offshore enterprises are
located. This statement applies regardless of location in
special zones of exemption from customs or other
regulations or concessions. The statement also applies
to nonmanufacturing operations (i.e., trading and
financial enterprises), including so-called special
purpose enterprises. (See paragraphs 365 and 381.)
Units operating mobile equipment
80. Principles used to determine the residence of an
enterprise are likewise applicable to an enterprise that
operates mobile equipment outside the economic
territory where the enterprise is resident. (The mobile
equipment could consist of ships, aircraft, drilling rigs
and platforms, railway rolling stock, etc.) Such
operations may take place in (i) international waters or
airspace or (ii) another economy. In the first case (an
enterprise with operations taking place in international
waters or airspace), the activities should be attributed
to the economy in which the operator maintains
residence. In the second case (an enterprise with
production taking place in another economy), the
enterprise may be considered to have a center of
economic interest in the other economy. Thus, if the
enterprise is accounted for separately by the operator
and is recognized as a separate enterprise by tax and
licensing authorities of the other economy, production
should be attributed to the economy in which the
production occurs. Otherwise, production is attributed
to the original operator’s country of residence. If
operations (such as a railway network) are carried out
by an enterprise on a regular and continuing basis in
two or more countries, the enterprise is deemed to
have a center of economic interest in each country and
thus to have separate resident units in each. The
enterprises must also be accounted for separately by
the operator and recognized as separate enterprises by
tax and licensing authorities in each country of
operation. In cases involving the leasing of mobile
equipment to one enterprise by another for a long or
indefinite period, the lessee enterprise is deemed to be
the operator, and activities are attributed to the country
where the lessee is resident.
81. For ships flying flags of convenience, it is often
difficult to determine the residence of the operating
enterprise. There may be complex arrangements
involving ownership, mode of operation, and chartering
of such ships. In addition, the country of registry
differs, in most instances, from the operator’s (or
owner’s) country of residence. Nonetheless, in
principle, the shipping activity is attributed to the
country of residence of the operating enterprise. If an
enterprise establishes, for tax or other considerations, a
branch (direct investment) in another country to
manage the operation, the operation is attributed to the
resident (branch) operating in that country.
82. In certain exceptional cases, it may be difficult to
determine the residence of an enterprise that operates
mobile equipment. For example, the enterprise may
CHAPTER IV
23
consist of a corporation that is registered in two or
more countries as a result of being established through
special legislation enacted cooperatively by two or
more governments. Such enterprises may be treated in
two ways. All of the corporation’s transactions may be
allocated to the countries of registry in proportion to
the amounts of financial capital that the countries have
contributed or in proportion to their shares in the
equity of the corporation. Alternatively, the corporation
may be treated as a resident of the country where
corporation headquarters are located. Corporation
premises in other countries would be treated as foreign
branches (direct investment enterprises) and classified
as residents of the countries where the premises are
located. The first method is preferable, but both ways
of treating such corporations are consistent with the
general principles of the Manual and the SNA. The
choice between methods may be made, with reference
to consistent treatment by partner countries, on the
basis of statistical convenience.
Agents
83. Transactions of agents should be attributed to the
economies of principals on whose behalf the
transactions are undertaken and not to the economies
of agents representing or acting on behalf of principals.
However, services rendered by agents to enterprises
represented should be attributed to the economies in
which the agents are residents.
Residence of Nonprofit Institutions
84. A nonprofit institution (NPI) is resident in the
country or economic territory where the NPI has a
center of economic interest. In most instances, this
center of economic interest lies in the country where
the NPI was legally created and is officially recognized
and recorded as a legal or social entity. In practice,
residence of the vast majority of NPIs may be
determined without ambiguity. However, when an NPI
is engaged in charity or relief work on an international
scale, it is necessary to specify the residence of any
branches the NPI may maintain for dispensing relief in
individual countries. If an NPI maintains a branch or
unit for one year or more in a particular country, that
branch or unit should be considered a resident NPI that
is financed largely or entirely by transfers from abroad.
General Government
85. General government agencies that are residents of
an economy include all departments, establishments,
and bodies located in the economic territory of an
economy’s central, state, and local governments and all
embassies, consulates, military establishments, and
other entities, which are located elsewhere, of an
economy’s general government.
86. The general government of an economy covers all
unclassified agencies of the public authorities. Such
agencies include government departments, offices, and
other bodies (whether these are covered in ordinary or
extraordinary budgets or in extrabudgetary funds) that
engage in administration, defense, and regulation of the
public order; promotion of economic growth, welfare,
and technological development; and provision of
educational, health, cultural, recreational, and other
social and community services free of charge or at sales
prices that do not cover most or all of the costs of
production. Also included are other nonprofit
organizations serving individuals or business enterprises
that are wholly, or mainly, financed and controlled by
the public authorities and nonprofit organizations
primarily serving government bodies. This category
covers, as well, social security arrangements that are
imposed, controlled, or financed by the government for
large sections of the community. These arrangements
include voluntary social security arrangements for
certain sections of the community and pension funds
that are considered part of public social security
schemes. Such agencies may be unincorporated
government enterprises that primarily produce goods
and services for the government or primarily sell goods
and services to the public. In addition, there are public,
nonmonetary saving and lending bodies that are
financially integrated with a government or that lack
the authority to acquire financial assets or incur
liabilities in the capital market.
87. Embassies, consulates, military establishments, and
other entities of a foreign general government are
considered extraterritorial by the economies in which
the embassies, etc. are physically located. When
resident producers of an economy construct embassies,
structures, or other works in an extraterritorial enclave,
the construction is part of the production and exports
of the economy in which the enclave is located. Wages
and salaries paid to locally recruited staff of foreign
diplomatic, military, and other establishments are
payments to residents of the economies in which these
establishments are located.
88. International organizations that do not qualify as
enterprises (see paragraph 74) form part of foreign
general government for balance of payments purposes.
Most political, administrative, economic, social, or
CONCEPTUAL FRAMEWORK
24
financial institutions in which the members are
governments (or other international organizations with
memberships consisting of governments) do not qualify
as enterprises. International organizations are created
for the purpose of engaging in one, or both, of the
following activities: (i) the provision of nonmarket
services of a collective nature for the benefit of
members and/or (ii) financial intermediation, or the
channeling of funds between lenders and borrowers in
different economies. International organizations are
established by political agreement among organization
members. Such agreements have the status of
international treaties. International organizations are
accorded appropriate privileges and immunities and are
not subject to the laws and regulations of the
economies in which the organizations are located.
Thus, such bodies are not considered residents of any
national economy, including the economies in which
the organizations are located or conduct affairs. The
international organizations are treated as extraterritorial
entities by those economies. (However, pension funds
operated by these bodies are treated as residents of the
economies in which the organizations are located.)
Nevertheless, the employees of these bodies are
residents of national economies—specifically, of the
economies in which they are expected to maintain their
abodes for one year or more. In most cases, that
economy will be the one in which the particular
international unit is located or the one in which the
employee is engaged in technical assistance or other
activities on behalf of the international organization.
Wages and salaries paid by international organizations
to their employees are payments to residents of the
economies in which the employees are stationed for
one year or more. (For the treatment of technical
assistance personnel, see paragraph 69.)
89. In contrast, enterprises owned jointly by two or
more governments are not treated as international
bodies but are, like other enterprises, considered to be
residents of the economic territories where the
enterprises operate.
Regional Central Banks
90. A regional central bank is an international financial
institution that acts as a common central bank for a
group of member countries. Such a bank has
headquarters in one country and maintains national
offices in each member country. Each national office
acts as the central bank for that country and must be
treated as an institutional unit that is separate from the
headquarters institution. Each national office is a
resident unit of the country where the office is located.
The financial assets and liabilities of a regional central
bank should be allocated among the national offices.
The allocation should be made in proportion to the
claims that such offices have over the bank’s collective
assets.
CHAPTER IV
25
Concept of Market Price
91. A uniform system of valuation for the international
accounts—for valuation of (i) transactions in real
resources and financial assets and liabilities and
(ii) stocks of assets and liabilities—is required for the
compilation of aggregates of such statistics on a
consistent basis and for international comparability
purposes. The recommendation in this Manual is that
market price be used as the basis of valuation for both
transactions and stocks. Thus, transactions are generally
valued at the actual prices agreed upon by transactors;
stocks of assets and liabilities are valued at market
prices in effect at the time to which the balance sheet
relates. (See paragraphs 93, etc. for discussion of
instances in which the concept may be impractical or
difficult to apply.) These principles are in accord with
those presented in the SNA.
Transactions and Market Price
92. In the frameworks of the balance of payments and
the national accounts, market prices for transactions are
defined as amounts of money that willing buyers pay to
acquire something from willing sellers; the exchanges are
made between independent parties and on the basis of
commercial considerations only. Thus, according to this
strict definition, a market price refers only to the price for
one specific exchange under the stated conditions. A
second exchange of an identical unit, even under
circumstances that are almost exactly the same, could
result in a different market price. A market price defined
in this way is to be clearly distinguished from a price
quoted in the market, a world market price, a going
price, a fair market price, or any price that is intended to
express the generality of prices for a class of supposedly
identical exchanges rather than a price actually applying
to a specific exchange. Furthermore, a market price
should not necessarily be construed as equivalent to a
free market price; that is, a market transaction should not
be interpreted as occurring exclusively in a purely
competitive market situation. In fact, a market transaction
could take place in a monopolistic, monopsonistic, or
any other market structure. Indeed, the market may be so
narrow that it consists of the sole transaction of its kind
between independent parties.
Valuing Transactions in the Absence of
Market Price
93. Although conditions necessary for establishing
market prices are probably present for most
transactions with which the balance of payments is
concerned, there may be situations in which one or
more of the essential elements is lacking. Some
common circumstances under which a market price, in
the literal sense, cannot be readily determined are
a direct exchange of goods for other goods rather
than for money (barter);
a transaction that occurs despite the fact that one
party does not enter into the transaction willingly
(tax payments);
a transaction in which a buyer and seller are the
same entity from a legal standpoint but constitute
separate entities under balance of payments
conventions (a branch and the parent enterprise);
a transaction between separate legal entities that are
not independent (affiliated enterprises);
a transaction in which a legal change of ownership
between the two parties involved does not actually
occur (goods transferred under a financial lease
arrangement);
a transaction that often involves private, nonprofit
entities or general government bodies as one or both
of the parties, that contains at least some element of
a gift or grant, and that is undertaken for other than
purely commercial considerations.
94. The examples enumerated in paragraph 93 are by
no means all-inclusive or mutually exclusive. In any
particular case, a market price may not exist because
more than one of the conditions necessary to establish
it are absent.
Market Price Equivalents
95. For purposes of balance of payments recording,
therefore, it is sometimes necessary to resort to the
expedient of developing proxies, or substitute
measures, for market prices when no actual market
prices have been set.
26
V.
Valuation of Transactions and of Stocks
of Assets and Liabilities
96. A customary approach is to construct such prices by
analogy with known market prices established under
conditions that are considered essentially the same. For
example, if a buyer and a seller engage in a barter
transaction—the exchange of goods or services for other
goods, services, or assets (of equal value)—the goods or
services bartered should be valued at the prices that
would have been received if the goods or services had
been sold (e.g., a standard market quotation). This
approach must be limited to those transactions to which
the approach is really applicable. Transactions that are
superficially alike may, in fact, be subject to implicit or
concealed factors that strongly affect the values that
should be placed on them.
Affiliated Enterprises
97. Transactions between affiliated enterprises
integrated under the same management cannot
necessarily be considered market transactions because
of the lack of independence among the parties to the
exchange. Whether or not the transactions portrayed in
the books of the enterprises actually reflect market
values can only be judged for each individual
enterprise. To the extent that a group of affiliated
enterprises desires to allocate its gross earnings in a
realistic fashion among its separate units, bookkeeping
practices would have to reflect market-related pricing
for all purchases and sales by the units. In that situation,
the view might reasonably be taken that pricing
adopted for bookkeeping purposes, often referred to as
transfer pricing, is no different from, or is equivalent to,
market valuation. On the other hand, transfer pricing
not based closely on market considerations could be
expected to be common among affiliated enterprises
conducting business across national boundaries because
disparities between taxes and regulations imposed by
different governments are a factor in management
decisions on the optimum allocation of profits among
units. In those circumstances, it cannot be presumed
that the mode of valuation used will accurately reflect
economic relationships (e.g., the ratio of income to
capital). When the distortions are large, replacement of
book values with market value equivalents is desirable
in principle.
98. The attempt to substitute market values for book
values, however, raises questions about procedure and
the propriety of pricing measures substituted. Indeed, a
value approximating the market price frequently will be
difficult to estimate. The values to be placed on
transactions among affiliated units are not necessarily
equal to the market prices for any similar transactions
of those units with outside parties because, by
definition, market prices are established in response to
demand and supply conditions prevailing in each
specific market. Commodities that are otherwise
physically indistinguishable might be viewed differently
from a market standpoint and therefore have different
market prices. For example, goods transferred to an
affiliate might represent components but, if sold to
outside parties, could constitute spare parts.
99. In determining how far a transfer price deviates
from or approximates a market price, the relevant
comparison is not necessarily between (i) the book
value for the transfer of something from one affiliate to
another and (ii) the market price for the sale of the
same thing by an affiliate to an outsider. A transfer
between affiliates may be evaluated by measuring from
the relative position of the transfer in the chain of
production to the point of actual sale to an independent
party. The comparison could be made in terms of
costs embodied up to that stage of production. Therefore,
a transfer price that does not seem commensurate
with production costs incurred up to that stage is
probably not an adequate proxy for a market price. If
the transfer price covers the costs of production, the
transfer price could be accepted as a suitable proxy for
a market price, even though the transfer price is
different from the price charged for a similar exchange
between the affiliate and an independent party.
Production cost information available in the books of
an affiliate may, of course, be affected by the use of
transfer pricing for the input of goods and services
acquired from other affiliates.
100. The exchange of commodities between affiliated
enterprises may often be one that does not occur
between independent parties (for example, specialized
components that are usable only when incorporated in
a finished product). Similarly, the exchange of services,
such as management services and technical know-how,
may have no near equivalents in the types of
transactions in services that usually take place between
independent parties. Thus, for transactions between
affiliated parties, the determination of values
comparable to market values may be very difficult, and
compilers may have no choice other than to accept
valuations based on explicit costs incurred in
production or any other values assigned by the
enterprise. Such values will probably not be entirely
arbitrary as the tax, customs, exchange control, and
other public authorities usually exercise some influence
over the accounting practices of these enterprises in
order to establish conformance with government
regulations by affiliated and independent enterprises.
CHAPTER V
27
101. Because balance of payments accounting is based
on the axiom of double entries, any substitution
should, in principle, be applied consistently in the
statement. If, for example, the book value of goods
shipped from a direct investment enterprise to the
parent is to be replaced by a market value equivalent,
the double entry rule requires that the direct investment
income and/or financial flows also be adjusted by the
same amount.
102. In view of practical difficulties involved in
substituting an imputed or notional market value for an
actual transfer value, substitution should be the
exception rather than the rule. If certain transfer prices
are so divorced from those of similar transactions that
the transfer prices significantly distort measurement, the
prices should either be replaced by market price
equivalents or be separately identified for analytical
purposes.
103. Selection of the best market value equivalents to
replace book values is an exercise calling for cautious
and informed judgment. In most cases, sample surveys,
contacts with enterprises and government agencies
engaging in international transactions on a large scale,
exchanges of information between compilers in partner
countries, or similar statistical research will be necessary
to provide the basis for such judgment.
Noncommercial Transactions
104. One important category of transaction that is, by
definition, noncommercial and thus has no market
price is the provision of an economic value for which
the offset constitutes a transfer. In such a transaction,
one party receives a real or financial asset from another
party and, in return, provides nothing of economic
value. In addition to outright gifts, other transactions
may take place at implied prices that include some
element of grant or concession so that those prices also
are not market prices. Examples of such transactions
could include negotiated exchanges of goods between
governments and government loans bearing lower
interest rates than those consistent with grace and
repayment periods or other terms for purely commercial
loans. Transactions by general government
bodies and private, nonprofit entities not engaged in
purely commercial undertakings are often subject to
noncommercial considerations. Transfers may also be
provided or received, however, by other sectors of the
economy.
105. When real resources are transferred, without a
quid pro quo, to nonresidents by the government or
private, nonprofit institutions of an economy, the same
values must be reflected in the balance of payments of
both recipient and donor. In conformity with the
procedure used for the national accounts, such
resources should be valued at the market prices that
would have been received if the resources had been
sold. Imputations made in this way may not always
approximate the desired basis of valuation. The donor’s
view of the imputed value of the transaction will often
be quite different from that of the recipient. The
suggested rule of thumb is to use the value assigned by
the donor as a basis for recording.
Financial Items
106. Transactions in financial items should be recorded
in the balance of payments at the prices at which the
items are acquired or disposed of. If financial items are
traded in an organized market and if the buyer and
seller deal with each other through an agent, the prices
established in the market—which will probably be the
prices recorded in the statistics in any case—will meet
the definition of a market price for purposes of the
balance of payments. If financial items are not traded in
the market, however, application of the market price
concept may not be so apparent. In fact, cash items
(currency and transferable deposits that can be
redeemed on demand at the nominal values) have only
one value that could be assigned for any purpose, so
this value could be regarded as the actual market price.
Market prices to be imputed to nonmarketable financial
items, which are primarily loans in one form or
another, are the nominal values. However, if a
secondary market in such items is created and the
items become marketable, often—as in the case of
loans to some heavily debt-burdened countries—at
substantial discounts from nominal values, those market
prices should be recorded for transactions in such
loans. (For details on related valuation adjustments,
debt/equity swaps, etc., see paragraphs 456 and 471.)
Valuation of financial items in the balance of payments
should exclude any service charges, fees, commissions,
or income; these amounts should be recorded in the
appropriate component of the current account.
Valuation of Stocks of Assets and Liabilities
107. In principle, all asset and liability stocks
comprising a country’s international investment position
should be measured at market prices. This concept
assumes that such stocks are continuously (regularly)
revalued—for example, by reference to actual market
prices for financial assets such as shares and bonds or,
CONCEPTUAL FRAMEWORK
28
in the case of direct investment, by reference to
enterprise balance sheets.
108. The market price measurement cannot always be
implemented because of the absence of regular
revaluations. For example, balance sheet value is often
the only valuation available or reported for direct
investment. That value might be assigned on the basis
of original cost, a more recent revaluation, or current
value. (The use of current value would be in
accordance with the market price principle.) When
direct investment enterprises are listed on stock
exchanges, the listed prices should be used as the
market values of shares in those enterprises.
CHAPTER V
29
30
VI. Time of Recording
Principle of Timing
109. In the double-entry system of the balance of
payments, two entries must be recorded simultaneously
for each transaction. Simultaneous recording ensures
that both entries show the transaction occurring at the
same time, that is, on the same date. Determination of
the time, or date, when a transaction occurs is
governed by rules.
110. A typical transaction consists of a series of
actions. For example, a party may engage in a set of
actions and transactions by entering into a formal
agreement to provide goods or services, by acquiring a
claim for payments, and by receiving settlement on that
claim.
111. All of the actions that make up a transaction are
significant from an economic standpoint, and some can
be assigned specific dates (date of contract or
commitment, for example). In addition, an action—such
as entering into a contract—may establish parameters
for subsequent transactions—such as settlement by
payment or other considerations. However, in balance
of payments accounts (and in the SNA), transactions are
recorded when economic value is created, transformed,
exchanged, transferred, or extinguished. The time of
recording for a transaction is governed by the principle
of accrual accounting. Claims and liabilities arise when
there is a change in ownership. The change may be a
legal one or a physical or economic one involving
control or possession.
112. If an exchange of resources involves a change of
ownership, double-entry recording of both sides of the
exchange is required. Two stages of the exchange may
be involved: (i) provision of one resource accompanied
by the acquisition of a financial claim on the recipient
of the resource, and (ii) provision of the other resource
accompanied by extinguishment of the claim.
113. Because a double-entry system is used to record
balance of payments transactions, it is especially
important to establish a principle for determining the
time when the two sides of a transaction should be
entered in the accounts. The principle helps to ensure
simultaneous recording of the entries. When a change
in ownership is not obvious, the change is considered
to occur at (or is proxied by) the time the parties to the
transaction record it in their books or accounts. In
practice, however, the two entries for a transaction
often are derived independently from different sources
and accounting records, and conventions for time of
recording for the participants in that transaction may
differ. Consequently, simultaneous recording of the two
sides may not be achieved.
Application to Goods
114. (Also see Chapter 10.) Trade statistics, by
convention or necessity, often are recorded on the
basis of customs documents reflecting the physical
movement of goods across the national or customs
frontier of an economy. Actual movement of the goods
may not occur at the same time as the change, between
a resident and a nonresident, in ownership of the
goods. Likewise, an exchange record system that
reflects payments may not coincide in timing with the
change in ownership of the goods. The change in
ownership, as noted in paragraph 123, is considered to
occur at (or is proxied by) the time the parties to the
transaction record it in their books or accounts. Thus,
goods for export are generally considered to change
ownership when the exporter ceases to carry the goods
on his books as a real asset and makes a corresponding
change in his financial items. Goods for import are
considered to change ownership when the importer
enters the goods on his books as a real asset and
makes a corresponding change in his financial items.
This convention is designed to promote consistency
between goods and the financial account in the
balance of payments of the compiling country, as well
as consistency between the compilation of goods by
exporting and importing countries.
115. Under this convention, it is seldom difficult to
perceive the time at which ownership of an asset
changes. Numerous transactions consist of an
exchange, such as goods for financial assets, between
two enterprises. Accounting entries will be made in
each company’s books for this exchange; the entries
will show the same dates for acquisition of the goods
CHAPTER VI
31
and relinquishment of the financial asset, on the one
hand, and for acquisition of the financial asset and
relinquishment of the goods, on the other. Ideally, the
entries should be dated the same by both parties. This
treatment provides a fixed point of time to which a
balance of payments transaction may be related.
116. However, even when this convention is followed,
the two parties to a transaction may not enter it in their
books at the same time. As a result, differences in
timing and possible inconsistencies arise between the
compilations of partner countries.
117. In practice, trade statistics based on customs
documents reflecting physical movement of goods
across national or customs frontiers may be used in the
absence of other statistics to approximate, by showing
evidence of physical possession, the timing of changes
in ownership.
118. When the provision of a real resource and a
related extension of credit are involved, each
transaction should be recorded in the balance of
payments at the time it occurs. That is, when an
importer turns over cash (a prepayment) to an exporter
before he acquires ownership of the goods, records
must also show the importer’s acquisition of a claim,
which remains outstanding for the duration of the
interim period, on the exporter. Similarly, when an
importer makes a postpayment some time after he
acquires goods, records must show the importer’s
interim liability to the exporter. These claims and
liabilities are extinguished in due course; that is, in the
first instance, by the delivery of the goods and, in the
second, by the cash payment made for the goods. The
creation and the extinguishing of an obligation, as well
as the change in ownership of goods and payment for
the goods, are shown in the balance of payments in the
periods in which each occurs.
Exceptions to the Change of Ownership
Principle
119. Some goods transactions are recorded in the
balance of payments even though no change of legal
ownership occurs. Among such transactions are those
that involve goods under financial lease arrangements
(see paragraph 206) and goods shipped between the
parent of a direct investment enterprise and branches
or affiliates (see paragraph 205). For both parties to
achieve simultaneous recording in such transactions, it
is recommended that the entries be dated, whenever
possible, as of the day that most closely approximates
the change in physical possession of the goods. For
financial leases, commencement of the leases would
best approximate the change in control and possession.
For affiliated transactions, dates of entry in the books of
the entities involved would be appropriate.
120. Another exception to the change of ownership
principle relates to goods that are sent abroad for
processing but do not change ownership. For purposes
of recording in the rest of the world account of the
SNA, goods sent abroad for processing that involves a
substantial physical change are distinguished from other
processing. In the SNA, goods sent abroad for
processing and reclassified, upon return, in a different
three-digit group of the Central Product Classification
(CPC) are included, on a gross basis, under goods. The
value of other processing is recorded under services.
Although that concept is recognized in this Manual,
because of practical difficulties in implementation, it is
recommended that all processing of goods that cross the
frontier be recorded, on a gross basis, under goods.
The processing may be performed abroad (and involve
the export of a good and its subsequent re-import) or
performed in the compiling economy (and involve an
import and subsequent export). Further elaboration of
the treatment of goods for processing (and of the value
of repairs on goods) appears in paragraphs 197 through
200.
Applications to Other Transactions
121. Transactions in services are generally recorded
when the services are rendered (delivered or received);
these dates often coincide with dates on which the
services are produced. In some instances, there may be
prepayments or postpayments for such services (freight,
insurance, port services, etc.). Entries in the appropriate
accounts should then be made (as explained in
paragraph 118). Under investment income, interest is
recorded on an accrual basis, which is a continuous
method of recording that matches the cost of capital
with the provision of capital. If the interest is not
actually paid, an entry is required, together with an
offsetting credit entry in the financial account for the
claim associated with nonpayment (i.e., an increase in
liabilities). The two entries are particularly important for
zero coupon and other deep discounted bonds. The
difference between the issue price and the value at
maturity is treated, on an accrual basis, as interest over
the life of the bond. (See paragraph 396 for details.)
Dividends are recorded as of the dates payable.
Reinvested earnings on direct investment are recorded
in the periods when earned.
CONCEPTUAL FRAMEWORK
32
122. One party may impose various taxes, fines, and
other components of transfers on another party. These
amounts are recorded upon the occurrence of underlying
transactions or other flows that give rise to the
liabilities. In some instances, taxes on income may be
recorded in a subsequent period. (See paragraph 307.)
Other transfers are recorded when the resources
(goods, services, financial items) to which the transfers
provide offsets change ownership.
123. Transactions in financial items are considered to
have taken place when both creditor and debtor have
entered the claim and liability, respectively, in their
books. A date (the value date) may actually be
specified to ensure matching entries in the books of
both parties. If no precise date can be fixed, the date
on which the creditor receives payment or some other
financial claim is decisive. Loan drawings are entered
in the accounts when actual disbursements are made;
loan repayments are entered when due for payment.
For loan repayments not made, entries are recorded as
if repayments of the contractual obligations were made.
In addition, entries are recorded for (i) replacements by
new liabilities that are short-term (for immediate
payment) or (ii) replacements by new loans, if the
original loans are subject to rescheduling or other
special financing arrangements associated with balance
of payments difficulties in an economy. (See
paragraphs 454 through 458 for comments relating to
exceptional financing.)
Other Timing Adjustments
124. In choosing among available statistical sources,
compilers may wish to consider the advantage of using
data for which the correct timing is already recorded.
For example, records of actual drawings on loans are
preferable to sources that quote authorization dates or
program dates that may not be realized in fact. Even
sources chosen by compilers as generally the most
suitable may not have been specifically designed to
yield balance of payments information.
125. Timing adjustments to trade statistics may be
necessary because trade statistics do not reflect physical
movements correctly in all cases. (However, systematic
defects of that sort would not create noticeable errors
unless the value of trade changed sharply from period
to period.) Timing adjustments could be necessary, for
example, if compilers of trade accounts cease recording
monthly statistics before all customs declarations have
been tabulated and defer the recording of the remainder
to the following month. When practices of this sort
lead to distortions, the amounts should be estimated
and timing adjustments applied.
126. A change in the ownership of goods can vary
widely from the time at which the goods are recorded
in trade statistics if a lengthy voyage is part of the
process of importing or exporting. If the unit value of
trade changes substantially from the beginning to the
end of the reporting period, the possible difference of
one or two months between the shipment or receipt of
goods and the change of ownership can be a source of
error in the statement for a particular country and a
source of asymmetries between partner countries. No
empirical basis has been established for presuming that
ownership normally changes either at the beginning or
the end of a voyage. Inquiries, perhaps on a sample
basis, are required to ascertain specific practices, and
timing adjustments should, in principle, be applied to
correct the trade statistics for those classes of goods
that are found to change ownership at times other than
those at which the goods were recorded in the trade
statistics.
127. Goods on consignment (goods intended for sale
but not actually sold when the goods cross the frontier)
should, in principle, be included in goods only at the
time ownership changes. Such goods are often
recorded, on the assumption that a change of ownership
has occurred or will shortly occur, at the time the
goods cross the frontier. If that treatment is followed
and there is no change of ownership, the goods will
subsequently have to be recorded again as a deduction
from exports and imports.
128. The compilation of balance of payments and
international investment position statements is
complicated by the fact that the values of transactions
in real resources and financial items and the values of
components of stocks of external financial assets and
liabilities may be expressed initially in a variety of
currencies or in other standards of value, such as SDRs
or European currency units (ECUs). The conversion of
these values into a reference unit of account (usually
the national currency of the compiler) is a requisite for
the construction of consistent and analytically
meaningful statements. In addition, a standard or
universal unit of account is necessary to allow for
aggregation on a global or regional basis and to
facilitate international comparisons.
Unit of Account
129. There are two viewpoints, not mutually exclusive,
as to the necessary attributes of a unit of account—that
of the national compiler and that of international
organizations, such as the International Monetary Fund.
From the perspective of the national compiler, the
national currency unit is the obvious choice for the
balance of payments and international investment
position statements. Statements so denominated are
compatible with the national accounts and most of the
economy’s other economic and monetary statistics
expressed in that unit. Also, some statistics (such as
customs returns for goods, banking data, and direct
investment estimates) will already have been converted
from foreign currencies to the national currency and/or
be expressed in the national unit when such statistics
are reported to the compiler. However, if the currency
is subject to significant depreciation relative to other
currencies involved in the international transactions of
the economy, a statement denominated in national
currency would be of diminished analytical value. For
example, if transactions are expressed in national
currency, apparent growth in current transactions could
be the result of an unstable national currency that has
depreciated in comparison with currencies actually
used for the transactions. Such a circumstance might
complicate the analysis of balance of payments
developments.
130. From the perspective of international
organizations such as the IMF, a standard unit of
account is required for global presentation and analysis.
It is preferable that the unit of account be a stable one;
that is, values of international transactions expressed in
that unit should not be significantly affected by changes
(relative to the unit of account) in values of currencies
in which those transactions occur. Transactions
expressed in a unit that is stable in this sense
nonetheless may reflect price changes resulting from
other causes; that is, a series expressed in a so-called
stable unit of account is not the equivalent of a volume
or constant price series. Another consideration is the
convenience of using a unit (such as the U.S. dollar or
SDR) that is reasonably familiar to most users of
balance of payments statistics. The theoretical ideal of a
widely recognized and perfectly stable standard unit of
account simply does not exist.
131. For reporting to the IMF, countries are requested
to compile statements in the unit of account adopted
for national use. A country that employs a multiple
exchange rate system and prepares a statement in
national currency should do so by utilizing one of
several methods suggested in this chapter. (See
paragraphs 134 and 135.) The IMF may, for its
purposes, convert countries’ statements into the
universal unit considered most suitable in existing
circumstances. That unit may be periodically changed
according to developments in the relationships among
transactions currencies and according to the time span
covered by balance of payments statistics for which a
unit of account is selected.
Conversion Principles and Practices
132. In concordance with the principles defined in this
Manual and in the SNA for time of recording and
valuation, the most appropriate exchange rates to be
used for conversion of balance of payments entries
from transaction currencies into units of account are the
market rates prevailing on the transaction dates. If
those market rates are not available, the average rates
for the shortest period applicable should be used. The
midpoint between buying and selling rates should be
33
VII. Unit of Account and Conversion
used so that any service charge—the spread between
the midpoint and those rates—is excluded. When
forward contracts are utilized to hedge or protect
transactors against changes in exchange rates, such
transactions are conceptually distinct from those
involved with the acquisition or sale of goods, services,
or financial items from or to nonresidents. Exceution of
the contract is virtually simultaneous with the change of
ownership or delivery of the underlying asset. If there
is a difference between the prevailing exchange rate
and the actual rate of conversion established by the
forward contract (or other financial derivative), that
difference is reflected in a separate transaction related
to the contract (derivative).
133. For conversion of data on stocks of external
financial assets and liabilities, the market exchange
rates prevailing on the date to which the balance sheet
relates (i.e., the midpoint between the buying and
selling spot rates) is recommended.
Multiple Official Exchange Rates and
Conversion
134. Under a multiple exchange rate regime, two or
more exchange rates are applicable to different
categories of transactions; the rates favor some
categories and discourage others. Such rates
incorporate elements similar to taxes or subsidies.
Because the multiple rates influence the values and the
undertaking of transactions expressed in national
currency, net proceeds implicitly accruing to authorities
as a result of these transactions are calculated as
implicit taxes or subsidies. The amount of the implicit
tax or subsidy for each transaction can be calculated as
the difference between the value of the transaction in
national currency at the actual exchange rate applicable
and the value of the transaction at a unitary rate that is
calculated as a weighted average of all official rates
used for external transactions.
135. A unitary rate might be used for conversion by an
economy that has a multiple exchange rate system (and
wishes to express its balance of payments statements in
the national currency) to avoid expressing transactions
at values including elements of transfers between
residents and authorities. Although the unitary rate may
approximate a single official rate that would exist in the
absence of multiple rates, this single calculated rate
may not approximate any equilibrium or market rate.
As a result, the calculated implicit taxes, subsidies, or
transfers may not fully reflect the impact of a multiple
or rate system. Thus, from a purely conceptual point of
view, the usefulness of the unitary rate for conversion
is somewhat limited. Another alternative is the use of a
principal rate (the actual exchange rate applying to the
largest part of external transactions) for conversion.
136. For conversion of stocks of external financial
assets and liabilities in a multiple rate system, the actual
exchange rate applicable to specific assets or liabilities
at the beginning or end of the accounting period is
used.
Black or Parallel Market Rates
137. Parallel (unofficial) or black market rates cannot
be ignored in the context of a multiple rate regime and
can be treated in different ways. For instance, if there is
one official rate and a parallel market rate, the two
should be handled separately; transactions should be
converted at the exchange rate for each. If there are
multiple official rates and a parallel rate, the official
rates and the parallel rate should be treated as distinct
markets in any calculation of a unitary rate. The
multiple official rates, which involve implicit official
taxes, subsidies, or transfers, should be used to
calculate a weighted average rate that can serve as the
basis for estimating the tax or subsidy component of
the various rates. (See paragraph 134.) Transactions
effected at the parallel rate usually should be separately
converted at that rate. However, in some instances,
parallel markets may be considered effectively
integrated with the official exchange rate regime. Such
is the case when most or all transactions in the parallel
market are sanctioned by the authorities and/or when
the authorities actively intervene in the market to affect
the parallel rate. In this instance, the calculation of the
unitary rate should include both the official and parallel
market rates. If only limited transactions in the parallel
market are sanctioned by the authorities, the parallel
rate should not be included in the calculation of a
unitary rate.
138. The midpoint between buying and selling rates
in the parallel market should be calculated (separately
from official rates) for conversion so that any service
charge is excluded. The same practice is recommended
for official rates. (See paragraph 132.) Revenues
obtained from trading currencies between official and
parallel markets are treated as holding (capital) gains.
CONCEPTUAL FRAMEWORK
34
B A L A N C E O F PAY M E N T S
STRUCTURE AND CL A S S I F I C ATION
Structure and Classification
139. Part two of this Manual deals with the structure
and classification of balance of payments accounts and
the international investment position. Part two
encompasses the standard components of both sets of
accounts and contains discussions and elaboration of
the current account, the capital and financial
account, selected supplementary information, and the
international investment position.
140. Balance of payments statistics must be arranged
within a coherent structure to facilitate their utilization
and adaptation for multiple purposes—policy
formulation, analytical studies, projections, bilateral
comparisons of particular components or total
transactions, regional and global aggregations, etc.
(See paragraph 7.)
141. The structure and classification of balance of
payments standard components reflect conceptual and
practical considerations, take into account views
expressed by national balance of payments experts,
and are in general concordance with the SNA and with
harmonization of the expanded classification of
international transactions in services with the Central
Product Classification (CPC). (See Appendix 3.)
142. The classification system also reflects efforts to
link the structure of the financial account to that of
the income accounts and that of the international
investment position. The scheme is designed as a
flexible framework to be used by many countries in the
long-term development of external statistics. Some
countries may not be able to provide data for many
items; other countries may be able to provide
additional data.
Standard Components
143. The determination of standard components (see
the table at end of this chapter) is based on a number
of considerations. The following list comprises those
that have been given the greatest weight:
The item should exhibit distinctive behavior. The
economic factor or factors that influence the item
should be different from those that influence other
items, or the item should respond differently to the
same factor or combination. This response to
economic influences is what the balance of
payments purports to make evident.
The item should be important for a number of
countries. Importance may be defined as a function
of behavior (unusual variability, for example) or as
absolute size.
It should be possible to collect statistics for the item
without undue difficulty. However, the desirability of
collection should be evaluated according to the two
previous criteria.
The item should, on a separate basis, be necessary
for other purposes—such as incorporation into, or
reconciliation with, the national accounts.
The list of standard components should not be
unduly long. A large number of countries, including
many that are statistically less advanced, are asked to
report uniformly on the components.
To the extent practicable, standard components
should be in concordance with, and apply to, other
IMF statistical systems, the SNA, and—for services
in particular—the CPC.
144. The list of standard components carries no
implication that recommendations made in this Manual
are intended to inhibit countries from compiling and
publishing additional data of national importance. IMF
requests for information will not be limited to standard
components when further details are required to
understand the circumstances of particular countries or
to analyze new developments. Supplementary
information can also be most useful for verifying and
reconciling the statistics of partner countries and, for
example, analyzing exceptional financing transactions.
(See the Selected Supplementary Information table
at the end of this chapter.) IMF staff will, from time to
time, consult with countries to decide on the reporting
of additional details.
145. Few countries are likely to have significant
information to report for every standard component.
37
VIII.
Classification and Standard Components
of the Balance of Payments
Furthermore, several components may be available only
in combination, or a minor component may be grouped
with one that is more significant. The standard
components should nevertheless be reported to the IMF
as completely and accurately as possible. National
compilers are in better positions than IMF staff to make
estimates and adjustments for components that do not
exactly correspond to the basic series of the compiling
economy.
Net Errors and Omissions
146. Application of the principles presented in this
Manual should result in a consistent body of positive
and negative entries with a net (conceptual) total of
zero. In practice, however, when all actual entries are
totaled, the resulting balance will almost inevitably
show a net credit or a net debit. That balance is the
result of errors and omissions in the compilation of
statements. Some errors and omissions may be related
to recommendations for practical applications
approximating principles.
147. In balance of payments statements, the standard
practice is to show a separate item for net errors and
omissions. Labeled by some compilers as a balancing
item or statistical discrepancy, that item is intended as
an offset to the overstatement or understatement of the
recorded components. Thus, if the balance of those
components is a credit, the item for net errors and
omissions will be shown as a debit of equal value, and
vice versa.
148. Sometimes the errors and omissions that occur in
the course of compilation offset one another. Therefore,
the size of the residual item does not necessarily
provide any indication of the overall accuracy of the
statement. Nonetheless, interpretation of the statement
is hampered by a large net residual.
Major Classifications
149. The standard components, which are listed at the
end of this chapter, are comprised of two main groups
of accounts:
The current account pertains to goods and
services, income, and current transfers.
The capital and financial account pertains to
(i) capital transfers and acquisition or disposal of
nonproduced, nonfinancial assets and (ii) financial
assets and liabilities.
This arrangement is based on historical precedent
common in most countries and on a major change
introduced in this Manual. The former capital account
is renamed and becomes the capital and financial
account. Reflecting harmonization with the SNA, this
change introduces that system’s distinction between
capital transfers and current transfers into the
balance of payments and concordance of the accounts
with the capital and financial accounts of the SNA.
150. Most items entered in the current account of the
standard components should show gross debits and
credits. Most entries in the capital and financial
account should be made on a net basis; that is, each
component should be shown only as a credit or a debit.
(Recommended treatments for specific items and
exceptions are discussed in appropriate chapters.)
Inflows of real resources, increases in financial assets,
and decreases in liabilities should be shown as debits;
outflows of real resources, decreases in financial assets,
and increases in liabilities should be shown as credits.
Transfers, both in sections 1.C and 2.A, should be
numerically equal with opposite sign to the entries for
which the transfers provide offsets.
Detailed Classifications
151. The following classifications of standard
components have been developed in accordance with
the criteria set out in paragraph 143. The structure and
characteristics of the current account and the capital
and financial account and significant changes from
the fourth to the fifth edition of the Manual are
discussed in chapters 9 and 16, respectively. The
standard components of the current account are
described fully in chapters 10 through 15, and those of
the capital and financial account are covered in
chapters 17 through 21.
Current Account (1.)
152. Covered in the current account are all
transactions (other than those in financial items) that
involve economic values and occur between resident
and nonresident entities. Also covered are offsets to
current economic values provided or acquired without
a quid pro quo. Specifically, the major classifications are
goods and services, income, and current transfers.
Goods and services (1.A.)
Goods (1.A.a.)
153. General merchandise covers most movable goods
that residents export to, or import from, nonresidents
and that, with a few specified exceptions, undergo
changes in ownership (actual or imputed).
STRUCTURE AND CLASSIFICATION
38
154. Goods for processing covers exports (or, in the
compiling economy, imports) of goods crossing the
frontier for processing abroad and subsequent re-import
(or, in the compiling economy, export) of the goods,
which are valued on a gross basis before and after
processing. The treatment of this item in the goods
account is an exception to the change of ownership
principle.
155. Repairs on goods covers repair activity on goods
provided to or received from nonresidents on ships,
aircraft, etc. Although the physical movement of these
goods is similar to that described in paragraph 154, the
repairs are valued at the prices (fees paid or received)
of the repairs and not at the gross values of the goods
before and after repairs are made.
156. Goods procured in ports by carriers covers all
goods (such as fuels, provisions, stores, and supplies)
that resident/nonresident carriers (air, shipping, etc.)
procure abroad or in the compiling economy. The
classification does not cover auxiliary services (towing,
maintenance, etc.), which are covered under
transportation.
157. Nonmonetary gold covers exports and imports of
all gold not held as reserve assets (monetary gold) by
the authorities. Nonmonetary gold is treated the same
as any other commodity and, when feasible, is
subdivided into gold held as a store of value and other
(industrial) gold.
Services (1.A.b.)
158. Transportation covers most of the services that
are performed by residents for nonresidents (and vice
versa) and that were included in shipment and other
transportation in the fourth edition of the Manual.
However, freight insurance is now included with
insurance services rather than with transportation.
Transportation includes freight and passenger
transportation by all modes of transportation and other
distributive and auxiliary services, including rentals of
transportation equipment with crew. Certain exceptions
are noted in chapters 10, 11, and 13.
159. Travel covers goods and services—including those
related to health and education—acquired from an
economy by nonresident travelers (including
excursionists) for business and personal purposes during
their visits (of less than one year) in that economy.
Travel excludes international passenger services, which
are included in transportation. Students and medical
patients are treated as travelers, regardless of the length
of stay. Certain others—military and embassy personnel
and nonresident workers—are not regarded as
travelers. However, expenditures by nonresident workers
are included in travel, while those of military and
embassy personnel are included in government services
n.i.e. These cases are noted in chapters 12–13.
160. Communications services covers communications
transactions between residents and nonresidents. Such
services comprise postal, courier, and telecommunications
services (transmission of sound, images, and
other information by various modes and associated
maintenance provided by/for residents for/by
nonresidents).
161. Construction services covers construction and
installation project work that is, on a temporary basis,
performed abroad/in the compiling economy or in
extraterritorial enclaves by resident/nonresident
enterprises and associated personnel. Such work does
not include that undertaken by a foreign affiliate of a
resident enterprise or by an unincorporated site office
that, if it meets certain criteria, is equivalent to a
foreign affiliate. Such residency aspects are covered in
chapters 4 and 13.
162. Insurance services covers the provision of
insurance to nonresidents by resident insurance
enterprises and vice versa. This item comprises services
provided for freight insurance (on goods exported and
imported), services provided for other types of direct
insurance (including life and non-life), and services
provided for reinsurance. (For the method of
calculating the value of insurance services, see
paragraphs 256 and 257.)
163. Financial services (other than those related to
insurance enterprises and pension funds) covers
financial intermediation services and auxiliary services
conducted between residents and nonresidents.
Included are commissions and fees for letters of credit,
lines of credit, financial leasing services, foreign
exchange transactions, consumer and business credit
services, brokerage services, underwriting services,
arrangements for various forms of hedging instruments,
etc. Auxiliary services include financial market
operational and regulatory services, security custody
services, etc.
164. Computer and information services covers
resident/nonresident transactions related to hardware
consultancy, software implementation, information
services (data processing, data base, news agency), and
CHAPTER VIII
39
maintenance and repair of computers and related
equipment.
165. Royalties and license fees covers receipts (exports)
and payments (imports) of residents and nonresidents
for (i) the authorized use of intangible nonproduced,
nonfinancial assets and proprietary rights—such as
trademarks, copyrights, patents, processes, techniques,
designs, manufacturing rights, franchises, etc. and
(ii) the use, through licensing agreements, of produced
originals or prototypes—such as manuscripts, films, etc.
166. Other business services provided by residents to
nonresidents and vice versa covers merchanting and
other trade-related services; operational leasing services;
and miscellaneous business, professional, and technical
services. (See the Selected Supplementary
Information table at the end of this chapter and
paragraphs 261 through 264 for details.)
167. Personal, cultural, and recreational services
covers (i) audiovisual and related services and (ii) other
cultural services provided by residents to nonresidents
and vice versa. Included under (i) are services
associated with the production of motion pictures on
films or video tape, radio and television programs, and
musical recordings. (Examples of these services are
rentals and fees received by actors, producers, etc. for
productions and for distribution rights sold to the
media.) Included under (ii) are other personal, cultural,
and recreational services—such as those associated
with libraries, museums—and other cultural and
sporting activities.
168. Government services n.i.e. covers all services (such
as expenditures of embassies and consulates) associated
with government sectors or international and regional
organizations and not classified under other items.
Income (1.B.)
169. Compensation of employees covers wages, salaries,
and other benefits, in cash or in kind, and includes
those of border, seasonal, and other nonresident
workers (e.g., local staff of embassies).
170. Investment income covers receipts and payments
of income associated, respectively, with residents’
holdings of external financial assets and with residents’
liabilities to nonresidents. Investment income consists of
direct investment income, portfolio investment income,
and other investment income. The direct investment
component is divided into income on equity
(dividends, branch profits, and reinvested earnings) and
income on debt (interest); portfolio investment income
is divided into income on equity (dividends) and
income on debt (interest); other investment income
covers interest earned on other capital (loans, etc.) and,
in principle, imputed income to households from net
equity in life insurance reserves and in pension funds.
Current transfers (1.C.)
171. Current transfers are distinguished from capital
transfers, which are included in the capital and
financial account in concordance with the SNA treatment
of transfers. Transfers are the offsets to changes,
which take place between residents and nonresidents,
in ownership of real resources or financial items and,
whether the changes are voluntary or compulsory, do
not involve a quid pro quo in economic value.
Current transfers consist of all transfers that do not
involve (i) transfers of ownership of fixed assets;
(ii) transfers of funds linked to, or conditional upon,
acquisition or disposal of fixed assets; (iii) forgiveness,
without any counterparts being received in return, of
liabilities by creditors. All of these are capital transfers.
Current transfers include those of general
government (e.g., current international cooperation
between different governments, payments of current
taxes on income and wealth, etc.), and other transfers
(e.g., workers’ remittances, premiums—less service
charges, and claims on non-life insurance). A full
discussion of the distinction between current
transfers and capital transfers appears in Chapter 15;
see also paragraphs 175 and 344.
Capital and Financial Account (2.)
172. The capital and financial account has two
major components—the capital account and the
financial account—that are in concordance with those
same accounts in the SNA. Assets represent claims on
nonresidents, and liabilities represent indebtedness to
nonresidents. The two parties to a transaction in assets
or liabilities are usually a resident and a nonresident
but, in some instances, both parties may both be
residents or nonresidents. (See paragraph 318.)
173. All valuation changes and all other changes that
do not reflect transactions (see paragraph 310) in
foreign assets and liabilities are excluded from the
capital and financial account but reflected in the
international investment position. Supplementary
statements identify certain items that are of analytical
interest and affect various accounts. Examples of such
items are liabilities constituting foreign authorities’
STRUCTURE AND CLASSIFICATION
40
reserves and exceptional financing transactions, which
are discussed in Chapter 22.
174. Classification of the financial account and the
income components of the current account are
interrelated and must be consistent to facilitate analysis,
to form an effective link between the balance of
payments and the international investment position,
and to be compatible with the SNA and other IMF
statistical systems.
Capital account (2.A.)
175. The major components of the capital account
are capital transfers and acquisition/disposal of
nonproduced, nonfinancial assets. Capital transfers
consist of those involving transfers of ownership of
fixed assets; transfers of funds linked to, or conditional
upon, acquisition or disposal of fixed assets; or
cancellation, without any counterparts being received
in return, of liabilities by creditors. Capital transfers
include two components: (i) general government,
which is subdivided into debt forgiveness and other,
and (ii) other, which is subdivided into migrants’
transfers, debt forgiveness, and other transfers. (See
Chapter 15 for a discussion of the distinction between
capital transfers and current transfers.)
Acquisition/disposal of nonproduced, nonfinancial
assets largely covers intangibles—such as patented
entities, leases or other transferable contracts,
goodwill, etc. This item does not cover land in a
specific economic territory but may include the
purchase or sale of land by a foreign embassy. (See
paragraph 312.)
Financial account (2.B.)
176. The classification of standard components in the
financial account is based on these criteria:
All components are classified according to type of
investment or by functional subdivision (direct
investment, portfolio investment, other investment,
reserve assets).
For the category of direct investment, there are
directional distinctions (abroad or in the reporting
economy) and, for the equity capital and other
capital components within this category, asset or
liability distinctions.
For the categories of portfolio investment and other
investment, there are the customary asset or liability
distinctions.
Particularly significant for portfolio investment and
other investment is the distinction by type of
instrument (equity or debt securities, trade credits,
loans, currency and deposits, other assets or
liabilities). In this Manual, traditional and new
money market and other financial instruments and
derivatives are included in portfolio investment.
For portfolio investment and other investment, there
are distinctions by sector of the domestic creditor for
assets and by sector of the domestic debtor for
liabilities. These distinctions serve to facilitate links
with the income accounts, the international
investment position, the SNA, and other statistical
systems.
The traditional distinction, which is based on original
contractual maturity of more than one year or one
year or less, between long- and short-term assets and
liabilities applies only to other investment. In recent
years, the significance of this distinction has clearly
diminished for many domestic and international
transactions. Consequently, the long- and short-term
distinction is accorded less importance in the SNA
and in this Manual than in previous editions.
However, because the maturity factor remains
important for specific purposes—analysis of external
debt, for example—it is retained in this Manual for
other investment.
177 Direct investment—reflecting the lasting interest of
a resident entity in one economy (direct investor) in an
entity resident in another economy (direct investment
enterprise)—covers all transactions between direct
investors and direct investment enterprises. That is,
direct investment covers the initial transaction between
the two and all subsequent transactions between them
and among affiliated enterprises, both incorporated and
unincorporated. Direct investment transactions occuring
abroad and in the reporting economy are subclassified
into equity capital, reinvested earnings, and other
capital (intercompany transactions). For equity capital
and other capital, claims on and liabilities to affiliated
enterprises and to direct investors are distinguished.
Transactions between affiliated banks and between
other affiliated financial intermediaries are limited to
equity and permanent debt capital. (See paragraph 372.)
178. Portfolio investment covers transactions in equity
securities and debt securities; the latter are subsec-tored
into bonds and notes, money market instruments, and
financial derivatives (such as options) when the derivatives
generate financial claims and liabilities. Various
new financial instruments are covered under
appropriate instrument classifications. Transactions
CHAPTER VIII
41
covered under direct investment and reserve assets are
excluded.
179. Other investment covers short- and long-term
trade credits; loans (including use of Fund credit,
loans from the Fund, and loans associated with
financial leases); currency and deposits (transferable
and other—such as savings and term deposits, savings
and loan shares, shares in credit unions, etc.); and
other accounts receivable and payable. Transactions
covered under direct investment are excluded.
180. Reserve assets covers transactions in assets that
are considered by the monetary authorities of an
economy to be available for use in funding payments
imbalances and, in some instances, meeting other
financial needs. Such availability is not closely linked
in principle to formal criteria such as ownership or
currency of denomination. The items covered are
monetary gold, SDRs, reserve position in the Fund,
foreign exchange assets (currency, deposits, and
securities), and other claims.
181. Coverage and identification of reserve asset
components are linked to an analytic concept, are in
part judgmental, and are not always amenable to
application of objective, formal criteria or clear rankings
as to conditionality and other considerations. In contrast
to the treatment in the fourth edition of the Manual,
valuation changes in reserve assets are excluded, along
with counterparts to such changes, in the fifth edition.
Also excluded are the allocation or cancellation of
SDRs, the monetization or demonetization of gold, and
counterpart entries. These changes, which do not
constitute transactions, are reflected in the international
investment position.
STRUCTURE AND CLASSIFICATION
42
Balance of Payments: Standard Components
Credit Debit
1. Current Account
A. Goods and services
a. Goods
1. General merchandise
2. Goods for processing
3. Repairs on goods
4. Goods procured in ports by carriers
5. Nonmonetary gold
5.1 Held as a store of value
5.2 Other
1. A. b. Services
1. Transportation
1.1 Sea transport
1.1.1 Passenger
1.1.2 Freight
1.1.3 Other
1.2 Air transport
1.2.1 Passenger
1.2.2 Freight
1.2.3 Other
1.3 Other transport
1.3.1 Passenger
1.3.2 Freight
1.3.3 Other
1. A. b. 2. Travel
2.1 Business
2.2 Personal*
1. A. b. 3. Communications services
1. A. b. 4. Construction services
1. A. b. 5. Insurance services**
1. A. b. 6. Financial services
1. A. b. 7. Computer and information services
1. A. b. 8. Royalties and license fees
1. A. b. 9. Other business services
9.1 Merchanting and other trade-related services
9.2 Operational leasing services
9.3 Miscellaneous business, professional, and technical services*
1. A. b. 10. Personal, cultural, and recreational services
10.1 Audiovisual and related services
10.2 Other personal, cultural, and recreational services
1. A. b. 11. Government services n.i.e.
43
** See Selected Supplementary Information table on page 50 for components.
** Memorandum items: 5.1 Gross premiums
5.2 Gross claims
1. B. Income
1. A. b. 1. Compensation of employees
1. A. b. 2. Investment income
2.1 Direct investment
2.1.1 Income on equity
2.1.1.1 Dividends and distributed
branch profits***
1. A. b. 2. 2.1 2.1.1 2.1.1.2 Reinvested earnings and undistributed
branch profits***
1. A. b. 2. 2.1 2.1.2 Income on debt (interest)
1. A. b. 2. 2.2 Portfolio investment
2.2.1 Income on equity (dividends)
2.2.2 Income on debt (interest)
2.2.2.1 Bonds and notes
2.2.2.2 Money market instruments and
financial derivatives
1. A. b. 2. 2.3 Other investment
1. C. Current transfers
1. A. b. 1. General government
1. A. b. 2. Other sectors
2.1 Workers’ remittances
2.2 Other transfers
2. Capital and Financial Account
1. A. Capital account
1. A. b. 1. Capital transfers
1.1 General government
1.1.1 Debt forgiveness
1.1.2 Other
1. A. b. 2. 1.2 Other sectors
1.2.1 Migrants’ transfers
1.2.2 Debt forgiveness
1.2.3 Other
1. A. b. 2. Acquisition/disposal of nonproduced, nonfinancial assets
1. B. Financial account
1. A. b. 1. Direct investment
1.1 Abroad
1.1.1 Equity capital
1.1.1.1 Claims on affiliated enterprises
1.1.1.2 Liabilities to affiliated enterprises
1. A. b. 2. 2.3 1.1.2 Reinvested earnings
1.1.3 Other capital
44
Balance of Payments: Standard Components
Credit Debit
***If distributed branch profits are not identified, all branch profits are considered to be distributed.
1. A. b. 2. 1.2 2.1.2 1.1.3.1 Claims on affiliated enterprises
1.1.3.2 Liabilities to affiliated enterprises
1. A. b. 2. 1.2 In reporting economy
1.2.1 Equity capital
1.2.1.1 Claims on direct investors
1.2.1.2 Liabilities to direct investors
1. A. b. 2. 1.2 1.2.2 Reinvested earnings
1.2.3 Other capital
1.2.3.1 Claims on direct investors
1.2.3.2 Liabilities to direct investors
1. A. b. 2. Portfolio investment
2.1 Assets
2.1.1 Equity securities
2.1.1.1 Monetary authorities
2.1.1.2 General government
2.1.1.3 Banks
2.1.1.4 Other sectors
1. A. b. 2. 1.2 2.1.2 Debt securities
2.1.2.1 Bonds and notes
2.1.2.1.1 Monetary authorities
2.1.2.1.2 General government
2.1.2.1.3 Banks
2.1.2.1.4 Other sectors
1. A. b. 2. 1.2 2.1.2 2.1.2.2 Money market instruments
2.1.2.2.1 Monetary authorities
2.1.2.2.2 General government
2.1.2.2.3 Banks
2.1.2.2.4 Other sectors
1. A. b. 2. 1.2 2.1.2 2.1.2.3 Financial derivatives
2.1.2.3.1 Monetary authorities
2.1.2.3.2 General government
2.1.2.3.3 Banks
2.1.2.3.4 Other sectors
1. A. b. 2. 2.2 Liabilities
2.2.1 Equity securities
2.2.1.1 Banks
2.2.1.2 Other sectors
1. A. b. 2. 1.2 2.2.2 Debt securities
2.2.2.1 Bonds and notes
2.2.2.1.1 Monetary authorities
2.2.2.1.2 General government
2.2.2.1.3 Banks
2.2.2.1.4 Other sectors
45
Balance of Payments: Standard Components
Credit Debit
1. A. b. 2. 1.2 2.1.2 2.2.2.2 Money market instruments
2.2.2.2.1 Monetary authorities
2.2.2.2.2 General government
2.2.2.2.3 Banks
2.2.2.2.4 Other sectors
1. A. b. 2. 1.2 2.1.2 2.2.2.3 Financial derivatives
2.2.2.3.1 Banks
2.2.2.3.2 Other sectors
1. A. b. 3. Other investment
3.1 Assets
3.1.1 Trade credits
3.1.1.1 General government
3.1.1.1.1 Long-term
3.1.1.1.2 Short-term
1. A. b. 2. 1.2 2.1.2 3.1.1.2 Other sectors
3.1.1.2.1 Long-term
3.1.1.2.2 Short-term
1. A. b. 2. 1.2 3.1.2 Loans
3.1.2.1 Monetary authorities
3.1.2.1.1 Long-term
3.1.2.1.2 Short-term
1. A. b. 2. 1.2 2.1.2 3.1.2.2 General government
3.1.2.2.1 Long-term
3.1.2.2.2 Short-term
1. A. b. 2. 1.2 2.1.2 3.1.2.3 Banks
3.1.2.3.1 Long-term
3.1.2.3.2 Short -term
1. A. b. 2. 1.2 2.1.2 3.1.2.4 Other sectors
3.1.2.4.1 Long-term
3.1.2.4.2 Short-term
1. A. b. 2. 1.2 3.1.3 Currency and deposits
3.1.3.1 Monetary authorities
3.1.3.2 General government
3.1.3.3 Banks
3.1.3.4 Other sectors
1. A. b. 2. 1.2 3.1.4 Other assets
3.1.4.1 Monetary authorities
3.1.4.1.1 Long-term
3.1.4.1.2 Short-term
1. A. b. 2. 1.2 2.1.2 3.1.4.2 General government
3.1.4.2.1 Long-term
3.1.4.2.2 Short-term
46
Balance of Payments: Standard Components
Credit Debit
1. A. b. 2. 1.2 2.1.2 3.1.4.3 Banks
3.1.4.3.1 Long-term
3.1.4.3.2 Short-term
1. A. b. 2. 1.2 2.1.2 3.1.4.4 Other sectors
3.1.4.4.1 Long-term
3.1.4.4.2 Short-term
1. A. b. 2. 3.2 Liabilities
3.2.1 Trade credits
3.2.1.1 General government
3.2.1.1.1 Long-term
3.2.1.1.2 Short-term
1. A. b. 2. 1.2 2.1.2 3.2.1.2 Other sectors
3.2.1.2.1 Long-term
3.2.1.2.2 Short-term
1. A. b. 2. 3.2 3.2.2 Loans
3.2.2.1 Monetary authorities
3.2.2.1.1 Use of Fund credit
and loans from the Fund
1. A. b. 2. 1.2 2.1.2 3.2.1.2 3.2.2.1.2 Other long-term
3.2.2.1.3 Short-term
1. A. b. 2. 1.2 2.1.2 3.2.2.2 General government
3.2.2.2.1 Long-term
3.2.2.2.2 Short-term
1. A. b. 2. 1.2 2.1.2 3.2.2.3 Banks
3.2.2.3.1 Long-term
3.2.2.3.2 Short-term
1. A. b. 2. 1.2 2.1.2 3.2.2.4 Other sectors
3.2.2.4.1 Long-term
3.2.2.4.2 Short-term
1. A. b. 2. 3.2 3.2.3 Currency and deposits
3.2.3.1 Monetary authorities
3.2.3.2 Banks
1. A. b. 2. 3.2 3.2.4 Other liabilities
3.2.4.1 Monetary authorities
3.2.4.1.1 Long-term
3.2.4.1.2 Short-term
1. A. b. 2. 1.2 2.1.2 3.2.4.2 General government
3.2.4.2.1 Long-term
3.2.4.2.2 Short-term
1. A. b. 2. 1.2 2.1.2 3.2.4.3 Banks
3.2.4.3.1 Long-term
3.2.4.3.2 Short-term
1. A. b. 2. 1.2 2.1.2 3.2.4.4 Other sectors
3.2.4.4.1 Long-term
3.2.4.4.2 Short-term
47
Balance of Payments: Standard Components
Credit Debit
1. A. b. 4. Reserve assets
4.1 Monetary gold
4.2 Special drawing rights
4.3 Reserve position in the Fund
4.4 Foreign exchange
4.4.1 Currency and deposits
4.4.1.1 With monetary authorities
4.4.1.2 With banks
1. A. b. 4. 4.5 4.4.2 Securities
4.4.2.1 Equities
4.4.2.2 Bonds and notes
4.4.2.3 Money market instruments and financial derivatives
1. A. b. 4. 4.5 Other claims
48
Balance of Payments: Standard Components
Credit Debit
Selected Supplementary Information
1. Liabilities constituting foreign authorities’ reserves
1.1 Bonds and other securities
1.1.1 Monetary authorities
1.1.2 General government
1.1.3 Banks
1.1.4 Other sectors
1. 1.2 Deposits
1.2.1 Monetary authorities
1.2.2 Banks
1. 1.3 Other liabilities
1.3.1 Monetary authorities
1.3.2 General government
1.3.3 Banks
1.3.4 Other sectors
2. Exceptional financing transactions
2.1 Transfers
2.1.1 Debt forgiveness
2.1.2 Other intergovernmental grants
2.1.3 Grants received from Fund subsidy accounts
1. 2.2 Direct investment
2.2.1 Investment associated with debt reduction
2.2.2 Other
1. 2.3 Portfolio investment: borrowing by authorities or
by other sectors on behalf of authorities—liabilities*
1. 2.4 Other investment—liabilities*
2.4.1 Drawings on new loans by authorities or
by other sectors on behalf of authorities
1. 2.2 2.4.2 Rescheduling of existing debt
2.4.3 Accumulation of arrears
2.4.3.1 Principal on short-term debt
2.4.3.2 Principal on long-term debt
2.4.3.3 Original interest
2.4.3.4 Penalty interest
1. 2.2 2.4.4 Repayments of arrears
2.4.4.1 Principal
2.4.4.2 Interest
1. 2.2 2.4.5 Rescheduling of arrears
2.4.5.1 Principal
2.4.5.2 Interest
1. 2.2 2.4.6 Cancellation of arrears
2.4.6.1 Principal
2.4.6.2 Interest
49
*Specify sector involved and standard component in which the item is included.
3. Other transactions
3.1 Portfolio investment income
3.1.1 Monetary authorities
3.1.2 General government
3.1.3 Banks
3.1.4 Other sectors
3. 3.2 Other (than direct investment) income
3.2.1 Monetary authorities
3.2.2 General government
3.2.3 Banks
3.2.4 Other sectors
3. 3.3 Other investment (liabilities)
3.3.1 Drawings on long-term trade credits
3.3.2 Repayments of long-term trade credits
3.3.3 Drawings on long-term loans
3.3.4 Repayments of long-term loans
4. Services sub-items
4.1 Travel (personal)
4.1.1 Health-related
4.1.2 Education-related
4.1.3 Other
3. 4.2 Miscellaneous business, professional, and technical services
4.2.1 Legal, accounting, management consulting, and public relations
4.2.2 Advertising, market research, and public opinion polling
4.2.3 Research and development
4.2.4 Architectural, engineering, and other technical services
4.2.5 Agricultural, mining, and on-site processing
4.2.6 Other
50
Selected Supplementary Information
182. The standard components and coverage of the
current account and the capital and financial
account are discussed in Chapter 8; coverage of the
current account is referred to in paragraphs 152
through 171. As presented in this Manual, the current
account is in concordance with SNA coverage of
external accounts for goods and services, primary
incomes, and current transfers. (See Chapter 3.)
Because the net balance on the current account
constitutes an integral part of the measure of an
economy’s saving, the net balance can be viewed as
one meaningful indicator of an economy’s saving and
spending behavior. To the extent that national saving
exceeds or falls short of net domestic investment (net
capital formation), the net balance on current
transactions (current external balance in the SNA), on
net capital transfers, and on acquisition or disposal of
nonproduced, nonfinancial assets represents the
amount of an economy’s net foreign investment or net
lending or borrowing vis-à-vis the rest of the world.
Characteristics and Classification
183. As presented in this Manual, the structure of the
current account contains most of the components
traditionally included. The structure of the account has,
however, significantly altered—with regard to major
classifications and specific components—from that
presented in the fourth edition. The structure remains
in accord with the considerations stated in Chapter 8,
paragraph 143.
184. Goods usually comprises the largest category of
transactions that, for the most part, involve changes of
ownership between residents and nonresidents. The
scope of this classification has been expanded from
that in the fourth edition to include—in addition to
general merchandise, which covers most movable
goods—(i) the movement of goods for processing
(when no change of ownership occurs); (ii) the value
of repairs on goods (not the value of the movement of
goods undergoing repair); and (iii) goods procured in
ports by nonresident carriers. In addition, nonmonetary
gold is specified under goods as a sub-item to be
identified, if feasible, as gold to be held as a store of
value or as other (industrial) gold. Further detailed
subdivisions of goods (commodity end-use categories,
for example) often are desirable for analytical purposes
and are provided in the balance of payments
publications of many countries.
185. Services is the second major category of the
current account. Both the production of, and
international trade in, services differ from production
and trade related to goods. International trade in goods
is conducted separately from production. For example,
goods may be produced in one economy and
subsequently delivered to residents, who may or may
not be known when production occurs, of another
economy. In contrast, the production of a service is
linked to an arrangement made—between a particular
producer in one economy and a particular consumer or
group of consumers in another—prior to the time that
production occurs. Thus, international trade in services
is closely linked with international production of
services, as the production process itself involves a
resident and a nonresident. Nonetheless, the boundary
between goods and services is sometimes blurred;
items classified as goods may include some element of
services and vice versa.
186. As presented in this Manual, services covers
traditional items (such as travel and transportation) that
were included in the fourth edition presentation and
items (such as communications, financial and computer
services, royalties and license fees, and many types of
other business services) that are becoming increasingly
important in international transactions. In contrast to
the treatment in the fourth edition, in this Manual,
transactions in services are clearly separated from
income transactions. This treatment is in accordance
with the SNA; allows, to the extent practicable, for
linkage with the CPC; and better serves to facilitate
international negotiations concerning issues pertaining
to services.
187. Transportation (the first item listed among
services) comprises freight services, together with
supporting and auxiliary services, by all modes of
transportation for the movement of goods and the
international carriage of passengers. (Transportation
51
IX. Structure and Characteristics of the Current Account
does not cover the carriage, within an economy, of
nonresident passengers by resident carriers.) There is a
close interrelationship between freight services and
goods and, in some instances, such services may not be
subject to clear distinctions from goods. There may be
analytical interest in both separate and inclusive
treatment of the two for purposes of various domestic
and international comparisons. Passenger transportation
is closely linked with travel, in which some related
services are included. Transportation subsumes, with
the exception of freight insurance, the shipment and
other transportation items as presented in the fourth
edition of the Manual. Freight insurance is now
included with insurance services. (See Chapter 13,
paragraphs 255 through 257.) The new grouping should
facilitate international comparisons and is in accord
with other statistical systems.
188. Travel differs from other components of services
in that it is a demand-oriented activity. The traveler
(consumer) moves to the location of the economy that
provides the goods and services desired. Travel is
subdivided into two major components: business and
personal.
189. Treated as part of a residual item in the fourth
edition of the Manual, other services are accorded
increased prominence in the fifth edition. Both the
structure and classification of the specific other services
are related to the importance attached to these items by
international bodies [e.g. in the General Agreement on
Tariffs and Trade (GATT) ] as a basis for negotiations
and by analysts involved with domestic and international
aspects of trade, production, and related issues.
Although the significance of these services varies widely
in the international accounts of countries, the structure
provides a ready reference for items likely to assume
increasing importance in international transactions.
190. Income comprises compensation of employees
and investment income (covering direct investment
income and other dividends and interest). This
treatment of income as a separate component of the
current account accords with that in the SNA;
tightens the links between income and financial
account flows and between the balance of payments
and the international investment position; and
increases the analytical usefulness of the international
accounts.
191. Current transfers are grouped separately from
goods, services, and income because the former are
generally conceived as showing distinctive characteristics.
The distinction between real resources and
transfers, however, may sometimes be rather arbitrary.
For example, receipts by an economy from certain
individuals working abroad are classified either as
current transfers or as compensation of employees;
the classification depends on how long the individuals
have stayed in the countries where they are working.
The Manual and the SNA define a current transfer in
the same way, and the disaggregation of transfers into
current transfers and capital transfers—a departure
from previous editions—aligns with SNA treatment and
with various analytical presentations. This change
removes inconsistencies in the use and meaning of the
term current as it concerns transactions and balancing
items in the Manual and the SNA. (The distinction
between current transfers and capital transfers is
discussed in Chapter 15.)
Gross Recording, Valuation, and Time
of Recording
192. In the current account, gross outflows from and
gross inflows to the economy should, in principle, be
recorded as credits and debits, respectively. Individual
components are defined in such a way that entries
would be made on a gross basis. This emphasis on
gross recording in the current account stems from
the fact that credit and debit entries for many specific
types of current transactions are seldom related in a
causal way. For example, even though provision and
acquisition of travel services are included in the
single component for travel, provision of travel services
has, from an economic standpoint, little connection
with the acquisition by the same economy of such
services. Moreover, gross figures are utilized in contexts
other than the analysis of balance of payments
developments. In general, gross transactions recorded
in the current account are often indicators of the
relative importance of particular items within an
economy and of the relative importance of various
economies in international transactions. Gross
transactions recorded in the current account are
therefore used to compare economies and to provide
weights for aggregation. Also, gross figures provide a
better basis for analysis of changes in net balances.
Two specific applications important for the IMF
represent the use of gross figures: (i) Valuation of the
SDR is based on a basket of currencies selected in
consideration of the issuing countries’ shares in world
exports of goods and services and weighted in broad
proportion to those shares. (ii) The relative size of an
IMF member’s gross transactions in the current
account is one factor used to determine the relative
quota of a Fund member.
STRUCTURE AND CLASSIFICATION
52
193. Exceptions to the general rule of gross recording
are sometimes made because of the practical difficulty
of collecting certain information on a gross basis (e.g.,
some transportation services) or because of netting
procedures used to derive certain estimates. These
considerations are discussed in appropriate chapters.
Nonetheless, gross recording remains the principle for
recording transactions in the current account and, in
general, is more useful than net recording for balance
of payments and other analyses.
194. Principles and practices dealing with valuation and
time of recording for current account transactions are
discussed in chapters 5 and 6, respectively, and in
chapters 10 through 15.
CHAPTER IX
53
Coverage and Principles
195. As subsequently defined in this Manual, goods
covers general merchandise, goods for processing,
repairs on goods, goods procured in ports by carriers,
and nonmonetary gold. In accordance with general
balance of payments principles, change of ownership is
the principle determining the coverage and time of
recording of international transactions in goods.
Certain exceptions are applied to the principle; these
are discussed in subsequent sections. Exports and
imports of goods are recorded at market values at
points of uniform valuation, that is, the customs
frontiers of exporting economies.
Definitions
196. General merchandise refers, with some
exceptions specified later in this chapter, to movable
goods for which changes in ownership—actual or
imputed—occur between residents and nonresidents.
197. Goods for processing covers goods that are
exported or imported for processing and that involve
two transactions: (i) the export of a good (e.g., crude
oil, vehicle parts, fabric) and (ii) the re-import of the
good (refining of crude oil into petroleum, transformation
of fabric into clothing) on the basis of a
contract and for a fee. Symmetrically, processing
performed (for nonresidents) in the partner economy
consists of an import followed by an export. The
inclusion, on a gross basis, of these transactions under
goods is an exception to the change of ownership
principle.
198. Processing can consist of any activity performed
under contract: oil refining, metal processing, vehicle
assembly, clothing manufacture, etc. In this Manual,
there is concordance with the SNA concept of
distinguishing between processing in which goods
undergo substantial physical change and other
processing. The former is included under goods and
the latter, under services, in the SNA. However, because
it is difficult to make such a distinction and because
most international processing involves substantial
physical change, it is recommended, for practical
reasons, that all processing be included under goods.
The basis of the conceptual distinction is that goods
originally exported or imported essentially lose identity
by being transformed or incorporated into other goods.
The goods subsequently re-imported or re-exported
essentially become new goods produced abroad or in
the compiling economy and classified in a different
group (three-digit level) of the CPC than the goods
originally exported abroad or originally imported into
the partner economy. The value of the goods before
and after processing should be recorded when the
goods are exported and then imported, or vice versa.
(Corresponding entries in the financial account are
required when goods remain in the processing
economy after the end of a recording period.)
199. Excluded from the category of goods for
processing are goods subject to on-site processing
involving an import not followed by an export (or vice
versa). These goods are included under general
merchandise. Two particular cases warrant mention.
The first concerns the treatment of goods that are sent
abroad for processing and subsequently sold to a
resident of the processing economy. Such goods are
included under exports of general merchandise. The
payment for processing is entered as a debit under
services, and an adjustment is made to the
merchandise export figure to include the value of
processing. The second case concerns the treatment of
goods that are sent abroad for processing in one
economy and then sold to another economy. A service
payment from the original economy to the processing
economy is entered under merchanting and other traderelated
services, and an export (including the value of
processing) from the original economy to the (third)
purchasing economy is recorded under general
merchandise. Included under processing (on practical
grounds, as noted in paragraph 198) are goods to
which some value (e.g., packaging, labeling, etc.) is
added. (This added value would be recorded in the
SNA as a transaction in services.)
200. The category of repairs on goods covers repair
activity that involves work performed by residents on
movable goods owned by nonresidents (or vice versa).
Examples of such goods are ships, aircraft, and other
54
X. Goods
transportation equipment. In contrast to the value
recorded for goods for processing, the value recorded
for repairs on goods reflects the value of the repairs
(the fee paid or received) rather than the gross value of
the goods before and after repairs. The SNA distinction
between repairs performed on investment goods and
those performed on other goods is recognized as a
valid one. (The latter are included under services in the
SNA.) Nonetheless, it is recommended that the value of
all repairs be included under goods. This recommendation
is made because of the practical difficulty
involved in making distinctions between the two types
of goods and the fact that the bulk of international
repairs are performed on investment goods. Excluded
are construction repairs (recorded under construction
services), computer repairs (recorded under computer
and information services), and maintenance performed
in ports and airports on transportation equipment
(recorded under other transportation services).
201. Goods procured in ports covers goods (e.g., fuels,
provisions, stores, and supplies) procured by resident
or nonresident carriers abroad or in the compiling
economy. Related services (e.g., towing, storage,
maintenance, etc.) are excluded; these are recorded
under other transportation services.
202. Nonmonetary gold covers exports and imports of
all gold not held as reserve assets (monetary gold) by
the authorities. Nonmonetary gold is treated as any
other commodity and, when feasible, is subdivided into
gold held as a store of value and other (industrial) gold.
Change of Ownership
203. With specified exceptions, application of the
change of ownership (between a resident and
nonresident) concept to goods ensures, in principle,
that the goods component is consistent in coverage
and timing with other items, particularly financial items,
in the balance of payments. However, international
standards for trade statistics (see the Guide), as well as
customs returns in most countries, are based instead on
physical movements of goods across national or
customs frontiers. Although the goods that change
ownership internationally are for the most part the
same goods that move across frontiers, the changes and
movements often do not occur at exactly the same time.
Convention for recording
204. Goods for export are generally considered to
change ownership at the time the exporter ceases to
carry the goods on his books as a real asset (i.e., when
he records a sale and makes a corresponding entry in
his financial items). Goods for import are considered to
change ownership when the importer enters them on
his books as a real asset (i.e., when he records a
purchase and makes a corresponding entry in his
financial items). This convention is designed to
promote consistency between the goods component
and the financial account in the balance of payments
of the compiling country, as well as consistency
between the compilation of goods by the exporting
and importing countries. In practice, however,
exporters and importers may not enter the transactions
in their books as of the same date, so significant
differences in timing may result even when this
convention is followed.
Other exceptions to change of ownership rule
205. The definition of residence presented in this
Manual has implications for the coverage of goods
because of the change of ownership rule. Although
enterprises are always considered residents of the
economies in which the enterprises operate, enterprises
in different economies may be under the same
management. Affiliated enterprises may therefore
engage in transactions that are not subject to the legal
changes of ownership that would occur if the
enterprises were independently managed. In fact,
transactions between a parent company and a direct
investment branch (an unincorporated enterprise) could
never involve legal changes of ownership in the literal
sense because both parties are part of the same legal
entity. Moreover, while a parent company and a direct
investment subsidiary (an incorporated enterprise)
constitute separate legal entities, a different balance of
payments treatment for transactions that take the form
of legal changes of ownership and those that do not
would seem neither feasible nor desirable. Therefore, it
is recommended that transactions involving goods and
taking place between direct investment enterprises and
parent companies or other related enterprises should
be recorded as if changes of ownership have occurred.
(Exceptions are transactions in goods specified in
paragraph 209.)
206. There are also important instances in which the
possession of goods passes, without the defined change
of ownership, between residents and nonresidents who
are not affiliated. The effect of a legal change of
ownership between independent parties can be
achieved by other means. A significant example is
financial leasing or lease arrangements (made for a
capital good for most or all of its expected economic
CHAPTER X
55
life) under which the lessor expects to recover most or
all of the cost of the goods and the carrying charges. It
is recommended that the economic nature of these
transactions be given precedence over the legal form.
Therefore, a financial lease arrangement is to be taken
as presumptive evidence that a change of ownership is
intended. A change of ownership is imputed because in
practice, the lessee assumes the rights, risks, rewards,
and responsibilities of ownership and, from an economic
point of view, can be regarded as the de facto
owner. A financial lease is a means by which the lessee
finances the purchase (as opposed to taking out a loan
for the purchase) of the good. The full equivalent of
the market value of the goods (not the cumulative total
of expected lease payments) should be recorded under
goods, and an offsetting entry should be made in the
financial account to record the credit extended to the
lessee.
207. In contrast, a change, between a resident and a
nonresident, in ownership of goods may occur when
goods do not physically cross the frontier of the
economy of the resident who acquires or relinquishes
ownership. When goods are acquired from one
economy, relinquished again to that or some other
economy, and do not cross the frontier of the economy
in which the temporary owner is a resident, the activity
is considered a merchanting transaction rather than an
import and re-export of the goods. It is recommended
that the country of the temporary owner exclude such
goods from the goods component unless the recording
periods in which the goods are acquired and
relinquished are not the same. If the recording periods
differ, increases or decreases in stocks abroad from one
reporting period to another should be shown as
imports of goods or reductions in imports. (For a fuller
explanation of the treatment of these transactions, see
paragraphs 213 and 262.)
Inclusion, in exports or imports, of goods not
crossing frontiers
208. Goods not crossing frontiers should be included
in exports or imports if changes of ownership occur.
Exceptions are changes of ownership that are
temporary (see preceding paragraph) or not related to
significant economic activity. Such changes are to be
disregarded. Examples of goods that do not cross
frontiers but should nonetheless be included in exports
or imports are
ships, aircraft, railway rolling stock, gas and oil
drilling rigs and production platforms, and other
movable equipment not tied to a fixed location
nonmonetary gold
goods consumed in resident-owned, offshore
installations (e.g., gas and oil drilling rigs and
production platforms, ships, or aircraft that are
operating in international waters or airspace and are
purchased from nonresidents)
goods salvaged and fish and other marine products
caught by ships of the compiling economy and sold
directly abroad
goods purchased in one foreign country by the
government of the compiling economy for its own
use in a foreign country
goods lost or destroyed after ownership has been
acquired by the importer but before the goods have
crossed a frontier.
Exclusion, from exports or imports, of
goods crossing frontiers but not changing
ownership
209. Goods that cross frontiers without changing
ownership should not be covered under goods, except
as noted in paragraphs 197 and 198 and in the previous
section on other exceptions to the change of ownership
rule. The principal types of goods that may cross
frontiers without changes of ownership are
direct transit trade (i.e., goods in transit through an
economy)
returned exports and imports (see paragraph 210)
goods shipped under operational, that is, nonfinancial
leasing arrangements (see paragraph 263)
transportation equipment, fishing vessels, gas and oil
drilling rigs, and other mobile equipment that leaves
or enters an economy without changes of ownership
shipments by a specific economy to that economy’s
military and diplomatic establishments located
outside the territory of the economy
goods that cross frontiers and are lost or destroyed
before being delivered by exporters
temporary exports and imports of goods that are not
for sale (e.g., display equipment for trade fairs and
exhibitions; art exhibits; animals for breeding, show,
or racing; stage and circus equipment)
samples of no commercial value.
The recommendation that transactions between direct
investment affiliates be recorded as if changes of
STRUCTURE AND CLASSIFICATION
56
ownership have occurred (see paragraph 205) does not
extend to these goods.
210. When the execution of a contract for the sale of
goods is not completed after the goods have been
shipped out of the exporting economy and the goods
are later returned to the original owner, such goods
have not changed ownership. In concept, revised
entries should be made to exports for the period when
the goods were initially (and incorrectly) recorded.
However, in many instances, it will not be possible to
anticipate, at the time goods originally cross a frontier,
whether or not such goods will be returned in the
future. Therefore, purely for statistical convenience, it is
suggested that deductions, which are later found
necessary, from exports and imports should be made in
the periods when the goods are returned.
Goods Classified Under Other Categories
211. Almost all movable goods for which changes of
ownership occur between residents and nonresidents
are classified under goods. However, a few specified
goods are classified elsewhere.
Goods classified under services
212. Some goods are classified under services
because the relevant data include these goods
indistinguishably or because the goods respond to
economic factors differently than most goods do. The
primary types of goods classified under services and
the items under which the goods are recorded are
goods acquired by travelers (travel) for their own
use, by diplomatic and military missions or agencies
or by official personnel (government services n.i.e.),
and by nonresident workers (travel)
newspapers and periodicals (not in bulk) sent on the
basis of direct subscription (computer and
information services)
goods that do not cross frontiers and are acquired
and relinquished within the same recording period
(other business services).
213. If goods are acquired in one recording period
and relinquished in a later period, however, the goods
should be recorded in the balance of payments of the
temporary owner’s economy as imports in the period
in which the goods are acquired and deducted from
imports in the period in which the goods are
relinquished. In this case, changes from one recording
period to another in stocks of goods located abroad
and valued at acquisition cost constitute part of goods
for the economy of the owner. In either situation, any
difference between the value of the goods when
acquired and relinquished is entered as merchanting
under other business services.
Goods treated as financial items
214. Certain physical items are regarded as financial
items and should not be included under goods.
Examples are
evidences of financial claims, even though such
claims have material form and are movable
(Examples of such goods are paper money and coin
in current circulation and securities that have been
issued.)
monetary gold treated as a financial asset (Monetary
gold transactions between authorities of different
economies should be included in the financial
account.)
nonfinancial assets—including land, structures,
equipment, and inventories—that belong to an
enterprise and are considered financial assets for the
owner of that enterprise when the owner is not a
resident of the economy in which the enterprise
operates (A change of ownership resulting from the
acquisition of these assets by an existing enterprise
is thus treated as a financial transaction and is not
included in goods, except to the extent that such a
change of ownership is actually accompanied by a
physical movement of goods.)
Special Types of Goods
215. Classification of certain physical items as goods is
sometimes questioned, most often because the goods
may be accorded exceptional treatment under customs
regulations or in trade returns. Examples of such goods,
all of which should be recorded under goods if the
items qualify according to the definition and rules in
this Manual, are
commodity gold (i.e., nonmonetary gold), silver
bullion, diamonds, and other precious metals and
stones
paper money and coin not in current circulation and
unissued securities, all of which should be valued as
commodities rather than at face value
electricity, gas, and water
livestock driven across frontiers
CHAPTER X
57
parcel post
government exports and imports of goods, including
goods financed by grants and loans (other than
those exported and imported to and from
government agencies and personnel)
goods transferred to or from the ownership of a
buffer stock organization
migrants’ effects
smuggled goods, whether or not detected by
customs
other unrecorded shipments of goods such as gifts
and goods of less than stated minimum value.
Time of Recording
216. In principle, exports and imports of goods should
be recorded when ownership of the goods passes from
a resident to a nonresident, or vice versa. In practice, a
change of ownership is recognized (or is proxied) when
the two parties to the transaction record it in their
books or accounts. (See paragraphs 114 through 118
and paragraph 204.)
217. Neither physical movement, on which trade
returns are largely based, nor payment, which is
reflected in exchange records, will necessarily coincide
in timing with changes in the ownership of goods. The
Guide contains details on adjustments that would
theoretically be necessary for statistics derived from
those two sources. Except for large, discrete
transactions (such as deliveries of ships or aircraft), the
appropriate adjustments are often quite difficult to
make. Information, especially in a form that can be
related to the time of physical movement or the time of
payment for the same goods, is seldom available on the
actual time that a change of ownership occurs. If the
overall value of trade, the regional pattern of trade, or
the terms of payment for trade change substantially
from the beginning to the end of the recording period,
however, failure to adjust for timing is likely to be an
important source of error in the balance of payments
statement and an important cause of asymmetry
between the goods components for different countries.
218. Goods on consignment (i.e., goods intended for
sale but not actually sold at the time of crossing a
frontier) should, in principle, be included in
merchandise only at the time ownership changes. In
practice, such goods are sometimes recorded at the
time the goods cross a frontier. The assumption in such
instances is that a change of ownership has occurred or
will shortly occur. If this treatment is followed and
there is no change of ownership, the goods must
subsequently be recorded again, in the same manner as
returned exports and imports (see paragraph 210), as a
deduction from exports and imports.
Valuation
219. The value at which goods should be recorded in
the balance of payments is the market value of the
goods at the point of uniform valuation—the customs
frontier of the economy from which the goods are
exported. That is, the goods are valued free on board
(f.o.b.) at that frontier. At least two aspects of this
general statement require elaboration.
Market valuation
220. The concept of market value and the specific
application of the concept to internationally traded
goods are discussed in Chapter 5. The United Nations
(UN) deals at length with the valuation of exports and
imports according to the UN standard for such statistics.
The General Agreement on Tariffs and Trade also
provides an extensive treatment of the standard to be
applied for the customs valuation of imports. (See the
Guide.)
Point of valuation
221. Delivery of goods by the exporter to the importer
invariably signifies a change of ownership and may
occur at any time and place from the point at which the
goods are produced to the point of final use. A clear
distinction between (i) items regarded as goods and
(ii) any additional distributive services that might be
included in the final value of those goods is made in
this Manual. This distinction is made whether the
distributive services are performed before or after the
change of ownership occurs. Thus, goods will be
uniformly valued in the limited sense that a borderline
between goods and distributive services can be
established in accordance with one standard rule.
222. The standard, or rule, is that goods shall cover, in
principle, the value of goods and related distributive
services at the time the goods reach the customs
frontier of the economy from which the goods are to
be exported. The value of the goods includes the value
of any loading of the goods on board the carrier at that
frontier. That is, exports and imports of goods are
valued f.o.b. at the customs frontier of the exporting
economy. In the application of this rule, customs
STRUCTURE AND CLASSIFICATION
58
bonded warehouses, customs bonded manufacturing
plants, and free areas are included within the customs
frontier of the controlling and supervising economy.
The customs frontier need not coincide physically with
the national boundary and could be located in the
interior of the economy.
223. Uniformity of this kind means that differing
practices for delivery of goods by exporters to
importers, as well as changes in those practices from
one period to another, have no effect on the
determination of services included in the value of
goods. No rule can be formulated, however, to produce
what could be considered, in a basic economic sense, a
uniform point of valuation for goods. Indeed, this kind
of uniform valuation could more appropriately be
viewed as uniform classification. The objective is to
include in goods only a standard partial list of related
distributive services; the principle that both the goods
and the services should be valued at market prices is
not in question in this context.
224. While adoption of any of several uniform points
of valuation may be analytically useful, problems of a
statistical nature arise. A principal difficulty is that
shipping practices are not standard, and the
documents on which the compiler must usually rely as
the basis for estimates of goods and transportation
services will often cover shipping services performed
on both sides of the customs frontier (or of any other
uniform point) without a detailed subdivision of the
total shipping costs. For example, shipment by truck
from door to door may be provided, or goods in
containers may be moved between central warehouses
that are distant from the customs frontiers in the
exporting and importing economies. A primary
consideration for specifying the customs frontier of the
exporting economy, rather than some other location, as
the point of valuation is that the frontier is the point at
which customs officials place valuations on exports
and, for a significant group of countries, on imports as
well. It is thus the point most likely to be reflected in
trade statistics.
225. As a practical matter, the service of loading goods
on board the carrier at the customs frontier is frequently
performed by or for the account of the carrier. In such
a case, trade statistics are likely to exclude the cost of
such services, but data on freight charges will almost
certainly include them. It is not suggested in this
Manual that an attempt be made to reallocate such
charges from transportation to goods. Instead, it is
recognized that the recommended f.o.b. basis for
recording goods may, in practice, be a free alongside
ship (f.a.s.) basis rather than a strict f.o.b. basis.
226. Goods delivered to an importer at some point
within the exporting economy might not be shipped to
the customs frontier of that economy during the same
recording period. When this is the situation, an entry
should be made in one period for the value of the
goods at the point of delivery and, in a subsequent
period, an entry should be made for the cost of
shipment from that point to the customs frontier. Both
of these entries are included in goods.
227. Application of the uniform valuation rule may
result in the inclusion, under goods, of some service
flows between nonresidents or between residents of
the same economy. An exporter may deliver goods
before the goods reach the customs frontier of his
economy, and the importer may then employ a
supplier of distributive services, who is not a resident
of the exporting economy, to ship the goods to the
customs frontier. An offset to such a flow of services
between nonresidents is required in the balance of
payments of the exporting country. To preserve a
uniform valuation in the goods component, the
offsetting entry should be made in transportation.
Similarly, if the supplier of the services is the importer
himself or a resident of the importer’s economy, the
services will not have been provided to or from
residents of different economies and an offset in
transportation is also required in the balance of
payments of the importing country.
228. Treatment of services performed by agents in
connection with transactions in goods also requires
consideration. Some of these services apply only
generally to transactions and cannot realistically be
attributed to the value of goods at any particular point
or date. As a practical way of dealing with the problem,
it is recommended that, upon actual payment of an
agent’s fee by the exporter, the fee should be included
in the f.o.b. value of the goods, regardless of whether
the agent is a resident of the exporter’s country or
another country. When an agent’s fee is paid by an
importer, the fee should only be included in the f.o.b.
value of the goods if the agent is a resident of the
exporting country. Agents’ fees paid by importers to
residents of their own countries and to residents of
countries other than the exporting country are excluded
from the f.o.b. value of the goods. In all cases, when a
fee is paid by a resident of one country to an agent in
another, an entry should be made in other business
services-merchanting and other trade-related services
CHAPTER X
59
(except when a fee is paid by an importer to an agent
in the exporting country.)
229. In some instances, fees are paid by exporters to
consulates of importing economies. Such fees should
not be included when goods are valued at the frontier
of the exporting economy. A consular fee is thus treated
as a cost incurred beyond the customs frontier of the
exporting economy; that is, a consular fee is incurred in
the importing economy.
STRUCTURE AND CLASSIFICATION
60
Definition and Coverage
230. Transportation covers all transportation (sea, air,
and other—including land, internal waterway, space,
and pipeline) services that are performed by residents
of one economy for those of another and that involve
the carriage of passengers, the movement of goods
(freight), rentals (charters) of carriers with crew, and
related supporting and auxiliary services. Some related
activities are excluded: freight insurance, which is
included in insurance services, Chapter 13; goods
procured in ports by nonresident carriers and repairs of
transportation equipment, which are included in
goods, Chapter 10; repairs of railway facilities, harbors,
and airfield facilities, which are included in
construction services, Chapter 13; and rentals (charters)
of carriers without crew, which are included in other
business services, Chapter 13.
231. Most transportation services, for both passengers
and freight, often are provided by enterprises through
the operation of carriers and similar equipment.
Questions arise as to the residence of such enterprises
or operators because the carrier may operate outside
the economic territory, either in international waters or
airspace or in one or more other economies in which
the enterprise is resident. The residence of enterprises
is discussed in Chapter 4, and paragraphs 80 through
82 are particularly relevant in this context.
Passenger Services
232. This component covers all services provided,
between the compiling economy and abroad or
between two foreign economies, in the international
transportation of nonresidents by resident carriers
(credit) and that of residents by nonresident carriers
(debit). Also included are passenger services performed
within an economy by nonresident carriers. Excluded
are passenger services provided to nonresidents by
resident carriers within the resident economies; these
are included in travel, Chapter 12. In addition to the
services covered by passenger fares—including fares
that are a part of package tours but excluding cruise
fares, which are included in travel—passenger services
include such items as charges for excess baggage,
vehicles, or other personal accompanying effects and
expenditures for food, drink, or other items for which
passengers make expenditures while on board carriers.
Freight Services and Conventions for
Recording
233. Freight services include the loading on board or
the unloading of goods from carriers if contracts
between owners of goods and carriers require that the
latter provide that service. When such a service is
performed at the customs frontier of the country from
which goods are exported, the loading charge is
classified as freight if the service is provided by, or for
the account of, the carrier; otherwise, the service is
classified as part of goods. This treatment is used
because, in practice, the statistics that can be collected
on freight will usually cover indistinguishably all
services that are performed by, or for the account of,
the carriers, whereas the statistics on goods are unlikely
to include the loading charge if loading is provided by,
or for the account of, the carrier.
234. The measurement of freight services is affected by
the convention noted in Chapter 10—that goods are
valued f.o.b. at the customs frontier of the exporting
economy—and by the assumption that freight charges
are borne by the importing economy. Measurement of
freight services is also affected by other factors related
to this convention and assumption. Included in the
f.o.b. value of goods are transportation services
associated with goods and performed prior to the
arrival of goods at the customs frontier of the economy
from which the goods are exported. Included in
transportation are services associated with goods and
performed beyond the customs frontier of the
exporting economy. These services cover transportation
of goods to the customs frontier of the importing
economy and, within that economy, to the point of
delivery. These transportation services are treated as
services performed (by residents of the importing
economy or by residents of other economies) for
residents of the importing economy.
61
XI. Transportation
235. Thus, debit (payments) entries should be made in
the accounts of a compiling economy for all transportation
services performed (inside or outside the
importing economy) in relation to imports of the
compiling economy when (i) these services are
performed by nonresidents and (ii) when these services
are performed after the imports are loaded on board a
carrier at the customs frontier of the exporting
economy. Conversely, credit (receipts) entries should
be made in a compiling economy’s accounts for all
transportation services performed by residents of the
compiling economy in relation to exports of that
economy when such services are performed after the
exports have been loaded on board a carrier at the
customs frontier. Also entered as credits are services
provided by residents in relation to transport of goods
between other countries. Required entries represent
identifiable services performed by residents or
nonresidents without regard to the ownership of goods
by residents or nonresidents at the precise times when
such services are performed. (This matter is difficult—if
not impossible—to ascertain.) Offsetting debit and
credit entries for services performed by residents of a
compiling economy in relation to imports of the
compiling economy (and by nonresidents in relation to
exports) are not made under the convention described
in paragraph 234 because the recording is consistent
with a uniform f.o.b. valuation basis for merchandise.
However, for other purposes (such as trade negotiations
or cross-checking individual country data and the
global consistency of transportation accounts), gross
freight compilations that are linked to an ex-works
valuation of goods and include resident-resident
transactions may be useful.
236. Use of the convention admittedly does not
obviate all the statistical problems that may arise in
compiling data for goods and transportation. When
these two items are derived from collection forms that
show imports valued at the frontier of the importing
economy (c.i.f. valuation), a separate estimate must be
made for the value of the transportation services
performed beyond the customs frontier of the economy
from which the goods are exported. This treatment,
however, essentially reallocates the element for transportation
services in the c.i.f. value of imports between
goods and transportation, so any error in estimation
does not affect the two items combined. Furthermore, if
the compiling economy performs any of the
transportation services in connection with imports, the
amount of such services must be estimated separately
from a total that includes similar services performed by
the compiling economy in connection with exports or
other goods in transit trade. This dissagregation may be
considerably more difficult to obtain than data on total
receipts. In this case, any error in estimation produces,
without affecting the net amount of the item, an equal
overstatement or understatement of the credit and debit
sides of transportation.
237. Gross flows between residents and nonresidents
are recorded for transportation services (other than
those previously covered) pertaining to goods. These
services include transit trade through a compiling
economy, coastal transportation or other transportation
of goods between points within an economy, movements
of goods to or from entities located outside
territories where the entities are residents (for example,
government agencies with personnel stationed abroad),
and goods lost or destroyed after crossing a customs
frontier but before delivery is made by the exporter.
238. In addition, offsets are made under transportation
to certain flows that may occur between residents and
between nonresidents and that may be included in
goods when such goods are valued uniformly at the
customs frontier of the economy from which the goods
are exported. Specifically, credits are included by the
importing economy for services performed within the
customs frontier of the exporting economy, and debits
are included by the exporting economy for services that
nonresidents perform within the customs frontier of
that economy.
Rentals of Transportation Equipment with
Crew
239. This category covers rentals or operational leases
made by residents to nonresidents and vice-versa of
vessels, aircraft, freight cars, or other commercial
vehicles with crews for limited periods (such as a
single voyage) for the carriage of freight and/or
passengers. Also included are towing and services
related to the transportation of oil platforms, floating
cranes, and dredges. These rentals are included, as
appropriate, in passenger services or freight services.
Excluded are financial leases (equivalent to changes of
ownership with related payments recorded, as
appropriate, under income and amortization) or time
charters (for longer periods) for which paragraph 80 is
particularly relevant.
Supporting and Auxiliary Services
240. This category covers a range of services provided
in ports, airports, and other terminal facilities. Among
STRUCTURE AND CLASSIFICATION
62
such services are cargo handling (loading and unloading
of containers.); storage and warehousing; packing and
repacking; other towing, pilotage, and navigational aid
for carriers; maintenance and cleaning of transportation
equipment; and salvage operations. Also included are
commissions and agents’ fees associated with passenger
and freight transportation. These services are recorded as
other transportation services.
CHAPTER XI
63
Nature of Travel Services
241. Travel 3 differs from other components of
international services in that it is a demand-oriented
activity. The consumer (traveler)4 moves to the location
of the provider (residents of the economy visited) for
the goods and services desired by the traveler. Thus,
unlike other services, travel is not a specific type of
service but an assortment of services consumed by
travelers. Travel is not identified as a service in the
CPC.
Definition
242. Travel covers primarily the goods and services
acquired from an economy by travelers (defined in
paragraph 243) during visits of less than one year in
that economy. The goods and services are purchased
by, or on behalf of, the traveler or provided, without a
quid pro quo, for the traveler to use or give away.
Excluded is the international carriage of travelers,
which is covered in passenger services under
transportation. (See paragraph 232.)
243 A traveler is an individual staying, for less than
one year, in an economy of which he is not a resident
for any purpose other than (i) being stationed on a
military base or being an employee (including
diplomats and other embassy personnel) of an agency
of his or her government, (ii) being an accompanying
dependent of an individual mentioned under (i), or
(iii) undertaking a productive activity directly for an
entity that is a resident of that economy. (See
paragraphs 67 through 70.) Expenditures made by
individuals covered in (i) and (ii) are recorded under
government services n.i.e. (See Chapter 13.) Expenditures
made by individuals (including seasonal and
border workers) covered in (iii) are included under
travel. Travelers include tourists, who spend at least
one night in the country visited, and same-day travelers
or excursionists, who stay less than twenty-four hours
and do not remain overnight. The latter group may be
shown as a separate category, or as a memorandum
item, by economies in which same-day travelers
account for significant transactions.
244. The one-year rule does not apply to students and
medical patients, who remain residents of their
economies of origin even if the length of stay in
another economy is one year or more. All
expenditures, including those for educational and
health-related purposes (such as tuition, room and
board paid for or provided by educational institutions,
hospital charges, treatments, physicians’ fees, etc.),
made by students and medical patients are recorded
under travel and separately identified, if possible, under
Selected Supplementary Information. (See the table
following Chapter 8.) Fees for services rendered abroad
(including provision of correspondence courses) by
teachers or doctors are recorded under personal,
cultural, and recreational services.
Types of Travel
245. Although the list of standard components
contained in this Manual includes only two items for
travel (business and personal), there are distinctions
within both categories. (See subsequent sections, which
may be of significance for various analytical purposes,
on business travel and personal travel.)
Business travel
246. The business travel category covers travelers
going abroad for all types of business activities: carrier
crews stopping off or lying over; government
employees on official travel; employees of international
organizations on official business; and employees doing
work for enterprises that are not resident in the
economies in which the work occurs.
247. Business travelers are those who visit an economy
for sales campaigns, market exploration, commercial
negotiations, missions, meetings, production or
installation work, or other business purposes on behalf
of an enterprise resident in another economy. Travel
64
XII. Travel
3As used in this Manual, the term travel is synonymous with the term tourism
used in the SNA and by the World Tourism Organization (WTO).
4The term traveler is broadly synonymous with the term visitor used by the
WTO.
refers to personal acquisitions of goods and services
(including those for which the business travelers are
reimbursed by employers) but not the sales or
purchases that the business travelers may conclude on
behalf of the enterprises they represent. Personal
expenditures on goods and services by seasonal,
border, and other nonresident workers in the
economies in which they are employed also are
recorded under travel. (See paragraphs 246 and 271.)
These expenditures are not included under tourism by
the WTO.
248. Government employees and employees of
international organizations on official travel (paragraph
246) are distinguished from employees stationed or
living, respectively, in the country. (Purchases for the
latter are included in government services n.i.e.)
Personal travel
249. This category covers travelers going abroad for
purposes other than business (e.g., for leisure activities
such as holidays, participation in sports and other
recreational and cultural activities, visits with relatives
and friends, pilgrimage and religious observances,
studies, and health-related purposes). Also included in
this category are government employees on leave in
economies other than those in which they are residents
(or those in which they are stationed) and transit
travelers visiting countries en route to other
destinations.
Goods and Services Covered
250. All goods and services acquired by travelers (as
defined previously) from the economies in which they
are traveling and for their own use are recorded under
travel. These goods and services may be paid for by
the traveler, paid for on his or her behalf, or provided
to him or her without a quid pro quo (e.g., free room
and board received by official visitors or by friends and
relatives). In practice, information on goods and
services provided without a quid pro quo will not
usually be available. If information is available, a contra
entry is included under transfers.
251. The most common goods and services entered in
travel are lodging, food and beverages, entertainment,
and transportation within the economy visited—all of
which are consumed in the providing economy—and
gifts, souvenirs, and articles (irrespective of value)
purchased for travelers’ own uses and taken out of the
economies visited.
CHAPTER XII
65
Coverage
252. Other services comprise those international service
transactions not covered under transportation and
travel. The significance and data constraints limiting the
recording of classifications of international services vary
widely among countries. The classifications reflect the
increasing global importance of items such as
communications services and financial services; better
linkage between classifications of balance of payments
services and the Central Product Classification;5 the
analytic value of classifications to compilers and users; a
high degree of compatibility with similar classifications
of other international organizations; and the statistical
requirements for multilateral negotiations on
international services. The classifications also establish a
framework to encompass transactions anticipated to be
of growing importance in the future.
Definitions
253. Communications services covers two primary
categories of transactions between residents and
nonresidents in international communications. These
are (i) telecommunications, which encompass the
transmission of sound, images, or other information by
telephone, telex, telegram, cable, broadcasting, satellite,
electronic mail, facsimile services, etc. and include
business network services, teleconferencing, and
support services; and (ii) postal and courier services,
which encompass the pickup, transport, and delivery of
letters, newspapers, periodicals, brochures, other
printed matter, parcels, and packages by national postal
administrations and other operators. Also included are
post office counter and mailbox rental services.
254. Construction services covers work performed on
construction projects and installations by employees of
an enterprise in locations outside the economic territory
of the enterprise. (The work is generally performed for
a short time period; the one-year rule is to be applied
flexibly.) Goods imported by the enterprise for use in
the projects are included in the value of these services
rather than being recorded under goods; expenditures
for local supplies, etc. are included under other
business services. Projects carried out by foreign
subsidiaries or branches of enterprises (direct investors)
and certain site offices are excluded because such
projects are part of the production of the host
economy. For aspects of residency concerning major
projects (such as bridges, dams, etc.) carried out over
several years and for factors that determine the
attribution of production and are particularly relevant
for construction site offices, see paragraph 78.
255. Insurance services covers the provision of various
types of insurance to nonresidents by resident insurance
enterprises, and vice versa. Such services cover freight
insurance (i.e., insurance on goods that are in the
process of being exported or imported); other types of
direct insurance (i.e., life—including pension and
annuity services, other casualty or accident, health,
general liability, fire, marine, aviation, etc. insurance);
and reinsurance. The specific classification of various
types of insurance is determined by individual countries
according to particular requirements. Also recorded as
insurance services are agent commissions related to
insurance transactions.
256. Treatment of freight insurance is consistent with
the f.o.b. valuation of merchandise exports and
imports. Insurance cost up to the customs frontier of
the exporting economy is included in the f.o.b. value of
the goods exported. If that insurance is paid for by the
importer (e.g., through an enterprise resident in the
importer’s economy), the exporter is deemed to
purchase the insurance and simultaneously recover the
cost from the f.o.b. value recorded in the accounts.
Insurance services provided for goods after the goods
have crossed the customs frontier of the exporting
economy are recorded as imports of insurance services
by the importer when the insurance is provided by an
enterprise nonresident in the importing economy. If the
insurance is provided by an enterprise resident in the
importing economy, no entry is made in balance of
payments accounts.
257. International insurance services are estimated or
valued by service charges included in total premiums
66
XIII. Other Services
5The relationship of the classifications of balance of payments services to the
CPC is detailed in Appendix 3.
earned rather than by total premiums. In principle, the
measurement of transactions in international insurance
services is consistent with that described in the SNA for
insurance services for resident sectors. However, in
practice, both the Manual and the SNA allow
resident-nonresident flows associated with investment
income on technical reserves to be ignored because of
estimation problems, particularly for imports.6 Thus, for
goods, the insurance service charges for resident issuers
providing insurance services to nonresidents (credit) are
the difference between premiums earned and claims
payable on goods lost or destroyed in transit. The
service charges for nonresident issuers providing
services to residents (debit) can be estimated by taking
the ratio of estimated service charges to total premiums
for exports of insurance services and applying the ratio
to total premiums paid to nonresident issuers. The ratio
should be based on a medium- to long-term period. For
other types of direct insurance (and pension and
annuity services), the service charges for nonresident
insurers providing services to residents can be estimated
by applying the ratio of estimated service charges to
total premiums for resident insurers or to contributions
received by resident pension funds. Again, the ratio
should be based on a medium- to long-term period. For
non-life insurance, total premiums minus the estimated
service charge and claims payable should be recorded
under current transfers. For life insurance, premiums
minus the service charges and claims payable should be
recorded in the financial account under other
investment. (For some purposes—e.g., for use in trade
negotiations—total premiums and claims are relevant
and are shown as memorandum items under insurance
services.) For reinsurance, exports of services (credits)
are, in principle, estimated as the balance of all flows
occurring between resident reinsurers and nonresident
insurers. Imports (debits) are, in principle, estimated as
the balance of all flows occurring between resident
insurers and nonresident reinsurers.
258. Financial services covers financial intermediary
and auxiliary services (except those of insurance
enterprises and pension funds) conducted between
residents and nonresidents. Included are intermediary
service fees, such as those associated with letters of
credit, bankers’ acceptances, lines of credit, financial
leasing, and foreign exchange transactions. (For the
latter, the spread between the midpoint rate and the
buying or selling rate is the service charge.) Also
included are commissions and other fees related to
transactions in securities—brokerage, placements of
issues, underwritings, redemptions, and arrangements
of swaps, options, and other hedging instruments;
commissions of commodity futures traders; and services
related to asset management, financial market
operational and regulatory services, security custody
services, etc. Service charges on purchases of
International Monetary Fund resources are included
among an economy’s financial service payments, as are
charges (similar to commitment fees) associated with
undrawn balances under stand-by or extended
arrangements with the IMF.7
259. Computer and information services covers computer
data and news-related service transactions between
residents and nonresidents. Included are data bases,
such as development, storage, and on-line time series;
data processing—including tabulation, provision of
processing services on a time-share or specific (hourly)
basis, and management of facilities of others on a
continuing basis; hardware consultancy; software
implementation—including design, development, and
programming of customized systems; maintenance and
repair of computers and peripheral equipment; news
agency services—including provision of news, photographs,
and feature articles to the media; and direct,
non-bulk subscriptions to newspapers and periodicals.
260. Royalties and license fees covers the exchange of
payments and receipts between residents and
nonresidents for the authorized use of intangible,
nonproduced, nonfinancial assets and proprietary rights
(such as patents, copyrights, trademarks, industrial
processes, franchises, etc.) and with the use, through
licensing agreements, of produced originals or
prototypes (such as manuscripts and films). Inclusion of
this item under services, rather than under income, is
in accordance with the SNA treatment of such items as
payments for production of services for intermediate
consumption or receipts from sales of output used as
intermediate inputs.
261. Other business services covers various categories,
other than those previously defined, of service transactions
between residents and nonresidents. The
grouping of these services is not indicative of the
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67
6 Insurance technical reserves cover actuarial reserves against outstanding risks
and reserves for with-profits insurance, prepayments of premiums, and reserves
against unsettled claims.
7 In the SNA, in addition to the explicit commissions and fees noted previously,
there is an item for financial intermediation services indirectly measured. These
reflect financial service charges that, while not explicit, may be imputed or
derived from the differences between appropriate reference interest rates and
rates actually applied to loans, debt securities, or deposits. Such imputations
are equivalent to reclassifying a portion of interest as financial services. As a
reflection of the views of national balance of payments compilers, this
procedure is not recommended in this Manual. As a result, these implicit
services are reported indistinguishably under investment income (interest).
relative importance of the services, either to each other
or to previously mentioned services. For instance,
merchanting and other trade-related services are very
important for a number of countries, and other
particular categories may be equally important for other
countries. The grouping generally reflects harmonization
efforts on the part of the IMF and other
international organizations involved with the expansion
and improvement of data on international service
transactions.
262. Merchanting and other trade-related services
covers commissions on goods and service transactions
between (i) resident merchants, commodity brokers,
dealers, and commission agents and (ii) nonresidents.
(See paragraph 228.) This category includes transactions
in ships, aircraft, and auction sales as well.
Merchanting is defined as the purchase of a good by a
resident (of the compiling economy) from a
nonresident and the subsequent resale of the good to
another nonresident; during the process, the good does
not enter or leave the compiling economy. (Changes in
stocks held abroad by merchants are excluded.) The
difference between the value of goods when acquired
and the value when sold is recorded as the value of
merchanting services provided. If the commodities are
not resold by the merchant in the same accounting
period, an import of goods is recorded in the first
period, and a negative import entry is recorded in the
later period. (See paragraph 213.) Although merchanting
is recorded on a net basis, separate data recorded
on a gross basis may be useful for analytical purposes.
263. Operational leasing (rental) without operators
covers resident-nonresident leasing (other than financial
leasing) and charters of ships, aircraft, and transportation
equipment such as railway cars, containers, rigs,
etc. without crew.
264. Miscellaneous business, professional, and
technical services covers the following services:
Legal, accounting, management consulting, and
public relations services cover the provision (by or
for residents for or by nonresidents) of legal advice,
representation, and documentation; accounting,
auditing, bookkeeping, and tax consultant services;
and management consulting related to the provision
of advice, guidance, or operational assistance to
business.
Advertising and market research services transacted
between residents and nonresidents cover the
design, creation, and marketing of advertisements by
advertising agencies; media placement, including the
purchase and sale of advertising space; exhibition
services provided by trade fairs; the promotion of
products abroad; market research; and public
opinion polling abroad on various issues.
Research and development services cover those
services that are transacted between residents and
nonresidents and associated with basic research,
applied research, and experimental development of
new products and processes. In principle, such
activities in the sciences, social sciences, and
humanities are covered; included is the development
of operating systems that represent technological
advances.
Architectural, engineering and other technical
services cover resident-nonresident transactions
related to architectural design of urban and other
development projects; planning and project design
and supervision of dams, bridges, airports, turnkey
projects, etc.; surveying, cartography, product testing
and certification, and technical inspection services.
Agricultural, mining, and on-site processing services
provided by or to residents to or by nonresidents
cover services associated with agricultural crops
(e.g., protection against insects and disease,
increasing of harvest yields, etc.); forestry services;
mining-related services (e.g., analysis of ores, etc.);
and on-site processing of, or work on, goods that
have been imported but not re-exported (e.g.,
nuclear waste processing) or vice versa. (See
paragraph 199.)
Other services transacted between residents and
nonresidents cover items such as placement of
personnel, security and investigative services;
translation and interpretation; photographic services;
building cleaning, etc. Also included are payments
for local supplies, utility payments, etc. by nonresident
enterprises engaged in construction services.
These services are listed as sub-items in the Selected
Supplementary Information table at the end of
Chapter 8.
265. Personal, cultural, and recreational services
involving transactions between residents and
nonresidents are subdivided into two categories:
(i) audiovisual and related services and (ii) other
cultural and recreational services. The first category
comprises services and associated fees related to the
production of motion pictures (on film or video tape),
radio and television programs (live or on tape), and
musical recordings. Included are receipts or payments
for rentals; fees received by resident actors, directors,
STRUCTURE AND CLASSIFICATION
68
producers, etc. (or by nonresidents in the compiling
economy) for productions abroad; and fees for distribution
rights sold to the media for a limited number of
showings in specified areas. Fees to actors, producers,
etc. involved with theatrical and musical productions,
sporting events, circuses, etc. and fees for distribution
rights (for television, radio, etc.) for these activities are
included. The second category comprises other
personal, cultural, and recreational services such as
those associated with museums, libraries, archives, and
other cultural, sporting, and recreational activities. Also
included are fees for services, including provision of
correspondence courses, rendered abroad by teachers
or doctors.
266. Government services n.i.e. is a residual category
covering government service transactions (including
those of international organizations) not contained in
previous classifications. Included are all transactions
by embassies, consulates, military units, and defense
agencies with residents of economies in which the
embassies, etc. are located and all transactions with
other economies. (Excluded are transactions with
residents of the home countries represented by the
embassies, consulates, etc. and transactions in the
commissaries, post exchanges, etc. of the embassies,
consulates, etc.) Transactions in this category comprise
those for goods and services (such as office supplies,
furnishings, utilities, official vehicles and the operation
and maintenance thereof, and official entertainment)
and personal expenditures incurred by diplomats and
consular staff and their dependents in the economies
in which they are located. Also recorded in this
category are transactions, subject to the same
considerations as those in the preceding item, by
other official entities (such as aid missions and
government tourist, information, and promotion
offices) located in economies abroad. Included, as
well, are transactions associated with general
administrative expenditures, etc. and not classified
elsewhere. In addition, transactions associated with aid
services that are provided by non-military agencies, do
not give rise to any payments, and have offsets in
transfers are recorded in this category. Last,
transactions associated with the provision of joint
military arrangements and peacekeeping forces, such
as those of the United Nations, are recorded in
government services n.i.e.
CHAPTER XIII
69
Coverage
267. Income covers two types of transactions between
residents and nonresidents: (i) those involving
compensation of employees, which is paid to
nonresident workers (e.g., border, seasonal, and other
short-term workers), and (ii) those involving investment
income receipts and payments on external financial
assets and liabilities. Included in the latter are receipts
and payments on direct investment, portfolio
investment, other investment, and receipts on reserve
assets. Income derived from the use of tangible assets
is excluded from income and classified, as appropriate,
under leasing or rentals, under other business services,
or under transportation. Financial leasing arrangements
are considered evidence that a change of ownership is
intended (see paragraph 206), and part of the lease
payments is construed as income on a financial asset.
268. Holding (capital) gains and losses are not
classified as income on investments but as part of the
value of the investments. All realized holding gains and
losses arising from transactions are included in the
financial account; unrealized valuation changes are
not included. However, some debt securities (such as
bonds, notes, and bills) are originally issued at values
that differ from the stated fixed sums that holders have
the unconditional right to receive when the obligations
mature. These premiums or discounts should be
regarded as negative interest or interest, respectively,
rather than as holding losses or gains. The values of
securities entered in the financial account are the
amounts for which the securities were actually issued.
The fixed sums paid at maturity comprise both
repayments of original principal amounts and (negative
or positive) interest; the interest should be shown as
investment income.
Definition and Classification
269. Compensation of employees comprises wages,
salaries, and other benefits (in cash or in kind) earned
by individuals—in economies other than those in which
they are residents—for work performed for and paid
for by residents of those economies. Included are
contributions paid by employers, on behalf of
employees, to social security schemes or to private
insurance or pension funds (whether funded or
unfunded) to secure benefits for employees.
Employees, in this context, include seasonal or other
short-term workers (less than one year) and border
workers who have centers of economic interest in their
own economies. Because embassies and consulates are
considered extraterritorial to the economies in which
they are located, the compensation received by local
(host country) staff of these institutional entities is
classified as that paid to resident entities by nonresident
entities.
270. Compensation paid to employees by international
organizations, which are treated as extraterritorial
entities, represents payments to residents from
nonresident entities if the employees are residents of
the economies of location. Also, if the employees are
from other economies but are employed for one year
or more, they are treated as residents of the economies
of location, and their compensation is classified in the
same manner. Thus, in the case of employees from
other economies who are employed for less than one
year, no payments to residents are involved. (For
treatment of technical assistance personnel working
abroad on assignments of one year or more, see
paragraph 69.)
271. Personal expenditures made by nonresident
seasonal and border workers in the economies in
which they are employed and personal expenditures
made by those working on installation projects are
recorded under travel. Taxes paid, contributions made
to pension funds, etc. in those economies are recorded
as current transfer payments. Gross recording of
compensation and expenditures is recommended in this
Manual, although recording may, on practical grounds,
be limited to estimates of net income in some
instances.
272. In practice, it is often difficult to make the
distinction between persons whose earnings are
classified as compensation of employees, even though
they are not residents of the economies in which they
work, and migrants who have become residents of
70
XIV. Income
economies by virtue of being expected to live there
for a year or more. (See paragraphs 352 through 355.)
The activities of an individual—whether he or she is
regarded as a resident or a migrant—do not affect the
aggregate transactions of the compiling economy with
the rest of the world. Therefore, difficulties on this
score will not, in principle, be a source of net errors
and omissions in the balance of payments. Even so,
efforts should be made to observe the distinction
between nonresident workers and migrants. Otherwise,
the comparability of balance of payments statements
for the two compiling economies will suffer from
dissimilar statistical treatment of the same individuals.
273. Nonresidents of an economy may engage in
transactions associated with the use of land for noncommercial
purposes. Such transactions are usually
included indistinguishably under components other
than income (for example., travel or government
services n.i.e.).
274. Investment income (property income in the SNA)
covers income derived from a resident entity’s
ownership of foreign financial assets. The most
common types of investment income are income on
equity (dividends) and income on debt (interest).
Dividends, including stock dividends, are the
distributed earnings allocated to shares and other
forms of participation in the equity of incorporated
private enterprises, cooperatives, and public
corporations. Dividends represent income that is
payable without a binding agreement between the
creditor and the debtor. Among other types of income
on equity are (i) earnings of branches and other
unincorporated direct investment enterprises and
(ii) direct investors’ shares of earnings of incorporated
direct investment enterprises. (The latter type of
earnings, which are not formally distributed, are
earnings other than dividends.) Shares of reinvested
earnings attributed to direct investors are
proportionate to the participation of the direct
investors in the equity of the enterprise. Also, in
principle, income is imputed to households from net
equity in life insurance reserves and pension funds
and included indistinguishably under other investment.
Interest, including discounts in lieu of interest,
comprises income on loans and debt securities (i.e.,
bank deposits, bills, bonds, notes, and trade
advances). Net interest flows arising from interest rate
swaps also are included. (See paragraph 406.) Interest
is payable in accordance with a binding agreement
between the creditor and the debtor.
275. The components of investment income are
classified as direct investment, portfolio investment, and
other investment income.
Direct investment income
276. The two categories under this heading—income
on equity and income on debt—cover income accruing
to a direct investor resident in one economy from the
ownership of direct investment capital in an enterprise
in another economy. (See paragraphs 330 and 368 for
the definition of direct investment capital.) Income on
direct investment is presented on a net basis for direct
investment made abroad and in the reporting economy
(i.e., receipts of income on equity and income on debt
less payments on income on equity and income on
debt for each).
277. Income on equity is subdivided into (i) distributed
income (dividends and distributed branch profits) and
(ii) reinvested earnings and undistributed branch
profits. Distributed income may consist of dividends on
common or preferred shares owned by direct investors
in associated enterprises abroad, or vice versa.
278. Reinvested earnings comprise direct investors’
shares—in proportion to equity held—of (i) earnings
that foreign subsidiaries and associated enterprises do
not distribute as dividends and (ii) earnings that
branches and other unincorporated enterprises do not
remit to direct investors. (If that part of earnings is not
identified, all branch earnings are considered, by
convention, to be distributed.) Thus, reinvested
earnings may be calculated as the entrepreneurial
income (net operating surplus) of the direct investment
enterprise, plus any income or current transfers
receivable, minus any income or current transfers
payable. The latter include any current taxes payable
on income, wealth, etc.
279. Income on debt consists of interest payable—on
intercompany debt—to or from direct investors from or
to associated enterprises abroad. Income on
nonparticipating preference shares is treated as interest
income, rather than dividend income, and is recorded
in income on debt.
Portfolio investment income
280. Portfolio investment income comprises income
transactions between residents and nonresidents and is
derived from holdings of shares, bonds, notes, and
money market instruments and associated with financial
derivatives. This category is subdivided into income on
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71
equity (dividends) and income on debt (interest). See
Chapter 19 for details on new financial instruments and
treatment of financial derivatives, such as options. The
financial instrument classification scheme for portfolio
investment income is consistent with that in the
financial account and with that in the international
investment position. Subsectoring into domestic
institutional sectors (monetary authorities, general
government, banks, and other) is shown under
Selected Supplementary Information. (See the table
at the end of Chapter 8.) A variety of other
supplementary disaggregations by foreign sector, etc.
may be desirable for specific analytical purposes.
Other investment income
281. Other investment income covers interest receipts
and payments on all other resident claims (assets) on
and liabilities to nonresidents, respectively. This
category also includes, in principle, imputed income to
households from net equity in life insurance reserves
and in pension funds. Other investment income is
classified by the domestic sectors previously noted.
Interest on assets comprises interest on long- and
short-term loans, on deposits, on other commercial and
financial claims, and on an economy’s creditor position
in the Fund, SDR holdings, and loans to the Fund.
Interest on liabilities covers interest on loans, on
deposits, and on other claims and interest related to the
use of Fund credit and loans from the Fund. Also
included is interest paid to the IMF on the Fund’s SDR
holdings in the General Resources Account. Borderline
distinctions may arise between interest income and
certain commissions and fees, such as commitment
charges on undrawn funds. These are included in
financial services. (See Chapter 13.)
Time of Recording of Investment Income
282. Dividends are recorded as of the date payable.
Interest income is recorded on an accrual basis. If the
interest is not actually paid, an income entry is
recorded under the appropriate instrument and a
counterpart entry is made in the financial account to
reflect an increase in the claim associated with
nonpayment. (See paragraph 121.)
283. For zero coupon and other deep discounted
bonds, the substantial difference between the
discounted issue price and the value at maturity is
treated as interest. That difference is recorded as
accruing over the life of the bond as a series of interest
payments rather than being recorded when the interest
is due for payment. If these securities are traded—prior
to maturity—in the secondary market, prevailing rates
that reflect the difference between the new owner’s
cost and the value at maturity should be used for the
subsequent recording of interest on these securities.
Implementation of this treatment may be difficult. (See
paragraph 396.) Reinvested earnings of direct
investment enterprises are recorded in the balance of
payments in the periods in which the income is earned.
Distributed (remitted) earnings of branches and other
unincorporated enterprises are recorded as of the times
the earnings are transferred.
284. This difference in times of recording for earnings
that are formally distributed and for other earnings is
attributable to the fact that reinvested earnings
represent the net income accruing during a specific
period. In contrast, dividends and remitted earnings of
branches are discretionary distributions that can be
made at any time—even in a period when a net loss is
sustained. Therefore, these dividends and remitted
earnings are not attributable to the earnings of a
particular period. To determine the period in which
those reinvested earnings are earned or other
investment income becomes payable, it may be helpful
to refer to balance sheets, annual reports, and similar
documents of the direct investor or the enterprise.
Measurement and Recording of Direct
Investment Earnings
285. Direct investment earnings are measured on the
basis of current operating performance. Operational
earnings represent income from normal operations of
the enterprise and do not include any realized or
unrealized holding (capital) gains or losses arising from
valuation changes, such as inventory write-offs; gains or
losses on plant and equipment from the closure of part
or all of a business; write-offs of intangibles, including
goodwill, because of unusual events or developments
during the period; write-offs of research and development
expenditures; losses on the write-offs of bad
debts or on expropriation without compensation;
abnormal provisions for losses on long-term contracts;
and exchange-rate-related gains and losses. Unrealized
gains or losses resulting from the revaluation of fixed
assets, investments, and liabilities and any realized
gains or losses resulting from the disposal of assets or
liabilities should be excluded from direct investment
earnings; that is, gains should not be added in and
losses should not be deducted. In addition, valuation
changes resulting from unforeseen obsolescence,
catastrophes, and depletion of natural resources are
STRUCTURE AND CLASSIFICATION
72
treated as holding losses at the times that the decreases
in values actually occur. Because data for many
countries are available only on an all-inclusive basis,
when holding gains and losses and other extraordinary
income are included in reported earnings, those
countries that report earnings on either an operating
basis or all-inclusive basis should collect and publish
supplementary information on holding gains and losses
and other extraordinary items. This practice would
enhance international comparability for both flows and
stock positions.
286. Earnings of a direct investment enterprise are
measured net of income or corporation taxes payable
without penalty during the recording period by the
enterprise to the economy in which that enterprise
operates. This practice is followed because such taxes
are considered payable by the enterprise and not by its
owners. Furthermore, earnings should be calculated net
of any provision for depreciation of fixed capital.
Depreciation is measured by the value, at current
replacement cost, of the reproducible fixed assets used
up (as a result of normal wear and tear, foreseen
obsolescence, and accidental damage not made good
by repair) during an accounting period. In the
calculation of depreciation, the expected economic life
of an individual asset should be taken into account.
Although depreciation should, in principle, be
calculated at current replacement cost, often the only
data available may be based on historical cost.
287. Dividends payable to direct investors, remitted
branch earnings, and interest payable by direct
investment enterprises are recorded gross of any
withholding taxes. These taxes are deemed paid by the
recipient and are transferred to the country of the direct
investment enterprise and recorded under transfers.
288. Reinvested (undistributed) earnings of branches
and other unincorporated direct investment enterprises
and direct investors’ shares of earnings, which are not
formally distributed, of incorporated direct investment
enterprises are deemed to provide additional capital to
the enterprises and to increase the value of an
economy’s stock of foreign assets and liabilities. When
such earnings are recorded in the balance of payments,
therefore, entries should be made both for direct
investment income and for direct investment capital.
For example, reinvested earnings attributable to a
resident direct investor of a direct investment
subsidiary or of a branch should be entered as a
credit in the current account under direct
investment income (income on equity) and as a debit
in the financial account under direct investmentabroad
(reinvested earnings). Portfolio investors’
shares in earnings, which are not formally distributed,
of incorporated direct investment enterprises should
not be entered in the balance of payments.
289. Direct investors’ shares in net losses, other than
holding (capital) losses of enterprises, should be
recorded as negative income in the direct investment
income component of the balance of payments. Thus,
the economy recording losses on residents’ direct
investments made abroad should enter the losses as
negative credits, while the economy in which the
direct investment is made should record the losses as
negative debits. This method of recording losses is
used so that the credit side of the component will
reflect the compiling economy’s net earnings on
direct investments made abroad, while the debit side
will refer to nonresident direct investors’ net earnings
on direct investments in the compiling economy.
Stock Dividends, Bonus Shares, and
Liquidating Dividends
290. The distribution of earnings, in the form of
stock dividends, to nonresident shareholders is
construed as a capitalization of current earnings and
an alternative to distributing cash dividends. Such
earnings distributions are recorded in the balance of
payments in the same manner as reinvested earnings
(i.e., as investment income in the current account
and as offsetting equity investment in the financial
account). General bonus shares, on the other hand,
represent the substitution of one type of equity (paidup
capital or capital stock) for another (reinvested
earnings) and thus should not be recorded in the
balance of payments. (In some countries,
accumulated reserves from reinvested earnings are
credited to a reserve account that is converted to
bonus shares when the account reaches a certain
level.) Liquidating dividends are excluded from
investment income because such dividends represent
returns of capital contributions rather than remittance
(distribution) of earnings. Therefore, liquidating
dividends should be recorded in the financial
account as withdrawals of capital.
CHAPTER XIV
73
Definition and Coverage
291. When an entry in the balance of payments
records that a resident entity in one economy has
provided a nonresident entity with a real resource or a
financial item (e.g., goods, the provision of a service, or
a financial or nonfinancial asset), the double-entry
system requires that an offsetting entry be made. If the
offsetting entry does not consist of the provision of a
real resource or a financial item, the offset is designated
as a transfer. The coverage of transfers in the balance
of payments is determined by decisions regarding two
issues.
292. The first issue is whether or not the provision of
an economic value should be recorded even when no
quid pro quo is received. If such a provision is not
recorded, no offsetting entry showing a transfer is
required. The recommendation in this Manual,
however, is that the balance of payments statement
should show all economic values, including those
without a quid pro quo, provided by residents of one
economy to residents of another economy. The
statement should also show changes in real resources
and financial items whenever such changes result from
changes of residence (migration) on the part of
individuals and whenever the changes affect a specific
economy and the rest of the world. The statement
should exclude similar changes that come about
through changes in the territory of an economy.
293. The second issue concerns the separation of
benefits provided or received into (i) those regarded as
economic values (i.e., those that constitute real
resources or financial items) and (ii) those on which no
economic value is placed (i.e., those that do not
provide a quid pro quo and thus constitute transfers).
The intended distinction between intangible real
resources (services and income) and transfers that offer
no quid pro quo cannot be precisely defined. (See
paragraph 191.) In contrast to real resources, transfers,
which may be voluntary or obligatory, often reflect
benefits that cannot be quantified (e.g., improved
political or economic relationships between parties;
nonspecific amounts of services, such as administrative,
protective, and defense services made available by
governments to taxpayers; or intangibles, such as those
involved in carrier registration, provided on a
compulsory basis).
294. In a departure from all previous editions of the
Manual, the fifth edition identifies transfers as current
and capital. As a result of this change in treatment, only
current transfers are included in the current
account; capital transfers are included in the capital
account component of the capital and financial
account. The new treatment reflects international efforts
to harmonize the Manual with the SNA and eliminates a
major discordance between the two systems.
Distinction Between Current and Capital
Transfers
295. To distinguish current transfers from capital
transfers, the reader may find it helpful to focus on
the special characteristics of capital transfers. First, a
transfer in kind is a capital transfer when it consists of
(i) the transfer of ownership of a fixed asset or
(ii) the forgiveness of a liability by a creditor when no
counterpart is received in return. Second, a transfer of
cash is a capital transfer when it is linked to, or
conditional on, the acquisition or disposal of a fixed
asset (for example, an investment grant) by one or
both parties to the transaction. A capital transfer
should result in a commensurate change in the stocks
of assets of one or both parties to the transaction.
Capital transfers also may be distinguished by being
large and infrequent, but capital transfers cannot be
defined in terms of size or frequency.
296. Current transfers consist of all transfers that are
not transfers of capital. Current transfers directly
affect the level of disposable income and should
influence the consumption of goods or services. That
is, current transfers reduce the income and consumption
possibilities of the donor and increase the
income and consumption possibilities of the recipient.
297. A cash transfer could be regarded as a capital
transfer by one party to a transaction and as a current
transfer by the other party. So that a donor and a
recipient do not treat the same transaction differently, it
74
XV. Current Transfers
is recommended that a transfer be classified as a capital
transfer by both parties—even if the transfer is linked
to the acquisition or disposal of a fixed asset by only
one of the parties. On the other hand, if available
evidence creates serious doubt that a cash transfer
should be classified as a capital transfer, the transfer
should be classified as a current transfer. (The
Manual and the SNA contain consistent criteria for
distinguishing between the two types of transfers.)
Classification
298. Current transfers are classified, according to the
sector of the compiling economy, into two main
categories: general government and other sectors.
General government transfers comprise current
international cooperation, which covers current
transfers—in cash or in kind—between governments of
different economies or between governments and
international organizations. Included are
cash transfers effected between governments for the
purpose of financing current expenditures by the
recipient government
gifts of food, clothing, other consumer goods,
medical supplies, etc. associated with relief efforts in
the wake of famine, earthquakes, other natural
disasters, war, or other actions (Administrative costs
directly associated with aid are included.)
gifts of certain military equipment, that is, weapons
and the equipment to support and deliver weapons,
which—by convention—are not treated as fixed
assets in the Manual or in the SNA (Other durable
equipment—such as most structures—and transport,
hospital, and communications equipment are treated
as fixed assets and are included under capital
transfers. See paragraph 349.)
annual or other regular contributions paid by
member governments to international organizations
and regular transfers made as a matter of policy by
the international organizations to governments
payments by governments or international
organizations to governments for salaries of technical
assistance staff and for related costs and expenses.
299. Other transfers of general government cover
offsets to transactions between governments of
compiling economies and nonresidents other than
governments and international organizations. Included
on the credit side are current taxes on income, wealth,
etc. and other transfers, such as social security scheme
contributions. Social benefits, refunds of taxes,
indemnity payments, and pension payments from
unfunded plans are included on the debit side. Other
taxes and subsidies on production, including those
implicit under a multiple official exchange rate system,
are covered when appropriate. (See paragraph 134.)
300. Any fines, penalties, or interest charges on the
late payment of taxes are included in the value of
taxes. Other fines are treated separately as current
transfers. By convention, payments (fees) for carrier
registrations or for licenses to fish, hunt, etc. are treated
as taxes and included in transfers; other fees, such as
those for passports and airport fees, to governments are
treated as payments for government services rather than
as transfers.
301. Current transfers between other sectors of an
economy and nonresidents comprise those occurring
between individuals, between nongovernmental institutions
or organizations (or between the two groups), or
between nonresident governmental institutions and
individuals or nongovernmental institutions. The same
basic items (described in paragraphs 298 through 300)
for the government sector are generally applicable to
other sectors, although there are some differences
within components. In addition, there is the category of
workers’ remittances.
302. Workers’ remittances covers current transfers
by migrants who are employed in new economies and
considered residents there. (A migrant is a person who
comes to an economy and stays, or is expected to stay,
for a year or more.) Workers’ remittances often involve
related persons. Persons who work for and stay in new
economies for less than a year are considered nonresidents;
their transactions are appropriate mainly to
the component for compensation of employees. (See
paragraphs 269 through 272.)
303. Other current transfers, in cash or in kind,
between resident and nonresident entities include those
(such as food, clothing, other consumer goods, medical
supplies, etc.) for distribution to relieve hardships
caused by famine, other natural disasters, war, etc. and
regular contributions (including membership dues) to
charitable, religious, scientific, and cultural organizations.
Also covered are gifts, dowries, and inheritances;
alimony and other support remittances; tickets sold by,
and prizes won from, lotteries; and payments from
unfunded pension plans by nongovernmental
organizations.
304. Included among other transfers are entries made,
on the debit side, for private parties for taxes on
income, wealth, etc. and social security contributions
CHAPTER XV
75
paid to governments. (These transfers are the counterpart
entries to be made, on the credit side, for general
government. See paragraph 299.) Conversely, entries
made, on the credit side, for social benefits and refunds
of taxes to private transactors are the counterparts to
such entries on the debit side for government.
Premiums (minus service charges) and claims for
non-life insurance also are included among current
transfers.
305. A remittance from a resident of a specific
economy to finance another resident staying abroad
only temporarily is a transaction between residents of
the same economy rather than a transfer. The goods
and services procured abroad by the traveler or other
resident to whom the remittance is made are recorded
in the balance of payments under travel.
Valuation and Timing
306. Often, the value of transfers may not be readily
determined because transfers are not perceived as
arising directly from the productive process. Transfer
values should be the same as the market values of the
real and financial resources to which the transfers are
offsets. If no actual market values are in evidence,
those resources should be valued on the basis of
explicit costs incurred in providing the resources or on
the basis of amounts that would be received if the
resources were sold. In some cases, the donor and the
recipient may view the value quite differently. So that
the same values are reflected in the balance of
payments statements of both the recipient and the
donor, the value assigned by the donor is used as the
basis for recording.
307. Various taxes, fines, and other transfers imposed
by one party on another are recorded as of the date of
occurrence of the underlying transactions or other
flows that give rise to the liability to pay. Thus, with
regard to taxes on income, all deductions at source
and regular prepayments of income taxes are recorded
in the periods in which the deductions and
prepayments occur. However, any final tax liability on
income may be recorded in the accounting period in
which the liability is assessed. In a number of
countries, the assessment period occurs subsequent to
the period when the income is earned. Other transfers
are recorded when the resources offset by the transfers
change ownership.
STRUCTURE AND CLASSIFICATION
76
Coverage
308. The standard components of both the current
account and the capital and financial account are
discussed in Chapter 8. Coverage of the capital and
financial account is described in paragraphs 172
through 181, and the classification of components
appears at the end of the chapter. Capital and financial
account transactions presented in this Manual are the
same as those reflected in the capital and financial
accounts of the SNA external accumulation accounts.
However, in the balance of payments, the primary basis
for classification of the financial account is functional
category (i.e., direct investment, portfolio investment,
other investment, and reserve assets) while the SNA
classification is primarily by type of instrument:
monetary gold, currency and deposits, loans, etc. (See
Chapter 3 for details of the relationship between the
two sets of accounts.) The structure of the capital and
financial account also is generally compatible with
other statistical systems of the IMF and is consistent
with the classification of related income components of
the current account and with the international
investment position.
309. The capital and financial account of the
balance of payments is divided into two main
categories: the capital account and the financial
account. The capital account covers all transactions
that involve the receipt or payment of capital transfers
and acquisition or disposal of nonproduced,
nonfinancial assets. The financial account covers all
transactions associated with changes of ownership in
the foreign financial assets and liabilities of an
economy. Such changes include the creation and
liquidation of claims on, or by, the rest of the world.
310. All changes that do not reflect transactions are
excluded from the capital and financial account.
The following changes are among those specifically
excluded: valuation changes in, or reclassifications of,
reserves; changes resulting from territorial or other
changes in classification of existing assets (for example,
portfolio investment to direct investment); allocation or
cancellation of SDRs; monetization or demonetization
of gold; write-offs (that is, changes resulting from the
unwillingness or inability of a debtor who resides in
one economy to make full or partial repayment
including expropriation without compensation—in
settlement of a claim to a creditor who resides in
another economy and regards part or all of the claim
as unrecoverable); and valuation changes, which reflect
exchange rate or price changes, in assets for which
there are no changes in ownership. When there is a
change in ownership and an asset acquired at one
price is disposed of at a different price, both assets are
recorded at respective market values and the difference
in value—holding (capital) gain or loss—is included in
the balance of payments.
Capital Account
311. The capital account consists of two categories:
(i) capital transfers and (ii) acquisition or disposal of
nonproduced, nonfinancial assets. In previous editions
of the Manual, capital transfers were included
indistinguishably with current transfers in the
current account. (The distinction between current
transfers and capital transfers is fully discussed in
Chapter 15, and capital transfers are covered in detail
in Chapter 17). Capital transfers are classified primarily
by sector (i.e., general government and other sectors).
Within each, debt forgiveness is specified as category,
while migrants’ transfers comprises a category under
other sectors.
312. In concept, acquisition or disposal of
nonproduced, nonfinancial assets comprises
transactions associated with tangible assets that may be
used or necessary for production of goods and services
but are not actually produced (e.g., land and subsoil
assets) and transactions associated with nonproduced,
intangible assets (e.g., patents, copyrights, trademarks,
franchises, etc. and leases or other transferable
contracts). However, in the case of resident-nonresident
transactions in land (including subsoil assets), all
acquisition or disposal is deemed to occur between
resident units, and the nonresident acquires a financial
claim on a notional resident unit. The only exception
concerns land purchased or sold by a foreign embassy
when the purchase or sale involves a shift of the land
77
XVI.
Structure and Characteristics
of the Capital and Financial Account
from one economic territory to another. In such
instances, a transaction in land between residents and
nonresidents is recorded under acquisition or disposal
of nonproduced, nonfinancial assets. The changes
recorded for all of the assets described in this
paragraph consist of the total values of assets acquired
during the accounting period by residents of the
reporting economy less the total values of the assets
disposed of by residents to nonresidents.
Financial Account
Coverage
313. The foreign financial assets of an economy
consist of holdings of monetary gold, SDRs, and
claims on nonresidents. The foreign liabilities of an
economy consist of indebtedness to nonresidents.
314. To determine whether financial items constitute
claims on, or liabilities to, nonresidents, the creditor
and debtor must be identified as residents of different
economies. The unit in which the claim or liability is
denominated—whether the national currency, a
foreign currency, or a unit such as the SDR—is not
relevant. Furthermore, assets must represent actual
claims that are legally in existence. The authorization,
commitment, or extension of an unutilized line of
credit or the incurrence of a contingent obligation
does not establish such a claim, and the pledging or
setting aside of an asset (as in a sinking fund) does
not settle a claim or alter the ownership of the asset.
315. However, options and other financial derivatives
are included among financial items, in accordance
with the treatment of these items in the SNA. These
instruments can be valued by reference to the market
prices of the derivatives or to the market prices of the
commitments underlying the derivatives. Thus, both
parties to a derivative contract recognize a financial
instrument; one party recognizes a liability and the
other recognizes a claim. Alternatively, this value
could be viewed as the amount that one party must
pay to the other party in order to extinguish the
contract. As a result, derivatives satisfy the definition
(see paragraph 314) of foreign financial assets and
liabilities. A full discussion of derivative instruments
appears in Chapter 19.
316. The conventions stated in this Manual result in
ownership of some nonfinancial assets being
construed as ownership of financial assets (claims).
The following specific cases are examples.
The ownership of immovable assets, such as land
and structures, is always attributed to residents of the
economies in which the assets are located. (See
paragraph 64.) Therefore, when the owner of such
assets is a nonresident, he has, in effect, a financial
claim on a resident entity that is considered the
owner.
An unincorporated enterprise operating in a different
economy from the one in which the owner of the
enterprise resides is considered a separate entity;
that entity is a resident of the economy in which it
operates rather than a resident of the economy of
the owner. All nonfinancial as well as financial assets
attributed to such an enterprise are regarded as
foreign financial assets for the owner of the
enterprise. (See paragraph 205.)
Any goods transferred under a financial leasing
arrangement are presumed to have changed
ownership. This change in ownership is financed by
a financial claim (i.e., an asset of the lessor and a
liability of the lessee). At the time the imputed
change in ownership occurs, the market value of the
good is recorded under goods in the current
account, and an offsetting entry is made in the
financial account. In subsequent periods, the
actual leasing payment must be divided into
interest, which is recorded in the current account
as investment income payable or receivable, and
debt repayment, which is recorded in the financial
account and reduces the value of the lessor‘s asset
and the lessee’s liability. The financial asset should
be classified as a loan. (See paragraph 206.)
Transactions in assets
317. Transactions in assets (specifically, changes of
ownership, including the creation and liquidation of
claims) most often reflect exchanges of economic
values. Financial items may be exchanged for other
financial items or for real resources. However, one
party to a transaction may provide a financial item and
not receive any economic value in exchange. The offset
to this latter type of provision of an asset is a transfer.
318. To establish whether a transaction involving a
foreign asset is a transaction between a resident and a
nonresident, the compiler must know the identities of
both parties. The information available on transferable
claims constituting foreign assets may not, however,
permit identification of the two parties to the
transaction. That is, a compiler may not be able to
STRUCTURE AND CLASSIFICATION
78
CHAPTER XVI
79
ascertain whether a resident, who acquired or
relinquished a transferable claim on a nonresident,
conducted the transaction with another resident or
with a nonresident, or whether a nonresident dealt
with another nonresident or with a resident. Thus, a
recommendation that the balance of payments be
confined solely to asset transactions between residents
and nonresidents would be difficult or impossible to
implement. Also, the introduction, in this Manual, of
a domestic sectoral breakdown for the portfolio
investment and other investment components of the
financial account makes it necessary to record
certain transactions between resident sectors within
the economy—although such transactions cancel each
other for the total economy. As a result, recorded
transactions may include not only those that involve
assets and liabilities and take place between residents
and nonresidents but also those that involve transferable
assets of economies and take place between
two residents and, to a lesser extent, transactions that
take place between nonresidents. (See paragraph 334.)
319. Because the credit and debit entries for most
components of the financial account are—according
to the rules of this Manual (see paragraphs 324
through 327)—generally net, many transactions
between residents and between nonresidents will
offset each other and thus will not actually appear as
entries in the balance of payments statement. The
most prevalent types of transactions that do not cancel
each other are, for assets, those transactions between
resident creditors classified in different functional
categories or domestic sectors. For liabilities, the
identity of the nonresident creditor is a factor only in
a few instances (for example, in differentiating
between direct investment and other types of capital
and in determining regional allocation).
320. Net recording can also result in a transaction
between a resident and a nonresident being offset by
a transaction between residents or by a transaction
between nonresidents. For instance, a resident may
acquire a claim against a nonresident and, during the
same recording period, transfer the claim to another
resident classified in a different sector. The first
resident’s transaction with a nonresident is canceled
by the same resident’s subsequent transaction with
another resident (if the value of the claim does not
change). So, in the balance of payments, only the
increase in the second resident’s holdings, which are
actually acquired through a transaction with the first
resident, are recorded. The effect is the same as if the
second resident dealt directly with the nonresident.
Reinvested earnings
321. The reinvested earnings of a direct investment
enterprise (which accrue to a direct investor in proportion
to participation in the equity of the enterprise) are
recorded in the current account of the balance of
payments as being paid to the direct investor as
investment income-income on equity and in the
financial account as being reinvested in the
enterprise. Thus, these reinvested earnings increase the
value of the stock of foreign assets of the direct
investor’s economy. In a similar way, the distribution to
direct investors of earnings (in the form of stock
dividends) included in investment income-income on
equity results in an increase, shown in the financial
account, in the investors’ equity.
Borderline cases
322. In some cases, questions may arise as to whether
transactions have taken place; for example—when the
maturity of a debt instrument is extended (and thereby
changed from a nominally short-term claim to a
nominally long-term claim) or when a government
takes over an obligation for liabilities incurred by the
private sector and the sector of the domestic debtor is
altered. As a change in the original terms of a contract
requires the assent of both parties, the existing claim is
considered to be satisfied by the creation of a new one.
(That is, a pair of transactions between a resident and a
nonresident has occurred.) Changes in contractual
terms for existing assets are thus construed as
constituting transactions to be included in the balance
of payments statement.
323. Another borderline case arises when a transactor
intends to dispose of a certain asset at virtually the
same moment that ownership of the asset is acquired.
(Examples are arbitrage and certain other dealings in
financial assets.) The issue may be viewed two ways.
(i) If two changes of asset ownership have occurred,
any profit or loss could be regarded as the realization
of a holding (capital) gain or loss and could be
entered, like any other realization of a holding gain or
loss, in the appropriate component of the financial
account. (ii) If no change of ownership has effectively
taken place, the profit or loss could be seen as a fee
for a service. It is recommended that the treatment
described in (i) be used because entries in the
financial account may reflect, without regard to the
fact that some items may have been owned only
briefly, the holding gain or loss realized on the
purchase and sale of financial items at different market
prices.
Net recording
324. Two or more changes in a specific asset, or
changes in two or more different assets classified in the
same standard component, are consolidated in a single
entry. This entry reflects the net effect of all the
increases and decreases that occur during the recording
period in holdings of that type of asset. For example,
purchases (by nonresidents) of securities issued by
resident enterprises of an economy are consolidated
with sales (by nonresidents) of such securities, and the
net change is recorded for that item. Net decreases in
claims or other assets and net increases in liabilities are
recorded as credits; net increases in assets and net
decreases in liabilities are recorded as debits.
325. Net recording for standard components
distinguished in the capital and financial account is
specified partly because gross data for transactions
often are not available. Changes derived from records
showing amounts outstanding at the beginnings and
ends of reporting periods, for example, always represent
net changes. In addition, net recording generally is
of more interest than gross recording, which would
give added prominence to the transactions—between
residents and between nonresidents—that are covered
in the statement. Nonetheless, gross entries may be a
relevant factor in analyzing aspects of the payments
positions or financial markets (e.g., securities transactions)
of economies, and such data can be utilized in
supplementary presentations when appropriate.
326. For direct investment, particularly for reasons of
analytic usefulness, it is suggested in this Manual that
separate totals for liabilities to, and claims on, direct
investors on the part of affiliated enterprises (and vice
versa) be recorded for the appropriate components of
direct investment (i.e., equity capital and other capital)
in addition to the net figures for each.
327. In the totaling of net credits and debits for two or
more separate components, the net approach is always
favored. For instance, if equity securities and debt
securities are combined to show a net figure for these
two components, the net for each should be totaled—
not net credits and debits separately.
Classification
328. The primary purpose of the classification of items
in the financial account is to facilitate analysis by
distinguishing categories that exhibit different patterns
of behavior. Changes in financial items recorded in the
balance of payments occur for a wide variety of
reasons. Such changes may occur to settle actual
imbalances or to deal with prospective imbalances; to
influence or react to exchange rate movements; to
make holding (capital) gains (or avoid losses) on past
or future valuation changes, including those resulting
from exchange rate changes; to take advantage of
interest rate differentials; to establish, acquire, or
expand enterprises; to obtain or provide additional real
resources in connection with commercial and financial
activities; and to diversify investments. In the collection
of data, it is usually not feasible to inquire into the
underlying causes and motivations for changes in
holdings. However, behavior is also associated to a
considerable degree with such attributes as type of
asset and sector of holder. Characteristics of this kind
are readily observable and can thus be used as a basis
for developing a classification scheme.
329. In this Manual, several bases are utilized for
classifying financial items: functional type; assets and
liabilities; type of instrument; domestic sector; original
contractual maturity; and, in the case of direct
investment, direction of investment (i.e., inward or
outward). The primary basis for the classification of
components of the financial account is functional
type. Further classification levels in these categories are
based upon factors relating to general analytical
usefulness and compatibility with other statistical
systems. The components can, of course, be rearranged
to meet specific analytic requuirements and to include,
when appropriate, subordinate and supplementary
classification.
Functional types of investment
330. Four broad categories of investment, each of
which is dealt with in a subsequent chapter, are
distinguished.
Direct investment
The direct investor seeks a significant voice in the
management of an enterprise operating outside his or
her resident economy. To achieve this position, the
investor must almost invariably provide a certain, often
substantial, amount of the equity capital of the
enterprise. The direct investor may also decide to
supply other capital to further enterprise operations.
Because of the direct investor’s special relationship to
the enterprise, his motives in supplying capital will be
somewhat different from those of other investors. Thus,
the capital supplied by a direct investor will probably
exhibit characteristic behavior. Direct investment is
STRUCTURE AND CLASSIFICATION
80
CHAPTER XVI
81
classified primarily on a directional basis—resident
direct investment abroad and nonresident investment
in the reporting economy—and is subdivided into
equity capital, reinvested earnings, and other capital.
Equity capital and other capital, in turn, are subdivided
into asset and liability transactions. (Related income,
however, is shown on a net basis in the current
account.)
Portfolio investment
Cross-border investment in equity and debt securities
(other than direct investment) is both quantitatively and
analytically significant. Such cross-border investment
therefore warrants separate recording and coverage,
particularly in view of the trend towards free international
movement of capital and the growth of new
financial instruments and new market participants.
Coverage of this category is expanded to reflect these
developments and to include money market debt
instruments and financial derivatives, as well as
longer-term debt and equity securities.
Other investment
This residual group comprises many different kinds of
investments. In practice, it is not feasible to draw any
further functional distinctions among the various types
because the reasons underlying the flows are too
numerous and varied. Other breakdowns are therefore
used to distinguish behavioral differences among
components of this category (i.e., trade credits, loans,
currency and deposits, use of Fund credit, loans from
the Fund, etc.).
Reserve assets
These are foreign financial assets available to, and
controlled by, the monetary authorities for financing
or regulating payments imbalances or for other
purposes. Reserve assets consist of monetary gold, SDRs,
reserve position in the Fund, foreign exchange, and
other claims. Changes in the holdings of reserves may
reflect payments imbalances or responses to them,
official exchange market intervention to influence the
exchange rate, and/or other actions or influences.
Assets and liabilities
331. The distinction between assets and liabilities is
always of interest. Even for financial intermediaries,
which in effect borrow and relend abroad the same
funds, the terms of the borrowing and lending are
usually different. Thus, the two offsetting flows may
have different implications for the balance of
payments.
Type of instrument
332. For portfolio investment, the type of instrument is
the primary classification (i.e., equity and debt
securities). Debt securities are subdivded into bonds
and notes, money market instruments, and financial
derivatives. Although the sectoral subdivision for
portfolio investment is secondary, there is no implication
that, in certain instances, it may not be of equal
interest to the compiling economy. The same holds true
for other investment.
Domestic sector
333. For assets, the institutional sector of the domestic
(resident) creditor and, for liabilities, that of the
domestic debtor often are factors that influence
transactions in financial items. The sectoring also
improves links with the IMF and other statistical
systems, including the SNA. This Manual distinguishes
four sectors—monetary authorities, general government,
banks, and other sectors8—for both portfolio investment
and other investment.
334. Because the domestic creditor is always the
owner of the asset, the creditor is invariably one party
to any change of ownership of the asset. Therefore, for
assets, sector attribution by creditor and by transactor
coincide. A claim on a domestic debtor, however, may
change ownership between a domestic creditor and a
foreign creditor so that the domestic sector of the
debtor may not coincide with that of the transactor.
Nevertheless, the sector of the debtor is the one that
determines the classification of the change of ownership
that has occurred because the original nature of
the liability is generally considered more significant
than the identity of the present holder of the claim.
However, in those instances in which the nonresident
creditor or transactor may be of particular interest
(e.g., in the context of international banking and
external debt statistics), a supplementary breakdown by
nonresident sector would be most useful for the
compiling economy.
335. For determination of the domestic sector to which
a transaction is attributed, guarantees and financial
intermediation in which the intermediary is not actually
8See Appendix 2.
STRUCTURE AND CLASSIFICATION
82
the legal creditor or debtor are not taken into account.
Although these aspects undoubtedly have an influence on
the behavior of investment, they seem unlikely to
constitute the main motivation of the financial flow in
question. For instance, while the availability of government
credit insurance could be a factor in the exten-sion
of a trade credit, the private exporter’s decision to
undertake the underlying transaction in goods and to
arrange the financing for it is presumably a more basic
consideration. Government-insured trade credits are thus
treated as private trade credits rather than as government
lending.
Long- and short-term investment
336. For assets and liabilities in the category of other
investment, this Manual retains the traditional distinc-tion,
which is based on the formal criterion of original
contractual maturity, between long- and short-term
investment. Long-term investment is defined as investment
with an original contractual maturity of more than
one year or with no stated maturity (e.g., equity
securities). Short-term investment, which includes
currency, is investment payable on demand or with an
original contractual maturity of one year or less. These
definitions are consistent with those in the SNA.
337. Although the traditional maturity distinction has
been retained, it is widely recognized that innovations in
financial markets (e.g., floating rate notes, rollovers, etc.)
have diminished the usefulness of such a distinction for
many purposes. In fact, a creditor and a debtor could, for
example, have different views as to whether a particular
instrument represents access to medium-term financing
even though it is nominally a short-term instrument. Also,
in many instances, original maturity may have no bearing
on the length of time that an investment will be held.
(Original maturity does appear to be one factor taken into
account by investors and may tend to influence the
behavior of the invest-ment concerned.) In any event, the
distinction is one that is still widely employed and can be
applied without posing major problems of compilation.
How-ever, in the Manual and the SNA, maturity
distinction is accorded lesser importance as a classification
criterion.
338. Nonetheless, there are examples of the significance
that continues to be assigned to the original maturity
(e.g., for the analysis of external liabilities, particularly in
relation to those of heavily indebted economies). In other
instances, such as analyses of banks’ liquidity positions, a
residual maturity basis may be appropriate and can be
accommodated in supplementary disaggregations.
339. In the categories of direct investment, portfolio
investment, and reserve assets, long- and short-term
investment are not formally distinguished. For direct
investment, such a distinction is not made because it is
essentially determined by arbitrary enterprise decisions
and because of the fact that there is no meaningful
analytic distinction between the two maturities for
intercompany flows. For portfolio investment and
reserve assets, formal maturity is not likely to be a
significant factor affecting the behavior of the
components of the categories.
Liabilities Constituting Foreign Authorities’
Reserves (LCFARs)
340. LCFARs are no longer identified among the
financial items of the portfolio investment and other
investment categories of the financial account.
Rather, LCFARs are subdivided by instrument and
sector in a supplementary presentation and discussed,
along with exceptional financing transactions, in
Chapter 22.
Valuation and Timing
341. Resources included under capital transfers should
be valued at the prices that would have been received
if the resources had been sold. The value assigned by
the donor should be used as the basis for recording.
The forgiveness of debts agreed to by the parties concerned
are valued in the same way as other changes in
financial assets and liabilities. Acquisition or disposal of
nonproduced, nonfinancial assets is recorded at the
actual transaction value of assets acquired less assets
disposed of. Changes in financial assets and liabilities
that stem from transactions between two parties are
valued to reflect the market values of the assets
underlying the acquisition or disposition. The concept
of market value and the specific application of market
value to financial items are discussed in Chapter 5.
342. Acquisition or disposal of nonproduced,
nonfinancial assets and transactions in financial items
are recorded on a change-of-ownership basis. When
change of ownership is not obvious, the time at which
a transaction is considered to take place is when the
parties to the transaction enter the transaction (or, for
financial items, the claim and liability) on their books.
For many financial transactions, a date (the value date)
is actually specified for the very purpose of ensuring
that the timing agrees in the books of both parties.
(See Chapter 6.) If no precise date can be fixed, the
date on which the creditor receives payment or some
other financial claim is decisive.
Coverage
343. The capital account, as constituted in this
edition of the Manual, differs markedly from the
capital account in previous editions. (See chapters 8
and 16.) The former capital account has been
expanded and redesignated as the capital and
financial account, which is comprised of those two
major categories. This chapter encompasses the
first—the capital account, the components of which
are capital transfers and acquisition or disposal of
nonproduced, nonfinancial assets.
Capital Transfers
344. The distinction between capital transfers and
current transfers is discussed in Chapter 15. A
capital transfer may be in cash or in kind. If in cash,
the transfer is linked to, or conditional on, the
acquisition or disposal of a fixed asset by one or
both parties to the transaction (e.g., an investment
grant). Although one party may regard particular
transfers as current rather than capital, a transfer
should be classified as a capital transfer for both
parties even if it is linked to the acquisition or
disposal of a fixed asset by only one of the parties.
However, if there is serious doubt as to the
classification of a cash transfer as current or capital,
the transfer should be classified as a current
transfer.
345. If in kind, the capital transfer consists of
(i) the transfer of ownership of a fixed asset or
(ii) the forgiveness, by mutual agreement between
creditor and debtor, of the debtor’s financial liability
when no counterpart is received in return by the
creditor. Criteria (referred to in previous paragraphs
and in Chapter 15) for classification of transfers as
current or capital are fully consistent with criteria in
the SNA.
Classification
346. Capital transfers are classified into two sectoral
components: (i) general government and (ii) other
sectors. Within each of these components, debt
forgiveness is separately identified. In other sectors,
migrants’ transfers also are separately identified.
General government
347. Under general government, the following
categories of transfers are to be distinguished for
purposes of balance of payments recording.
Debt forgiveness
348. When a government creditor entity in one
economy formally agrees—via a contractual
arrangement—with a debtor entity in another to
forgive (extinguish) all, or part, of the obligations of
the debtor entity to that creditor, the amount forgiven
is treated as a capital transfer from the creditor to the
debtor. That is, the balance of payments reflects a
reduction of the liability offset by the transfer. Similar
treatment is applicable when a government entity’s
debt is forgiven by agreement with a creditor entity in
another economy. (The detailed accounting treatments
of debt forgiveness under varying circumstances, of
arrears and other aspects of debt reorganization, and
of exceptional financing are covered in Chapter 22.)
Other general government
349. Among other capital transfers of general
government, investment grants are significant.
Investment grants consist of capital transfers, in cash
or in kind, made by governments to nonresident units,
or vice versa, to finance all or part of the costs of
acquiring fixed assets. The recipients are obliged to
use investment grants in cash for purposes of gross
fixed capital formation, and the grants are often tied to
specific investment projects, such as large construction
projects. If the investment project continues over a
long period of time, an investment grant in cash may
be paid in installments. Installment payments continue
to be classified as capital transfers even though such
payments may be recorded in a succession of different
accounting periods. Investment grants in kind consist
83
XVII.
Capital Transfers and Acquisition or Disposal
of Nonproduced, Nonfinancial Assets
of transfers of transport equipment, machinery, other
equipment, and the direct provision of buildings or other
structures by governments to nonresident units. Most
structures (such as airfields, docks, roads, hospi-tals, and
other buildings) used by military establishments also are
treated as capital transfers. These structures may be
constructed by enterprises owned by the donor
government or by other enterprises that are paid directly
by the donor government. Investment grants do not
include transfers of military equipment in the form of
weapons or equipment with the sole function of being
fired. Such weapons and equipment are not classified as
fixed assets but, by convention, are included under
current transfers. (See Chapter 15.)
350. Also included under governmental capital transfers
are taxes on capital transfers; that is, taxes levied, at
irregular and infrequent intervals, on the values of assets
transferred to nonresidents. These consist largely of
inheritance taxes, death duties, and gift taxes.
Compensation payments by government to nonresidents
for extensive damages to capital assets or serious injuries
not covered by insurance policies represent another
form of capital transfers. These include payments for
damages caused by oil spills, major explosions, the side
effects of drugs, etc.
Other sectors
351. Among capital transfers of sectors other than
general government, migrants’ transfers, debt
forgiveness, and other transfers are distinguished as
balance of payments reporting categories.
Migrants’ transfers
352. In the strictest sense, these transfers are not
transactions between two parties but contra-entries to
flows of goods and changes in financial items that arise
from the migration (change of residence for at least a
year) of individuals from one economy to another. The
transfers to be recorded are thus equal to the net worth
of the migrants.
353. All the household and personal effects of migrants,
together with any movable capital goods actually
transferred from the old to the new economy, are
included under goods-general merchandise. Those
flows of goods and corresponding offsets should, in
principle, be recorded at the time of migration. If the
flows are not derived from the trade returns, no timing
correction of the figures is suggested, but offsets are
recorded in the same period in which exports and
imports are recorded.
354. Enterprises (including those that utilize land,
structures, and movable capital goods not actually
transferred) in which migrants retain ownership after
departure become foreign claims of the migrants and,
consequently, of the economies to which they have
migrated. Migrants’ claims on or liabilities to other
residents of their former economies or claims on or
liabilities to residents of a third economy also become
foreign claims or liabilities of the economies to which
they have migrated. Migrants’ claims on or liabilities to
the latter economies become claims between residents of
these economies. Changes in the net financial assets of
the relevant economies and the offsets thereto are
recorded at the times of migration.
355. In practice, it is recognized that few countries are in
a position to record all assets (other than possessions and
funds accompanying migrants upon entry to new
economies) in the balance of payments. Also, some
countries treat those possessions and funds as transfers
and record the remaining net worth of migrants as
changes in the stock of claims in the international
investment position. In such cases, the changes should
be separately identified in reports made to the IMF.
Debt forgiveness
356. Paragraph 348, with references to “government
entity” replaced by “nongovernment entity,” is relevant.
Other transfers
357. With references to “government entities” replaced
by “nongovernment entities,” the discussion on
investment grants in paragraph 349 is relevant.
Compensation payments detailed in paragraph 350 are
relevant, but the payments are made by nongovernment
entities. The same applies, for nongovernment entities, to
debit-side entries for taxes (i.e., inheritance taxes, death
duties, and gift taxes levied at irregular and infrequent
intervals) referred to on the credit side for general
government. Also recorded under the investment grant
portion of other transfers are legacies or large gifts—
including legacies to nonresident, nonprofit institutions
(NPIs)—and exceptionally large donations made by
households or enterprises to nonresident NPIs for
financing gross fixed capital formation. (Examples are
gifts to universities to cover costs of building new
residential quarters, libraries, laboratories, etc.)
Acquisition or Disposal of Nonproduced,
Nonfinancial Assets
358. This category of the capital account is
described in Chapter 16. Acquisition or disposal of
STRUCTURE AND CLASSIFICATION
84
nonproduced, nonfinancial assets comprises, in
concept, acquisition or disposal of nonproduced,
tangible assets (land and subsoil assets) and acquisition
or disposal of nonproduced, intangible assets, such as
patents, copyrights, trademarks, franchises, etc. and
leases or other transferable contracts. (See paragraph
312 for the treatment of such resident/nonresident
transactions.) In the balance of payments accounts, it is
the intangible assets category that generally would
be most applicable. It is necessary to distinguish
between the use of such assets (recorded under
services-royalties and license fees) and the purchase
or sale of assets (recorded in the intangible assets
category of the capital account) if data are available.
(Valuation and timing of capital transfers and
acquisition or disposal of nonproduced, nonfinancial
assets are discussed in Chapter 16, paragraphs 341 and
342.)
CHAPTER XVII
85
Concept and Characteristics
359. Direct investment is the category of international
investment that reflects the objective of a resident entity
in one economy obtaining a lasting interest in an
enterprise resident in another economy. (The resident
entity is the direct investor and the enterprise is the
direct investment enterprise.) The lasting interest
implies the existence of a long-term relationship
between the direct investor and the enterprise and a
significant degree of influence by the investor on the
management of the enterprise. Direct investment
comprises not only the initial transaction establishing
the relationship between the investor and the enterprise
but also all subsequent transactions between them and
among affiliated enterprises, both incorporated and
unincorporated.
360. The concept of direct investment presented in this
Manual is the basis for that adopted in the second
edition of the OECD Detailed Benchmark Definition of
Foreign Direct Investment. The concept described in
this Manual is broader than the SNA concept of
foreign-controlled, as distinguished from domestically
controlled, resident enterprises. In the SNA, that distinction
(as well as the one between public and private
enterprises) is made in the compilation of various
accounts because of the distinction’s potential analytic
usefulness in the examination of differences
(characteristics such as value added, investment,
employment, etc.) between enterprise subsectors. Thus,
linkage of the direct investment component of the
financial account with the foreign-controlled sector is
by no means a complete one, primarily because the
two serve different purposes. As presented in this
Manual, the primary distinguishing feature of direct
investment is the significant influence that gives the
investor an effective voice in management. For the
foreign-controlled sector, the primary distinguishing
feature is control.
361. The benefits that direct investors expect to derive
from a voice in management are different from those
anticipated by portfolio investors having no significant
influence over the operations of enterprises. From the
viewpoint of direct investors, enterprises often
represent units in a multinational operation, the overall
profitability of which depends on the advantages to be
gained by deploying the various resources available to
the investors in units located in different economies.
Direct investors are thereby in a position to derive
benefits in addition to the investment income that may
accrue on the capital that they invest (e.g., the opportunity
to earn management fees or other sorts of
income). Such extra benefits are likely to be derived
from the investors’ associations with the enterprises
over considerable periods of time. In contrast, portfolio
investors are primarily concerned about the safety of
their capital, the likelihood of appreciation in value,
and the return generated. Portfolio investors will
evaluate, on a separate basis, the prospects of each
independent unit in which they might invest and may
often shift their capital with changes in these
prospects, which may be affected by short-term
developments in financial markets.
Direct Investment Enterprises
362. Reflecting the difference noted previously, a
direct investment enterprise is defined in this Manual
as an incorporated or unincorporated enterprise in
which a direct investor, who is resident in another
economy, owns 10 percent or more of the ordinary
shares or voting power (for an incorporated enterprise)
or the equivalent (for an unincorporated enterprise).
Direct investment enterprises comprise those entities
that are subsidiaries (a nonresident investor owns
more than 50 percent), associates (an investor owns
50 percent or less) and branches (wholly or jointly
owned unincorporated enterprises) either directly or
indirectly owned by the direct investor. (See the Guide
for examples of chains of ownership.) Subsidiaries in
this connotation also may be identified as majority
owned affiliates. As defined in the SNA,
foreign-controlled enterprises include subsidiaries and
branches, but associates may be included or excluded
by individual countries according to their qualitative
assessments of foreign control. Also, a public
enterprise, as defined in the SNA, may in some
86
XVIII. Direct Investment
instances be a direct investment enterprise, as defined
in this paragraph.
363. Although the 10 percent criterion is specified in
the Manual, some countries may choose to allow for
two qualifications that involve a degree of subjective
judgment. First, if the direct investor owns less than
10 percent (or none) of the ordinary shares or voting
power of the enterprise but has an effective voice in
management, the enterprise may be included. Second, if
the investor owns 10 percent or more but does not
have an effective voice in management, the enterprise
may be excluded. Although the application of these two
qualifications is not recommended in this Manual,
countries that apply such qualifications should identify
the aggregate value of transactions in order to facilitate
international comparability.
364. Most direct investment enterprises are either
(i) branches or (ii) subsidiaries that are wholly or
majority owned by nonresidents or in which a clear
majority of the voting stock is held by a single direct
investor or group. The borderline cases are thus likely
to form a rather small proportion of the universe.
365. In this Manual, it is recommended that so-called
special purpose entities (SPEs) be included as direct
investment enterprises if the entities meet the criteria
stated in previous paragraphs. Whatever the structure
(e.g., holding company, base company, regional headquarters)
or purpose (e.g., administration, management
of foreign exchange risk, facilitation of financing of
investments), SPEs are an integral part of the structure
of the direct investment network as are, for the most
part, SPE transactions with other members of the
group. However, for SPEs with a sole purpose of
serving in a financial intermediary capacity (as is the
case for banks and other financial intermediaries such
as security dealers), transactions recorded under direct
investment are limited to those associated with
permanent debt and equity. (See paragraph 372.) For
countries employing other treatments of SPEs and
countries employing the recommended treatment (if it
is feasible to do so), the value of SPE transactions as a
group should be separately identified in terms of
standard components to permit consistent international
comparisons.
366. Special relationships may exist between or
among enterprises operating in different economies.
These relationships may involve a common board of
directors, a high degree of policy coordination,
and/or—in the absence of any ownership of equity
interest that signifies direct investment—a pooling of
resources. If transactions between or among such
enterprises are treated by individual countries as direct
investment, these transactions should be identified as
specified in paragraph 365.
Direct Investors
367. Direct investors may be individuals; incorporated
or unincorporated private or public enterprises;
associated groups of individuals or enterprises;
governments or government agencies; or estates, trusts,
or other organizations that own (as described
previously) direct investment enterprises in economies
other than those in which the direct investors reside.
The members of an associated group of individuals or
enterprises are, through their combined ownership of
10 percent or more, deemed to have an influence on
management that is similar to the influence of an
individual with the same degree of ownership.
Direct Investment Capital
368. Direct investment capital is (i) capital provided
(either directly or through other related enterprises) by
a direct investor to a direct investment enterprise or
(ii) capital received from a direct investment enterprise
by a direct investor. For the economy in which the
investment is located, such capital includes funds
provided directly by the direct investor and funds
provided by other direct investment enterprises
associated with the same direct investor. For the
economy of the direct investor, such capital includes
only funds provided by the resident investor. Direct
investment capital does not include funds provided by,
or received from, any other sources—including sources
of funds for which the direct investor merely makes
the arrangements or guarantees repayment (e.g., loans
from outside parties to an incorporated direct
investment enterprise).
369. The components of direct investment capital
transactions, which—as noted in paragraph 330—are
recorded on a directional basis (i.e., resident direct
investment abroad and nonresident direct investment in
the recording economy), are equity capital, reinvested
earnings, and other capital associated with various
intercompany debt transactions. Equity capital
comprises equity in branches, all shares in subsidiaries
and associates (except nonparticipating, preferred
shares that are treated as debt securities and included
under direct investment-other capital—see paragraph
370), and other capital contributions. Reinvested
earnings consist of the direct investor’s share (in
CHAPTER XVIII
87
proportion to direct equity participation) of earnings
not distributed as dividends by subsidiaries or
associates and earnings of branches not remitted to the
direct investor. If such earnings are not identified, all
branch earnings are considered, by convention, to be
distributed. Because undistributed (reinvested) earnings
result in additions to direct investors’ equity in
subsidiaries and branches, these earnings are included
as direct investment capital transactions in amounts
equal to (and with opposite sign) the corresponding
entries recorded under direct investment income. (See
paragraphs 278, 288, and 321.)
370. Other direct investment capital (or intercompany
debt transactions) covers the borrowing and lending of
funds—including debt securities and suppliers’ credits—
between direct investors and subsidiaries, branches,
and associates. The borrowing and lending are
reflected in intercompany claims and liabilities
(receivables and payables), respectively. Both loans to
subsidiaries from direct investors and loans from
subsidiaries to direct investors are included. In contrast
to the treatment of other investment, no distinction is
made between short- and long-term investment.
371. Instances of reverse investment or cross
participation may arise. A direct investment enterprise
can have an interest in its direct investor. That interest
is regarded as an offset to capital invested by the direct
investor (i.e., as disinvestment). For the economy of the
direct investment enterprise, such reverse investment in
the form of equity is recorded under direct investment
in reporting economy-equity capital-claims on direct
investors. For the economy of the direct investor,
reverse investment in the form of equity is recorded
under direct investment abroad-equity capital-liabilities
to affiliated enterprises. Reverse investment in the form
of other instruments should be recorded, under
direct investment in reporting economy-other
capital or direct investment-abroad-other capital. In
cases in which the equity participation is at least 10
percent in both directions, two direct investment
relationships are established. Such transactions are
recorded as direct investment claims and liabilities in
both directions; that is, as direct investment-in reporting
economy and as direct investment-abroad, for each
economy as appropriate.
372. Intercompany transactions between affiliated
banks (depository institutions) and affiliated financial
intermediaries (e.g., security dealers)—including SPEs
with the sole purpose of serving as financial
intermediaries—recorded under direct investment
capital transactions are limited to those transactions
associated with permanent debt (loan capital
representing a permanent interest) and equity (share
capital) investment or, in the case of branches, fixed
assets. Deposits and other claims and liabilities related
to usual banking transactions of depository institutions
and claims and liabilities of other financial
intermediaries are classified, as appropriate, under
portfolio investment or other investment. The stock of
foreign assets and liabilities of banks and other
financial intermediaries (international investment
position) should be treated in a parallel manner.
373. Transactions through SPEs (with the exceptions
noted in paragraphs 365 and 372) are included in direct
investment capital transactions, and the related stocks
of assets and liabilities are covered in the direct
investment position.
374. Direct investment capital transactions include
those that create or dissolve investments as well as
those that serve to maintain, expand, or reduce
investments. Thus, when a nonresident who previously
had no equity in an existing resident enterprise
purchases 10 percent or more of the shares or voting
power of that enterprise from a resident, the market
value of equity holdings acquired and any other capital
invested should be recorded as direct investment.
When a nonresident holds less than 10 percent of the
shares of an enterprise as a portfolio investment and
subsequently acquires additional shares resulting in a
direct investment interest (10 percent or more), only
the purchase of additional shares is recorded as a direct
investment transaction. The holdings that were acquired
previously are not recorded in the balance of payments
but are reflected in a reclassification, from portfolio
investment to direct investment, in the international
investment position.
Extent of Net Recording
375. Direct investment is often referred to as an asset
for the economy of the direct investor and as a liability
for the economy in which the direct investment enterprise
operates. Actually, investor and enterprise have
claims on, or liabilities to, each other—although the
investor could be expected to have net foreign claims
and the enterprise to have net foreign liabilities. It is
recommended in this Manual that direct transactions in
equity capital and other capital (intercompany debt) be
recorded for assets (claims) and liabilities. Thus, in
addition to a net investment transaction for each of
these components, separate entries are made for the
change in claims of direct investors on, and the change
in liabilities to, affiliated enterprises. These entries are
STRUCTURE AND CLASSIFICATION
88
made under direct investment-abroad and vice versa for
direct investment-in reporting economy. For recording
of direct investment in the international investment
position, the same entries are made. See the table
presenting the standard components of the international
investment position at the end of Chapter 23. However,
as noted in Chapter 23, the related direct investment
income on equity and debt is shown on a net basis for
each direction.
Valuation of Flows and Stocks
376. In concept, market price is the basis for valuation
of flows and stocks, including those for direct
investment, in the international accounts. (See Chapter
5, particularly paragraphs 97 through 103, for a full
discussion covering transfer prices of affiliated
enterprises and Chapter 5, paragraphs 107 through 108,
together with Chapter 23, for discussions on valuation
of stocks.)
377. Although this Manual, in concordance with the
SNA, affirms the principle of using market price as the
basis for valuation, it is recognized that, in practice,
book values from the balance sheets of direct
investment enterprises (or investors) often are used to
determine the value of the stock of direct investment.
This practice reflects the fact that enterprise balance
sheet values—whether or not regularly revalued to
current market value or recorded on the basis of
historical cost or based on some interim but not current
revaluation—represent the only source readily available
in most countries. (In the first case, the balance sheet
value is, in fact, the market value.) Compliers are
encouraged to collect data from enterprises on a
current market value basis to narrow the gap between
principle and practice. To facilitate international
comparisons, countries that publish data based on
market values derived indirectly should, when it is
feasible, also publish data collected on a balance sheet
(book value) basis if the two types of data differ. (See
paragraph 467.)
Other Special Cases of Direct Investment
Enterprises
378. In addition to the SPEs referred to in paragraphs
365 and 372, other types of enterprises—some of which
are referred to in earlier chapters—warrant additional
discussion.
379. Because of the rather complex operations of
insurance enterprises, there may be some difficulties
with the availability of data from direct investment
branches and subsidiaries. Nonetheless, the transactions
of insurance companies are treated in the same manner
as transactions of industrial and commercial enterprises,
except that the technical reserves (e.g., actuarial
reserves against outstanding risks, prepayments of
premiums, reserves for with-profits insurance, and
reserves against unsettled claims) of insurance
enterprises are excluded from the stock of direct
investment.
380. Construction enterprises involved in work
undertaken in other economies may be classified as
either direct investment activity or as export of services.
The criteria to determine the classification and the
attribution of production are linked to the question of
residency and are fully discussed in Chapter 4,
paragraph 78.
381. The residency of offshore enterprises—including
those engaged in the assembly of components
manufactured elsewhere, those engaged in trade and
financial operations, and those located in special
zones—is attributed to the economies in which the
enterprises are located. (See paragraph 79.)
382. Private, nonbusiness real estate investment (e.g.,
holiday and other residences owned by nonresidents
for personal use or leased to others) is, in principle,
included in direct investment.
383. Expenditures of direct investment enterprises
established for exploration of minerals and other
natural resources in an economy are treated as capital
expenditures (fixed capital formation), according to the
SNA. Inward investment flows from the direct investor
abroad for such expenditures are, of course, recorded
in the balance of payments. If the exploration proves
unsuccessful and results in a shutdown of the
enterprise, no further balance of payments entries are
recorded. Rather, a negative stock adjustment is made
in the direct investment position of the direct investor
in the host economy, and an equal reduction is made
in the liability position of that economy. (Both adjustments
fall under the heading Other Adjustments in the
international investment position. (See the table at the
end of Chapter 23.)
Selected Supplementary Information
384. There are aspects of direct investment—other
than those directly related to balance of payments and
international investment position data—that may,
particularly in the host economy, be of interest from
analytical and policy-making points of view. Among such
CHAPTER XVIII
89
aspects are those pertaining to the financial structure and
operations of subsidiaries, associates, branches, and
direct investors. Examples are the values of total assets of
enterprises, complete balance sheets and income
statements, the composition of sales and of external
financing, employment, industry activity of direct
investment enterprises and of direct investors, geographic
allocation of activities (see Chapter 24), the value
added or the gross product of subsidiaries in relation to
the total GDP of the economies involved, and the
country of the ultimate beneficial owner. Information of
this type, along with balance of payments and
international investment position data, may be collected
in enterprise surveys. (See the Guide.)
STRUCTURE AND CLASSIFICATION
90
Coverage
385. Portfolio investment includes, in addition to equity
securities and debt securities in the form of bonds and
notes, money market instruments and financial
derivatives such as options. Excluded are any of the
aforementioned instruments included in the categories of
direct investment and reserve assets. The expanded
coverage in transactions reflects changes in international
financial markets in recent years and includes the
introduction of many new financial instruments within
the framework of continuous innovation.
386. Thus, both the coverage and classification of
portfolio investment are significantly revised in this
Manual. The formal distinction between long- and
short-term investment—the former referring to original
maturity of more than one year or no stated maturity
and the latter referring to original maturity of one year
or less or on demand—is not made for portfolio
investment for reasons noted previously. (See paragraphs
336 through 339.) The fact that original maturity is now
less important for many market participants in investment
and lending activities resulted in the inclusion of
additional instruments within portfolio investment. (In
previous editions of the Manual, short-term instruments
were excluded and treated as other capital.) The
classification scheme reflects financial market developments
and efforts to improve links with the SNA and
other statistical systems of the IMF.
Classification and Definitions
387. The categories of financial instruments classified
and defined in the Manual are generally consistent with
those in the SNA. The major components of portfolio
investment, which are classified under assets and
liabilities, are equity securities and debt securities. Both
are usually traded (or tradable) in organized and other
financial markets. Debt securities are subdivided into
bonds and notes, money market instruments, and
financial derivatives that include a variety of new
financial instruments.
388. Equity securities covers all instruments and
records acknowledging, after the claims of all creditors
have been met, claims to the residual values of
incorporated enterprises. Shares, stocks, participation,
or similar documents (such as American Depositary
Receipts) usually denote ownership of equity. Preferred
stock or shares, which also provide for participation in
the distribution of the residual value on dissolution of
an incorporated enterprise, are included. (For preferred
shares that do not provide for such participation, see
paragraph 390.) Mutual funds and investment trusts also
are included.
389. Debt securities cover (i) bonds, debentures, notes,
etc.; (ii) money market or negotiable debt instruments;
and (iii) financial derivatives or secondary instruments,
such as options, that usually do not extend to actual
delivery and are utilized for hedging of risks,
investment, and trading purposes.
390. Bonds, debentures, notes, etc. usually give the
holder the unconditional right to a fixed money income
or contractually determined variable money income.
(Payment of interest is not dependent upon the earnings
of the debtor.) With the exception of perpetual
bonds, bonds and debentures also provide the holder
with the unconditional right to a fixed sum as a repayment
of principal on a specified date or dates. Included
are nonparticipating preferred stocks or shares, convertible
bonds, and bonds with optional maturity dates, the
latest of which is more than one year after issue.9 This
category also includes negotiable certificates of deposit
with maturities of more than one year; dual currency
bonds; zero coupon and other deep discounted bonds;
floating rate bonds; indexed bonds; and asset-backed
securities, such as collateralized mortgage obligations
and participation certificates. (Mortgages are not
classified as bonds but are included under loans.)
391. Money market securities generally give the holder
the unconditional right to receive a stated, fixed sum of
money on a specified date. These instruments usually
are traded, at a discount, in organized markets; the
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XIX. Portfolio Investment
9The conversion (into equities) option may be considered a tradable derivative
(i.e., an asset separate from the underlying security). See paragraph 392.
Separation of the value of a transaction into the value of the bond and the
value of the option may be effected by reference to transactions in similar
bonds traded without options.
discount is dependent upon the interest rate and the
time remaining to maturity. Included are such instruments
as treasury bills, commercial and financial paper,
bankers’ acceptances, negotiable certificates of deposit
(with original maturities of one year or less), and
short-term notes issued under note issuance facilities
(NIFs)—even though the facility (itself contingent)
provided by banks typically is a longer-term
arrangement. (Repurchase agreements, which are
nonnegotiable and of different character, are classified
under loans in other investment.)
392. Certain financial instruments give the holder the
qualified right to receive an economic benefit in the
form of cash, a primary financial instrument, etc. at
some future date. These instruments are referred to as
derivatives or secondary instruments because of the
linkage to specific financial instruments or to indicators
(foreign currencies, government bonds, share price
indices, interest rates, etc.) or to particular commodities
(gold, sugar, coffee, etc.) that may be purchased or
sold at a future date. Derivatives also may be linked to
a future exchange, according to a contractual
arrangement, of one asset for another. The instrument,
which is a contract, may be tradable and have a market
value. In that case, the characteristics of the instrument
as a contingent asset or liability (not to be recorded in
the balance of payments or in SNA sectoral balance
sheets) change and give rise to treatment of the
instrument as an actual financial asset or liability in the
financial account. Among derivative instruments are
options on currencies, interest rates, commodities,
indices, etc.; traded financial futures; warrants; and
arrangements such as currency and interest rate swaps.
393. Transactions in derivatives are treated as separate
(mainly financial) transactions rather than included as
integral parts of underlying transactions to which the
derivatives may be linked as hedges. There are several
reasons for this treatment, which is consistent with that
in the SNA. The counter party to a derivative transaction
will be a different transactor than the transactor for the
underlying transaction being hedged. Also, the two
parties to the derivative transaction may have different
motives—hedging, dealing in the instrument involved,
or acquiring the derivative as an investment. Even if
both parties are hedging, the hedging may be associated
with different financial or other assets. If derivative
transactions were included as integral parts of
underlying transactions, such treatment would lead to
asymmetries of measurement in the balance of
payments accounts. For example, the counter party to a
derivative contract that hedges an underlying position
with a resident may also be a resident. In such an
instance, the inclusion of the derivative as part of the
underlying transaction would result in the incorrect
inclusion of transactions in the balance of payments.
394. Equity and debt securities are further subdivided
by institutional sector—of the resident creditor for
assets and the resident debtor for liabilities. Supplementary
subdivisions by nonresident sector also may be of
analytical interest, as would subdivisions of securities
into new issues, transactions in outstanding issues,
redemptions of debt securities, and distinctions
between components denominated in domestic and
foreign currencies.
Selected Recording Issues
395. The expanded coverage, which includes
traditional and new money market and derivative
instruments and innovative long-term securities, of
portfolio investment raises issues concerning the
recording of balance of payments entries associated
with these instruments. Such issues are discussed, for
selected instuments, in subsequent paragraphs.
396. Zero coupon (and other deep discounted) bonds
are single payment, long-term securities that do not
involve periodic interest payments (or pay little interest)
during the life of the bond. Instead, such a bond is sold
at a discount from par value and the full return is paid
at maturity. Thus, the difference between the discounted
issue price and the price at maturity is substantial. This
difference is treated as interest income and is recorded
as accruing (i.e., converted into a series of monthly
quaterly or annual payments) over the life of the bond.
The difference (interest income) is not recorded when
due for payment. (The offset to the interest income is
entered under debt securities in the financial account
and has the effect of the interest being reinvested.)
Thus, the cost of providing the capital is matched to the
periods for which the capital is provided. If, prior to
maturity, a zero coupon or deep discounted bond is
traded in the secondary market, the transaction price
may include a realized holding gain or loss in addition
to accrued interest. That change is included in entries to
the financial account for the purchase and sale of the
bond at market prices. Prevailing interest rates reflecting
the difference between the new owner’s cost and the
value of the bond at maturity should be used for the
subsequent recording of interest on the bond. (See
paragraph 283.)
397. Index-linked securities are instruments for which
either the coupon payments or the principal are linked
to a specific price index, to the price of a commodity,
STRUCTURE AND CLASSIFICATION
92
to an exchange rate index, or the like. The objective,
in addition to earning interest income, is to conserve
purchasing power during a period of inflation. When
coupon payments are index-linked, the payments are
treated as interest income, as is the case with any
financial asset that has a variable interest rate. When
the value of the principal is indexed, the issue price of
the security is recorded as the principal, and the
change in value resulting from indexation—periodically
and at maturity—is treated as interest income. The
change in value related to indexation should be
estimated and recorded as interest income over the life
of the security, and the offset should be recorded
under debt securities in the financial account.
398. Among money market and derivative instruments
and arrangements, the treatment of short-term notes
issued under NIFs, options, warrants, swaps, traded
financial futures, and forward rate agreements are
noted subsequently.
399. A note issued under an NIF (usually a
medium-term arrangement of five to seven years) is a
short-term instrument (e.g., three to six months) issued
by a borrower in its own name under a contractual
commitment with a bank or group of banks either to
underwrite the notes and purchase any unsold notes at
particular borrowing or roll-over dates or to provide
stand-by credits. The facility is a form of revolving
credit, and the paper issued often is referred to as a
Euronote or promissory note. If the borrower is a
bank, the paper is, in effect, a certificate of deposit.
(At times, a facility is arranged to issue short-term
notes without an underwriting commitment, but
usually there is a separate stand-by credit commitment.
The notes so issued are referred to as Eurocommercial
paper.)
400. As for balance of payments recording, the
creation of NIFs does not require entries in the
financial account because the NIFs are contingent.
When notes are issued and sold under an NIF, that
transaction is recorded with the sale entered as a
liability for the borrower and as an asset for the buyer
(the bank or other investor). Repayments are entered
accordingly. However, any fees associated with the
creation and operation of NIFs or bank placements of
notes with other investors are entered in financial
services in the current account. As is recommended
for other debt securities, the discounts or premiums on
the notes purchased by banks or other investors (apart
from the fees paid by the latter to banks) are treated
as interest income, or negative interest income,
respectively, at the times of purchase.
401. Options are contracts that give the purchaser of
the option the right, but not the obligation, to buy (a
call option) or to sell (a put option) a particular
financial instrument or commodity at a predetermined
price (strike price) within a specific time span or on a
specified date. Some leading types of options are those
on foreign currencies, interest rates, equities,
commodities, specified indexes, etc. The buyer of the
option pays a premium (the option price) to the seller
(writer or issuer) for the latter’s commitment to sell or
purchase the specified amount of the underlying
instrument or commodity or to provide, on demand of
the buyer, appropriate remuneration. By convention—
in this Manual and in the SNA—that commitment is
treated as a liability of the seller and represents the
current cost to the seller of buying out his contingent
liability.
402. Conceptually, the payment of the premium
referred to previously includes two elements: the
purchase price of a financial asset and a service charge.
In practice, it often is not possible to identify the
service element separately. If the latter can be
distinguished, it is entered under financial services. If
not, it is recommended that the full premium be
recorded in the balance of payments as the acquisition
of a financial asset by the buyer and as an incurrence
of a liability by the seller. Subsequent trading (sales) of
options is recorded in the financial account, as is the
exercise or purchase or sale of the underlying financial
instrument. If an option actually proceeds to delivery,
which is not the usual case, the acquisition or sale of
the underlying asset (real or financial) is recorded at
the prevailing market price in the appropriate balance
of payments component. Offsetting that entry is the
actual amount payable or receivable; the difference
between that amount and the prevailing market price is
reflected in an entry that extinguishes the option
contract. If an option contract is closed out prior to
delivery, the actual amount payable or receivable is
offset by the entry extinguishing the option contract.
When initial margin payments and subsequent increases
or decreases are payable by the parties to options, the
payments are recorded, both as assets and liabilities,
under others investment-currency and deposits in the
financial account. Payments into, and withdrawals
from, these accounts sometimes may be reflected in
transactions in the traded options to which the
accounts relate and, if so, are recorded under option
transactions in the financial account.
403. Warrants (a particular form of option) are tradable
instruments giving the holder the right to buy from the
issuer of the warrant (usually a corporation) a certain
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93
number of shares or bonds under specified conditions
for a designated period of time. Warrants can be traded
apart from the underlying securities to which the
warrants are linked and thus have a market value. The
treatment of warrants is the same as that for other
options, and the issuer of the warrant is considered, by
convention, to have incurred a liability, which is the
counterpart of the asset held by the buyer and reflects
the current cost of buying out the issuer’s contingent
liability.
404. Another variety of tradable warrant (usually
issued by investment intermediaries) is a currency
warrant, the value of which is based on the amount of
one currency required to purchase another currency at
or before the expiration date of the warrant. Currency
warrants and cross-currency warrants with payments
denominated in third currencies are treated in a manner
similar to the treatment of other warrants.
405. A swap is a contractual arrangement involving
two parties who agree to exchange, over time and
according to predetermined rules, streams of payment
on the same amount of indebtedness. The two most
prevalent varieties of swaps are interest rate swaps and
currency swaps. An interest rate swap involves an
exchange of interest payments of different character
(e.g., fixed rate and floating rate, two different floating
rates, fixed rate in one currency and floating rate in
another, etc.). A currency swap involves an exchange
of specified amounts denominated in two different
currencies and subsequent repayments reflecting
principal and/or interest. (Central bank currency swap
arrangements usually undertaken for exchange rate
policy purposes and involving the temporary exchange
of deposits as of a particular date and the reversal of
the transaction at a future date are referred to in
paragraph 434.)
406. Balance of payments entries for streams of
interest payments associated with swap transactions
are recorded, on a net basis, in the current account,
and streams of principal repayments are recorded in
the financial account. Although neither party to a
swap arrangement is considered to be the provider of a
service to the other, any payment to a third party
involved in arranging the swap is recorded under
financial services.
407. A futures contract is an agreement between two
parties to exchange a real asset for a financial asset or
to exchange, on a specified date at a predetermined
rate, two financial assets. Traded financial futures,
including those for interest rates, currencies,
commodities, equities, or other indices, are recorded in
the financial account in a manner similar to the
recording of options. Transactions associated with
nontraded financial futures are likely to occur
infrequently and are recorded under the other assets or
other liabilities components of other investment.
408. A forward rate agreement (FRA) is an
arrangement according to which two parties agree on
an interest rate to be paid, on a specified settlement
date, on a notional amount of principal that is never
exchanged. At that time, the settlement payment (i.e.,
the difference between the rate agreed upon and the
prevailing market rate at the time of settlement) is
recorded as a transaction in the balance of payments.
The buyer of the FRA receives payment from the seller
if the prevailing rate exceeds the rate agreed upon; the
seller receives payment from the buyer if the prevailing
rate is lower than the rate agreed upon. These
payments are recorded as interest income in the
current account of the balance of payments. Because
there is only a notional (not an actual) underlying
asset, there are no entries in the financial account.
Valuation
409. Transactions in items classified as portfolio
investment are entered at market prices; any changes in
market value while securities are still in the holder’s
possession (valuation changes) are omitted.
Transactions in securities generally take place under the
conditions necessary to establish actual market prices
(e.g., in an organized market), so the valuation of
transactions is not likely to prove very troublesome in
practice. However, the elimination of valuation changes
from series derived from amounts outstanding may well
be difficult to accomplish in practice. The difference
between the market values of assets outstanding at the
beginning and at the end of a period may include
(i) transactions valued at market price during the
period and (ii) valuation changes, including those in
assets acquired or disposed of (or both), during the
period.
410. Changes in holdings classified as portfolio
investment and reported by transactors or their agents
(banks, security dealers, brokers, etc.) may include
amounts for service charges on the transactions.
Adjustments for such charges are made in entries to
portfolio investment and the charges are included in
financial services.
STRUCTURE AND CLASSIFICATION
94
Coverage
411. Other investment is a residual category that
includes all financial transactions not covered in direct
investment, portfolio investment, or reserve assets
(discussed in Chapter 21).
Classification
412. As is the case with portfolio investment, assets and
liabilities for other investment are classified primarily on
an instrument basis. The sectors of domestic creditor or
debtor—the secondary basis for the classification—are
monetary authorities, general government, banks, and
other sectors. (For the definitions of sectors, see
Appendix 2.) In contrast to direct investment and
portfolio investment, the maturity distinction(long- term
and short-term) is a third-level basis of classification.
413. The instrument subclassification for other
investment (as is that for portfolio investment) is closely
linked to the SNA categories for financial assets. (See
Chapter 3.) While the relative importance of types of
investment differs considerably among economies, the
types reflect most of the financial instruments and
channels utilized for the acquisition of assets and
incurrence of liabilities—other than for direct
investment, portfolio investment, and reserve assets. The
instrument classification comprises trade credits, loans
(including the use of Fund credit and loans from the
Fund), currency and deposits (both transferable and
other), and other assets and liabilities (for example,
miscellaneous accounts receivable and payable).
Definitions and Recording
414. Trade credits consist of claims and liabilities
arising from the direct extension of credit by suppliers
and buyers for transactions in goods and services and
advance payments for work in progress (or to be
undertaken) that is associated with such transactions.
(Loans to finance trade are not included as these are
classified under loans. See paragraph 415.) In the
absence of actual data, trade credits may be measured
by the difference between entries for the underlying
transactions in goods and services, which are recorded
as of the dates when ownership changes, and the
entries for payments related to these transactions.
Although frequently short-term in nature, trade credits
and advances are subdivided into short- and long-term
categories.
415. Loans comprise those financial assets created
through the direct lending of funds by a creditor
(lender) to a debtor (borrower) through an arrangement
in which the lender either receives no security
evidencing the transaction or receives a non-negotiable
document or instrument. Included are loans to finance
trade, other loans and advances (including mortgages),
use of Fund credit and loans from the Fund, etc. In
addition, financial leases and repurchase agreements
(see paragraphs 417 through 418) are covered under
loans—even though, from a legal standpoint, these may
not be considered loans. Loans are subdivided into
long- and short-term categories, which reflect the
retention of the maturity structure referred to previously.
416. Long-term loans and trade credits are recorded on
a net basis. It is recommended, however, that the
recording of gross flows in respect of drawings and
repayments on these instruments be provided as
supplementary information. Such information is useful
for the analysis of debt transactions and for reconciling
balance of payments data on debt with other sources of
such information.
417. Financial leases are included under loans because
such arrangements are taken as presumptive evidence
that a change in the ownership of goods has occurred.
(See paragraph 206.) The financial lease essentially is a
method by which the lessee finances the purchase of
goods. The financial lease entails a financial claim,
which is the asset of the lessor and the liability of the
lessee. At the time the imputed change in ownership
occurs, the market value of the goods is recorded and
counterpart entries, as assets or liabilities, are made in
the financial account. In subsequent periods, the
actual lease payment is divided into interest, which is
recorded in the current account as income payable or
receivable, and principal (debt) repayment, which is
recorded in the financial account and reduces the
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XX. Other Investment
value of the asset of the lessor and the liability of the
lessee.
418. A repurchase agreement (repo) is an arrangement
involving the sale of securities at a specified price with
a commitment to repurchase the same or similar
securities at a fixed price on a specified future date
(usually very short-term, e.g., overnight or one day) or
on a date subject to the discretion of the purchaser.
The economic nature of a repo is similar to that of a
collateralized loan in that the purchaser of the securities
is providing funds backed by the securities to the seller
for the period of the agreement and is receiving a
return from the fixed price when the repurchase
agreement is reversed. The securities often do not
change hands, and the buyer does not have the right to
sell them. So, even in a legal sense, it is questionable
whether or not a change of ownership occurs. As a
result, in this Manual (and in the SNA and IMF money
and banking statistics), a repo is treated as a newly
created financial asset that is a collateralized loan rather
than an asset related to the underlying securities used
as collateral. Reflecting that interpretation, repos are
classified under loans—unless the repos involve bank
liabilities and are classified under national measures of
broad money, in which case the repos are classified
under currency and deposits. In some instances,
because of legal, institutional, and other considerations,
national compilers may find it necessary to use an
alternative treatment of repos; in such instances, this
information should, if it is feasible to do so, be
separately identified and reported to the IMF.
419. Use of Fund credit and loans from the Fund
comprises a member country’s drawings on the Fund—
other than those drawn against the country’s reserve
tranche position. (See paragraph 441.) Use of Fund
credit and loans includes purchases and borrowings
under stand-by, extended, structural adjustment,
enhanced structural adjustment, and Systemic
Transformation Facility arrangements, together with
Trust Fund loans. A reduction in the Fund’s holdings of
a member’s currency in excess of the member’s quota
in the Fund minus the member’s reserve tranche
position reflects a repayment of the use of Fund credit.
420. Currency and deposits are summed as one
component, although separate data may be compiled
by countries desiring to do so for analytic and other
purposes. Currency consists of notes and coin that are
in circulation and commonly used to make payments.
(Commemorative coins and uncirculated banknotes are
excluded.) If both domestic currency (liability) held by
nonresidents and foreign currency (asset) held by
residents serve that purpose, it would be useful to
identify each separately as supplementary information.
421. Deposits comprise both transferable and other
deposits. Transferable deposits consist of deposits that
are exchangeable on demand at par without restriction
or penalty, freely transferable by check or giro order,
and otherwise commonly used to make payments.
Deposits may be denominated in domestic or foreign
currencies. Other deposits include all claims (other than
transferable deposits) reflecting evidence of deposit.
Typical examples are non-transferable savings deposits;
time deposits; and shares (evidence of deposit)—which
are legally (or practically) redeemable on demand or
on short notice—in savings and loan associations, credit
unions, building societies, etc.
422. Other assets and liabilities cover any items other
than loans and currency and deposits. For example,
capital subscriptions to international nonmonetary
organizations are classified under this category, as are
miscellaneous accounts receivable and payable.
423. As noted in paragraph 372, transactions, other
than those associated with permanent debt and equity
investment, of banks and other financial intermediaries
that are in a direct investment relationship are included
in portfolio investment or other investment. Thus, loans
and deposits of such institutions are included, as
described in paragraphs 415 and 421, under those
components.
STRUCTURE AND CLASSIFICATION
96
Concept and Coverage
424. Reserve assets, the fourth major functional
category of the financial account, is an important
component of balance of payments statistics and an
essential element in the analysis of an economy’s
external position. Reserve assets consist of those
external assets that are readily available to and
controlled by monetary authorities for direct financing
of payments imbalances, for indirectly regulating the
magnitude of such imbalances through intervention in
exchange markets to affect the currency exchange rate,
and/or for other purposes. (See paragraphs 425 and
432.) The category of reserve assets, as defined in this
Manual, comprises monetary gold, SDRs, reserve
position in the Fund, foreign exchange assets
(consisting of currency and deposits and securities),
and other claims. (See paragraph 443.) Securities that
do not satisfy the requirements of reserve assets are
included in direct investment and portfolio investment.
425. Supplementing reserve assets are other substitute
external resources, credits, and/or a variety of
conditional items—all of which incur liabilities. These
are virtually second-line reserves that can be readily
mobilized by monetary authorities. As a result, while
the significance of reserve assets within the total
international liquidity framework may have narrowed,
such assets still play a key role. On the other hand,
authorities may utilize other means to deal with
imbalances. For example, authorities may make use of
Fund credit and loans from the Fund, encourage other
sectors of the economy to engage in foreign borrowing,
and/or alter the exchange rate or allow it to float
freely, etc. The use or acquisition of reserve assets,
therefore, does not necessarily reflect the degree or size
of the payments imbalance of concern to the
authorities. The authorities also may hold reserves for
other motives—such as to maintain confidence in the
currency and the economy, to satisfy domestic legal
requirements, or to serve as a basis for foreign
borrowing. In any event, resources that may be
available in terms of external liquidity reflect a broader
range of items than the components of reserve assets
listed in this Manual.
Identification of Reserve Assets
426. The financial assets comprising reserves cannot
unambiguously be identified in a meaningful way
simply through the application of objective criteria. The
readily observable characteristics of a claim—legal
ownership, marketability, currency of denomination,
original contractual maturity, etc.—are not sufficient to
establish whether a claim is actually available to the
monetary authorities to use for the indicated purposes.
However, reserve assets always refer to assets that
actually exist. Claims that could be created under
agreements that are in force (e.g., foreign exchange
that could be obtained under swap agreements and
other lines of credit or through the use of Fund credit
under stand-by arrangements) do not constitute
existing claims. Conversely, assets that are pledged,
committed, earmarked, set aside in sinking funds, sold
forward, or otherwise encumbered by the holders are
nonetheless existing assets and are not precluded on
those grounds alone from being included in reserve
assets. However, because such arrangements may affect
the availability and usability of the assets involved,
supplementary information concerning the
arrangements would be useful.
427. Two issues must be considered in the identification
of reserve assets. First, in addition to assets actually
owned, which other assets are at the effective disposal
of monetary authorities? Second, of the assets
controlled by the monetary authorities, which are
available for use—should the necessity arise? Decisions
on these matters will depend, at least in part, on the
exercise of judgment.
Effective control
428. The aspect of control can be appraised only with
reference to the institutional framework in individual
economies. In the narrowest sense, monetary
authorities control absolutely only those assets to which
they legally hold title. In the broadest sense, almost any
asset owned by a resident of the economy may
ultimately be subject to the control of the authorities.
Neither of these extreme views is useful for the balance
97
XXI. Reserve Assets
of payments. Instead, the concept of reserve assets
should encompass those assets over which authorities
exercise direct and effective control.
429. The test of such control is to be applied quite
strictly. In general, only foreign claims actually owned
by monetary authorities would be included as reserves.
For example, the acquisition of assets through any
statutory power that is maintained solely on a stand-by
basis would not be considered an effective exercise of
control. Also, the potential for transferring assets to or
from the authorities through a change in monetary
policy—and thereby inducing banks to change their
holdings of foreign assets—would be deemed too
indirect. Nevertheless, ownership is not a necessary
condition for control. For instance, if banks hold legal
title to foreign assets but are permitted to deal in such
assets only on the terms specified by monetary
authorities or only with their express approval, such
assets would be considered subject to the authorities’
direct and effective control.
430. Except in unusual circumstances, direct and
effective control is not to be construed as extending
beyond the assets owned by depository institutions.
That is, while certain bank-owned claims on
nonresidents could be classified as reserve assets, those
same claims would cease to be reserve assets if the
banks sold the claims to private residents other than
depository institutions—whatever the institutional
arrangements in the economy might be. Authorities
should be able to provide data on assets that they
control (but do not own) because that information
would be prerequisite to effective control.
Availability for use
431. Whether an asset controlled by monetary
authorities is available for use is partly dependent on
any conditionality that affects the asset—including, as
one main aspect, the liquidity or marketability of the
asset. Owned assets (such as monetary gold, SDRs, and
reserve positions in the Fund) that are immediately
available can be viewed as assets in the most
unconditional form. Foreign exchange holdings and
other claims, in many instances, are equally available.
However, a ranking of all available assets according to
conditionality is not a feasible undertaking. Furthermore,
such a ranking—if made—would be based on
two types of judgments: (i) the precise degree of
conditionality required for assets to be considered
unavailable for use (in accordance with the concept of
reserve assets) and (ii) the point at which the borderline
between reserve assets and other assets should be
drawn. A more pragmatic approach is to consider, in
each case, whether there is an expectation, backed by
a reasonable degree of assurance, that the conditions
could be satisfied if and when it became necessary to
use the asset.
Selected cases
432. Monetary authorities presumably hold or exercise
control over foreign assets in order to have such assets
available as reserve assets or for some other purpose.
These objectives may not be mutually exclusive. For
example, reserve assets in excess of immediate requirements
can be invested in World Bank obligations and
thus provide development aid. Assets held for both
reasons are generally classified as reserve assets. In
contrast, assets in the form of direct, long-term loans for
development and other purposes are not classified as
reserve assets. Net creditor positions in regional
payments arrangements that involve reciprocal lines of
credit and that require prompt settlement of outstanding
drawings (e.g., monthly or quarterly) are construed as
reserve assets. However, net asset balances in bilateral
payments agreements have much in common with other
types of tied loans that authorities make to stimulate
exports, provide aid, or further other aspects of
government policy. Such payments agreement balances
are therefore conventionally excluded from reserve
assets. Subscriptions to international nonmonetary
organizations, assets redeemable only in inconvertible
currencies, and assets with uses blocked or otherwise
effectively restricted by issuers are examples of assets
that are not considered reserve assets.
433. Most other foreign assets held by monetary
authorities are likely to be appropriate for inclusion in
reserve assets. Working balances of the government
qualify fully as reserve assets because, by definition,
such balances are available for immediate use.
Committed assets cannot be excluded because, like all
other reserve assets, committed assets exist to meet
requirements. An asset is no less a reserve asset simply
because the specific use to which the asset is to be put
is a foreseeable one. A readily repayable loan to the
Fund comprises a reserve asset. Bank transfers of foreign
claims to authorities just prior to certain accounting
dates can result in a portion of the assets held by the
authorities being committed, in effect, to the reversal of
the transfer soon after those dates—whether or not the
commitment is a formal one. While such operations
undoubtedly distort the statistics on reserve assets as of a
specified date, the distortion should be interpreted as
the result of a seasonal influence, and the omission of
STRUCTURE AND CLASSIFICATION
98
such holdings from reserve assets may be justified only
as a seasonal adjustment.
434. Assets created under reciprocal facilities (swap
arrangements) for the temporary exchange of deposits
between the central banks of two economies warrant
mention. Deposits (in foreign exchange) acquired by
the central bank initiating the arrangement are treated
as reserve assets because the purpose of the exchange
is to provide the central bank with assets that can be
used to meet the country’s balance of payments needs.
Reciprocal deposits acquired by the partner central
bank also are considered reserve assets. Arrangements
(gold swaps) involving the temporary exchange of gold
for foreign exchange deposits should be treated in a
similar manner. When a central bank acquires foreign
exchange from a domestic bank in exchange for a
deposit (in national currency) at the central bank and
there is a commitment to reverse the transaction at a
subsequent date, the transaction is treated and recorded
as an increase in reserve assets of the central bank and
an increase in the central bank’s liabilities (in national
currency) to the domestic bank.
435. Assets not actually owned by monetary authorities
do not usually qualify as reserve assets under a strict
application of the criteria discussed in paragraph 429.
Nevertheless, the possibility that such assets may qualify
cannot be entirely precluded. Qualification should be
apparent to the balance of payments compiler; if
monetary authorities are presumed to be exercising
effective control over such assets, the assets must
possess quite distinctive characteristics. An example
would be assets that monetary authorities temporarily
transfer to private deposit money banks; the transfers
would be accompanied by some special inducements to
hold the assets, such as agreements to repurchase the
assets at prices that assure the banks of realizing profits.
Exclusion of Valuation Changes and Other
Adjustments
436. This fifth edition of the Manual, in contrast to the
fourth, excludes all changes in reserve assets that are
not attributable to transactions. Thus, value changes
resulting from fluctuations in the prices of reserve
assets, changes associated with the creation of reserve
assets (the monetization or demonetization of gold and
the allocation or cancellation of SDRs), and counterparts
offseting such changes are not recorded in
balance of payments statements. Changes resulting from
reclassification also are excluded. All these adjustments
are reflected in the international investment position.
(See Chapter 23.)
Classification
437. Although individual elements of reserve assets are
largely interchangeable from a functional standpoint,
changes in components discussed subsequently may
have somewhat differing implications for analyses of
global liquidity and the balance of payments adjustment
process.
438. Monetary gold is gold owned by the authorities
(or by others who are subject to the effective control of
the authorities) and held as a reserve asset.10 Other gold
(nonmonetary gold, possibly including commercial
stocks held for trading purposes by authorities who
also own monetary gold) owned by any entity is
treated in this Manual as any other commodity. Transactions
in monetary gold occur only between monetary
authorities and their counterparts in other economies or
between monetary authorities and international
monetary organizations. Like SDRs (see paragraph 440),
monetary gold is a reserve asset for which there is no
outstanding financial liability.
439. Authorities who add to their holdings of monetary
gold by acquiring commodity gold (i.e., newly mined
gold or existing gold offered on the private market) or
release monetary gold from their holdings for
nonmonetary purposes (i.e., for sale to private holders
or users) have monetized or demonetized the gold,
respectively. Any increase or decrease in monetary gold
holdings resulting from monetization or demonetization
is treated as a reclassification of gold; such an increase
or decrease is not shown in the balance of payments
but is reflected in the international investment position.
If the gold being monetized or demonetized is acquired
from or sold to a nonresident, that transaction should
be recorded as an import or export under goods in the
current account and, in the financial account, as a
credit or debit under the financial item that was used or
received to finance that import or export.
440. SDRs are international reserve assets created by
the International Monetary Fund to supplement other
reserve assets that are periodically allocated to IMF
members in proportion to their respective quotas. SDRs
are not considered liabilities of the Fund, and IMF
members to whom SDRs are allocated do not incur
actual (unconditional) liabilities to repay SDR
allocations. The Fund determines the value of SDRs
daily by summing, in U.S. dollars, the values—which
are based on market exchange rates—of a weighted
CHAPTER XXI
99
10As defined in this Manual, monetary gold is generally construed to be at least
995/1000 pure.
basket of currencies. The basket and weights are
subject to revision from time to time. SDRs can be
used to acquire other members’ currencies (foreign
exchange), to settle financial obligations, and to extend
loans. Changes in the SDR holdings of monetary
authorities can arise through (i) transactions involving
SDR payments to or receipts from the Fund, other
participants in the SDR Department of the Fund, or
other holders or (ii) allocation or cancellation.
Transactions such as those enumerated under (i) are
included in the balance of payments; allocations or
cancellations are not entered in the balance of
payments but are reflected in the international
investment position.
441. An IMF member may have, in the Fund’s General
Resources Account, a position that is recorded under
the category for reserve assets. This position is referred
to as the member’s reserve position in the Fund. The
member’s reserve position is the sum of the reserve
tranche purchases that a member may draw upon and
any indebtedness of the Fund (under a loan agreement)
that is readily repayable to the member. Reserve
tranche purchases are purchases from the Fund of
other currencies that do not cause Fund holdings of a
member’s currency to exceed the member’s quota
(minus holdings that reflect the member’s use of Fund
credit). A purchase from the Fund is recorded as an
increase in foreign exchange holdings and a decrease
in the member’s reserve position in the Fund; a
repurchase is recorded as a decrease and an increase,
respectively. Purchases in the reserve tranche are not
regarded as a use of Fund credit, are not subject to
charges, and do not require repurchase. In addition to
reserve tranche purchases, members may use Fund
resources in connection with compensatory and
contingency financing, buffer stock financing, the
extended Fund facility, and the credit tranches
(including policy on enlarged access) without having
those purchases and holdings included in Fund
holdings of member currencies for the purpose of
defining the reserve tranche. A member’s drawing
(other than against its reserve tranche position)
constitutes the use of Fund credit. (See paragraph 415.)
442. Foreign exchange includes monetary authorities’
claims on nonresidents in the forms of ECUs,11
currency bank deposits, government securities, other
bonds and notes, money market instruments, financial
derivatives, equity securities, and nonmarketable claims
arising from arrangements between central banks or
governments. (Foreign exchange covers claims that are
shown as the foreign exchange component of the
series for international liquidity published by the Fund
in International Financial Statistics.) The instrument
subclassification of the foreign exchange component of
reserve assets is necessary in the context of the Fund’s
compilation of global aggregates of the main
components of the world financial account and for
analyses of the global discrepancy in those aggregates.
(The Fund adheres to strict confidentiality requirements
concerning instruments.)
443. Other claims is a residual category covering
claims that are not included previously and that may
constitute reserve assets in the form of currency,
deposits, or securities. For instance, the foreign
exchange component may not invariably cover
working balances abroad of government nonmonetary
agencies or assets that are held by banks and subject
to the control of monetary authorities.
Valuation
444. In principle, all transactions in reserve assets are
recorded at market prices—that is, market exchange
rates in effect at the times of transactions, market
prices for claims such as securities, and SDR market
rates as determined by the Fund. Monetary gold
transactions are valued at the market prices underlying
the transactions. For valuation of stocks of reserve
assets in the international investment position, market
prices in effect at the ends of appropriate periods are
used.
Interpretation of Changes in Reserve Assets
445. Changes in reserve assets (within the context of
broader aspects of external liquidity; see paragraph
425) are an important analytic tool for assessing
balance of payments adjustment requirements but
should not be viewed in isolation. Difficulties may
arise, in some instances, in correctly identifying certain
items as reserve assets. Similar problems pertain to the
identification of liabilities constituting foreign
authorities’ reserves (LCFARs). Reflecting these
considerations, this chapter and Chapter 22 (covering
LCFARs and exceptional financing transactions) should
be considered complementary rather than mutually
exclusive.
STRUCTURE AND CLASSIFICATION
100
11Countries participating in the European Monetary System were issued ECUs
against deposits of gold and U.S. dollars with the European Monetary
Cooperation Fund. Those reserves that were deposited are excluded from gold
and foreign exchange holdings as published by the Fund, but the equivalent
holdings of ECUs are included in foreign exchange.
Coverage
446. Several varieties of important transactions are not
separately identified in the components of the
financial account. This supplementary information is
necessary to meet various analytical requirements,
including the derivation of certain overall measures of a
balance of payments deficit or surplus. The specific
items are liabilities constituting foreign authorities’
reserves (LCFARs) and exceptional financing
transactions; the latter include several forms of debt
reorganization related to balance of payments
requirements. The fact that these financing items are
not separately identified among the standard
components does not diminish the importance of such
items in the analysis of balance of payments
developments. Rather, the absence of separate
identification reflects the views of most national
balance of payments compilers that inclusion of these
items would unduly expand the list of standard
components. (A presentation of these and other items
appears, together with the list of standard components,
at the end of Chapter 8.)
Liabilities Constituting Foreign Authorities’
Reserves
447. In this fifth edition of the Manual, LCFARs are not
separately identified as components of the financial
account.12 In the fourth edition, LCFARs were identified
as separate components of each type of financial
liability, with the exception of direct investment, in the
capital account (in this Manual, the financial
account). Objective criteria to identify LCFARs and the
relationships to reserve assets remain elusive. It often is
difficult for a debtor economy to specifically link certain
liabilities to those assets identified as reserve assets by a
creditor economy. The potential utilization of reserve
assets to serve varied purposes—as noted in Chapter
21—makes it that much more difficult to match a related
liability to a particular function. As a result, it may not
be feasible to determine the underlying reasons for
changes in such liabilities in many instances.
448. Notwithstanding such difficulties, it is useful for a
compiling (debtor) economy to attempt, when possible,
to identify as LCFARs those liabilities that are treated as
reserve assets by the creditor economy—even though
the compiling economy may not regard part or all of
such liabilities as a means of financing its payments
imbalance. (The identification may facilitate crosschecks
of bilateral and international comparisons of
data on reserve assets.) In the table on Selected
Supplementary Information at the end of Chapter 8,
LCFARs are classified primarily by instrument—debt
securities, deposits, and other liabilities—and,
secondarily, by appropriate sector.
449. In certain analytic presentations (see Appendix 5),
including those of the Fund, LCFARs are grouped
together with reserve assets, use of Fund credit and
loans from the Fund, and exceptional financing as
below-the-line items; that is, as financing items above
the line in the current account and the financial
account. Interpretation of the behavior of LCFARs
depends on the purpose of the analysis and the factors
that brought about the changes recorded in the balance
of payments. The figures—along with those for reserve
assets—certainly are not, under all circumstances, a
satisfactory measure of the means that may have been
employed by monetary authorities to finance a
payments imbalance or a satisfactory measure of the
size of that imbalance. Also, interpretation of the
figures may sometimes be uncertain. For example, in a
reserve currency country, a shift—from a foreign central
bank to foreign private deposit money banks—in
holdings of claims on deposit money banks may or may
not indicate strength in the reserve country’s payments
position. Nevertheless, changes in the liabilities that are
the counterparts of another economy’s reserve assets
can be relevant in understanding the global process of
reserve creation and neutralization.
450. Identification of certain assets as reserve assets is
not always a clear-cut matter even for holders of the
assets. (See Chapter 21.) The problem of identification
101
XXII. Supplementary Financial Account Information
12LCFARs are any liabilities that are considered, from the viewpoint of the
creditor, to be reserve assets—even though the debtor (compiling economy)
may not consider such liabilities to be offsets to its reserves or to be financing
its payments imbalance.
is likely to be even more complicated from the side of
the debtor, who presumably has less access to the facts
on which judgment is to be made. General
considerations for identifying LCFARs are that a
nonresident creditor will probably classify as reserve
assets any liabilities of the compiling economy (i) that
are repayable on demand or in the short run (i.e.,
marketable) or that the debtor is prepared to redeem
on short notice; (ii) that are repayable in assets that the
debtor would regard as reserve assets; and (iii) that are
owed to a central bank or central government.
Exceptional Financing and Balance of
Payments Needs
451. The concept of exceptional financing and the
related balance of payments accounting treatment have
evolved since the fourth edition of the Manual was
published and have assumed increased importance for
IMF operations, statistics, and member countries in
recent years. As an alternative to—or in conjunction
with the use of reserve assets, Fund credit and loans
from the Fund (both standard components), and
LCFARs to deal with payments imbalances—exceptional
financing consists of any other arrangements made by
authorities (or by other sectors fostered by authorities)
of an economy to meet balance of payments needs.
452. Use of IMF resources is subject to a conceptual
requirement of need, which—according to the Articles
of Agreement of the IMF—is linked to a member’s
balance of payments, reserve position, or developments
concerning reserves. Determination of need involves
making a clear distinction between (i) above-the-line
transactions deemed to be autonomous or undertaken
for the sake of the transactions and thus contributing to
or resulting in an overall payments deficit or surplus
and (ii) below-the-line items considered to be
accommodating or financing the deficit or surplus.
While such a distinction between groups of transactions
involves a degree of judgment, it nonetheless presents
a measure of the deficit or surplus and indicates
financing needs and/or policy adjustments required to
correct the imbalance. (See Appendix 5.)
453. As is the case with reserve assets and LCFARs, the
identification of exceptional financing transactions is
linked to an analytic concept rather than being based
on precise criteria. Among transactions identified as
exceptional financing and linked to balance of
payments and reserve considerations noted previously
are those associated with (i) transfers—such as debt
forgiveness, other intergovernmental grants, and grants
received from Fund subsidy accounts; (ii) direct or
other equity investment—such as debt or equity swaps
involved with debt reduction; (iii) borrowing, including
bond issues, by the government or central bank (for
example, from foreign commercial banks); (iv) borrowing
(including bond issues) implemented by other
sectors of the economy and induced by authorities—
usually with some form of exchange rate or interest
subsidy; and (v) other transactions related to debt
reorganization, such as rescheduling of existing debt
and accumulation and repayments of arrears.
Balance of Payments Accounting for Selected
Exceptional Financing Transactions
454. In the balance of payments, treatment of debt
reorganization involves entries in several accounts in
the standard presentation and entries to indicate
below-the-line exceptional financing (see paragraph
449) in an analytic presentation such as the aggregated
one in the Fund’s Balance of Payments Statistics
Yearbook. In the case of multi-year arrangements
involving certain conditions affecting future periods, no
entries are made in the accounts for the current period,
although entries may be generated in future periods.
The treatment of selected exceptional financing
transactions denotes components of balance of
payments accounts in which such transactions are
entered. For analytical purposes, credit entries for
appropriate exceptional financing transactions are
construed as satisfying balance of payments needs or as
below-the-line items, although associated debit entries
may be made above the line. In addition to the
transactions highlighted in paragraphs 455 through 458,
repayments made in advance of the due dates by the
authorities of an economy and considered to be made
for balance of payments reasons should be treated as
below-the-line items in analytical presentations. If an
advance repayment is deemed to be made for other
reasons (e.g., to improve a debtor economy’s standing
in credit markets), the repayment is not classified as
exceptional financing.
455. Debt forgiveness (i.e., the voluntary cancellation
of all or part of a debt specified by a contractual
arrangement between a creditor in one economy and a
debtor in another economy that is experiencing balance
of payments difficulties) is treated as a capital transfer
from the creditor to the debtor. (See Chapter 17.) The
transfer offsets the reduction of the liability of the
debtor in the financial account. For the debtor
economy, if the obligations are past due, the
forgiveness involves arrears (see paragraph 458), and
both entries (i.e., the receipt of the transfer and the
STRUCTURE AND CLASSIFICATION
102
reduction in arrears) are reflected under exceptional
financing. If obligations are due in the current
accounting period, only the entry denoting the transfer
is shown under exceptional financing. Entries
pertaining to the obligations are shown above the line.
If the obligations are not yet due, there are no entries
under exceptional financing.
456. Exceptional financing transactions related to direct
investment (for example, debt or equity swaps) involve
the exchange, usually at a discount, of bank claims on,
or other debt instruments of, debtor economies for
nonresident investors’ equity investments in those
economies. Although variable in form, such
arrangements usually result in the extinction of a
fixed-payment liability (e.g., a debt security or loan)
denominated in foreign currency and the creation of
an equity liability (denominated in domestic currency)
to a nonresident. There may be an exchange of a
liability of an enterprise for equity in that enterprise,
or the central bank may redeem outstanding debt by
purchasing the debt, at a discount and in local
currency, from a nonresident. The proceeds are then
reinvested by the nonresident as equity in the
enterprise. A debt or equity swap often reflects a
difference between the full value of the debt instrument
and the value of the equity obtained. That difference
should be construed as a valuation adjustment in the
international investment position rather than as a
transaction (e.g., a capital transfer).
457. Rescheduling or refinancing of existing debt
involves a change in an existing contract and replacement
by a new contract to extend debt service
payments due to lenders. This rescheduling constitutes
a formal deferment with new maturities replacing those
of the former contract. Interest and amortization obligations
due to be paid in the current accounting period
are considered paid on time and financed by the
rescheduled loan. Thus, there is a reduction of those
payments on the old loan and the creation of a new
loan. As to balance of payments entries, there are debit
entries to interest income in the current account and,
according to the maturity of the original loan, to
short- or long-term loans in other investment; there is
an offsetting credit entry under long-term loans in that
same category. If the rescheduling concerns obligations
past due, arrears are involved. (See paragraph 458.) If
the rescheduling involves obligations not yet due,
entries are made only under short- or long-term loans,
as appropriate, in other investment. If, under a
rescheduling, the monetary authorities or general
government sector assume the debt of banks or other
sectors of the economy, a credit is entered in the
financial account for the assuming sector and a debit
is entered for the other sector.
458. Arrears of interest and amortization (amounts
past due and unpaid) are recorded in accordance with
the accrual principle as if paid, and a contra entry is
made to reflect the new liability. For interest arrears
accruing in the reporting period, a debit entry is
recorded under income in the current account, and
a corresponding credit entry is made (under other
investment-other liabilities-short-term) in the financial
account. For amortization arrears, a debit entry is
made in the appropriate component of the financial
account (for example, short- or long-term loans under
other investment), and a credit contra entry is made
under other investment-other liabilities-short-term. In
analytical presentations, entries for arrears are made
below the line (i.e., exceptional financing). When
rescheduled interest or interest in arrears includes
interest accrued in a previous recording period, the
accrual principle for the recording of interest (see
paragraph 121) requires a debit entry under income in
that period and an offsetting credit entry (under the
appropriate instrument) in the financial account.
Subsequently, when the rescheduling is effected or the
interest is in arrears, only the interest accrued in the
current period is debited under income. Interest
accrued in the previous period is debited to the
appropriate instrument in the financial account (to
offset the credit entry made in the previous period for
the interest accrued).
459. A detailed summary of entries required in
balance of payments accounts for various forms and
aspects of exceptional financing transactions is
presented in Appendix 4.
Foreign Sources of Financing
460. Financial flows in the balance of payments are
generally compiled on a domestic transactor basis and
in concordance with related statistical systems (e.g.,
the SNA and flows of funds accounts). However, for
certain analytical purposes—such as analyses of debtor
economies’ sources of external borrowings by type of
lender (official, bank, or other) and data comparisons
for individual or groups of economies—identification
of the nonresident party to a transaction is of
significance. Because such uses are made of the data,
it is recommended that statistics on foreign sources of
financing by sector (i.e., monetary authorities, general
government, banks, and other) be collected as
supplementary information.
CHAPTER XXII
103
Concept and Coverage
461. Together, the balance of payments transactions
and international investment position covered in this
Manual constitute the set of international accounts for
an economy. The international investment position is
the balance sheet of the stock of external financial
assets and liabilities. The financial items that comprise
the position consist of claims on nonresidents, liabilities
to nonresidents, monetary gold, and SDRs. By
convention, land and other immovable tangibles
(except those owned by extraterritorial units; see
paragraph 64) are treated as the property of economic
entities of the economies in which the immovable
tangibles are located. Therefore, a nonresident owner
has a financial claim on the resident entity to which the
ownership of such an asset is attributed rather than
ownership of the actual nonfinancial asset.
462. In relation to the balance sheet (as delineated in
the SNA) of an economy, the net international investment
position (the stock of external financial assets
minus the stock of external liabilities) combined with
an economy’s stock of nonfinancial assets comprises
the net worth of that economy. (See Chapter 3.)
463. The position at the end of a specific period
reflects financial transactions, valuation changes, and
other adjustments that occurred during the period and
affected the level of assets and/or liabilities. Because
stock levels often are utilized in the determination of
investment income receipts and payments in balance of
payments accounts, consistent classification throughout
the income category of the current account, the
financial account, and the position components is
essential for reconciliation of stocks and flows and for
meaningful analysis of yields and rates of return on
external investments. (See paragraphs 475 through 477.)
Classification
464. Classification of the international investment
position (and of changes to the IIP) has two
dimensions. (See the table at the end of this chapter.)
In the rows of the table, the primary distinction is
between assets and liabilities; the difference between
the two represents the net position. Fully consistent
with the balance of payments financial account, the
first IIP subclassification is by function. Assets are
divided into direct investment, portfolio investment,
other investment, and reserve assets; liabilities are
divided the same way (except for reserve assets).
465. Within the functional categories and in
concordance with the income component of the
current account and with the financial account of
the balance of payments, direct investment is
subdivided into equity capital, reinvested earnings, and
other capital (intercompany debt). Claims on and
liabilities to affiliated enterprises are shown separately.
Portfolio investment is classified primarily by
instrument—equity securities, debt securities, and
financial derivatives—and secondarily by appropriate
sectors. Other investment also is classified first by
instrument and then by sector. Included are trade
credits, loans, currency and deposits, and other assets
and liabilities (such as capital subscriptions to
international, nonmonetary organizations and
miscellaneous accounts receivable and payable).
Reserve assets are largely interchangeable from a
functional standpoint. (See paragraphs 437 through
443.)
466. In the columns of the table at the end of this
chapter, the factors accounting for the change in the
position from the beginning to the end of a period are
recorded. Listed first are the transactions associated
with the various components (e.g., for direct
investment, portfolio investment, etc.). The next two
items—price changes and exchange rate changes—
affect the valuation of components such as equity and
debt securities, direct investment, and reserve assets.
(Price and exchange rate changes assume greater
importance with increased volatility of securities and
exchange markets.) Before the position at the end of
the period is recorded, a fourth item (other adjustments)
must be included. Among such adjustments (equivalent
to “other changes in volume of assets” in the SNA) are
changes resulting from the allocation or cancellation of
SDRs and changes resulting from gold monetization or
demonetization, reclassifications (such as from portfolio
investment to direct investment when the 10 percent
104
XXIII. International Investment Position
equity threshold is reached), unilateral cancellation of
debt by a creditor, and expropriations or
uncompensated seizures.
Valuation of Components
467. In principle, all external financial assets and
liabilities should be measured at current market prices
as of the dates involved (i.e., beginnings or ends of
reference periods).13 In practice, however, there may be
some departures from the market price principle. For
direct investment, book values from the balance sheets
of direct investment enterprises (or of direct investors)
generally are utilized to determine the value of the
stock of direct investments. These balance sheet values,
if recorded on the basis of current market value, would
be in general accordance with the principle. If based
on historical cost or on an interim but not current
revaluation, such balance sheet values would not
conform to the principle. Consequently, it would be
desirable to have data collected and made available on
a current-market-value basis to eliminate the gap
between principle and practice. Those countries that
compile data on the basis of market values derived
indirectly should, if the two types of data differ, also
compile data from that provided by enterprises on a
balance sheet (book value) basis to facilitate
international comparability. (See paragraph 377.)
468. Portfolio investment (equity securities, debt
securities, and financial derivatives) is valued at current
market prices at the appropriate reference dates. For
equities that are listed in organized markets or are
readily tradable, the value of outstanding stocks should
be based on actual prices. The value of equities that are
not quoted on stock exchanges or otherwise traded
regularly should be estimated by using the prices of
quoted shares that are comparable as to past, current,
and prospective earnings and dividends. Alternatively,
the net asset values of enterprises to which the equities
relate could be used to estimate market values if the
balance sheets of the enterprises are available on a
current value basis. For debt securities that are listed in
organized markets or are readily tradable, the
outstanding value of stocks also should be determined
on the basis of current market prices. For debt securities
that are not readily tradable, the net present value of
the expected stream of future payments or receipts
associated with the securities could be used to estimate
market value. (The net present value of any future
receipt is equal to the value of that receipt when
discounted at an appropriate interest rate.)
469. Principles for valuation of financial derivatives in
the investment position are, in some respects, less
definitive than those for other portfolio investment
instruments. There are ongoing efforts by national and
international accounting bodies to define standards for
the measurement and recording of derivatives. Thus, in
the Manual, a thorough treatment of derivative
valuation is not attempted—particularly in view of
continued innovations in this area. Rather, brief
valuation guidelines that are consistent with those in
the SNA and applicable to a number of existing
derivatives are presented subsequently.
470. Traded options, warrants, and traded financial
futures—all of which are treated as financial assets—are
included in the position at market values on the
appropriate accounting dates. For an option, the market
value recorded is either the current value of the
option—that is, the prevailing market rate—or the
amount of the premium paid as a proxy. The
counterpart liability is attributable, by convention, to
the writer of the option and is valued at the current
value of buying out the rights of the option holder. For
a warrant, the counterpart liability of the issuer is the
current value of buying out the exercise rights of the
holder. A contract for a currency swap is recorded at
market value; when payments are effected, the value of
the asset and associated liability is amortized and
subsequently reflected in the position on the
appropriate accounting date.
471. Among other investment items, those that are not
readily transferable among transactors (e.g., loans,
deposits, miscellaneous accounts receivable and
payable) are recorded in the investment position at
nominal or face value (as is the case for currency). In
general, that value is an acceptable proxy for market
value. However, in recent years, loans to a number of
heavily-indebted countries have been subject to
significant discounts in secondary markets that emerged
for the trading of such debt and brought the valuation
of such debt into question. To conform with the market
value principle, secondary market quotations should be
the basis of valuation for transactions. As to recording
the value of such debt in the position, the issue is not
as clear. In principle, values recorded in the position
should also be based on secondary market quotations.
This presents no problem on the creditor side where
CHAPTER XXIII
105
13Market price may have to be approximated in some instances. For example,
for direct investment branches and most subsidiaries, the market valuation of
the parent enterprise’s equity is approximated as the net asset value of the
resident enterprise; that is, the difference between the market value of assets
and liabilities to third parties (including the market value of shares held by
minority or portfolio investors) and nonequity liabilities to shareholders.
claims are valued on the basis of the transaction
(secondary market) price. However, on the debtor side,
the amounts of principal that debtors are contractually
obliged to repay creditors when loans mature are used
as the basis of valuation, and this practice represents a
departure from the market price principle. In this
particular case, the departure is associated with contractual
restrictions that are usually applicable to such loans
and that prohibit the debtor from buying back the
loans in secondary markets unless the restrictions are
waived. (These limitations usually do not apply to
bonds or other securities.) The use of market values on
the creditor side and nominal values on the debtor side
results in an asymmetry between debtor and creditor
positions. To deal with that asymmetry, creditors
should, if it is feasible, provide supplementary data on
nominal values of discounted loans, and debtors should
provide such data on market values.
472. The effects of selected, debt-related arrangements
on the position include (i) exchange of debt for equity
(debt/equity swap—see paragraph 456), in which case
the difference between the nominal value of a loan and
the (lesser) value of the equity obtained is treated as a
valuation adjustment in the position; (ii) forgiveness of
a loan, in which case a capital transfer offsets the
reduction of the debtor’s liability in the balance of
payments accounts and the transactions column of the
position reflects the reduction in the debtor’s liability
and creditor’s asset; (iii) rescheduling of a loan, in
which case a new loan in effect replaces an old loan
and the nominal value of the new loan is the basis of
valuation; or (iv) unilateral cancellation of a loan by the
creditor, which is recorded under other adjustments to
the position. (See paragraph 466.)
473. Reserve assets are valued at current market prices
at the appropriate reference dates. Monetary gold is
valued at the prevailing market price; SDRs are valued
at market rates calculated by the Fund; and reserve
position in the Fund is valued on the basis of Fund
calculation. Foreign exchange assets and other claims
are valued at market prices prevailing at the reference
dates.
Relationship of the International Investment
Position to External Debt
474. The net international investment position of an
economy—that is, external financial assets minus
external liabilities—often is used to analyze developments
and trends in the performance of an economy
vis-à-vis the rest of the world as of a specific date. The
net position shows what the economy owns in relation
to what it owes in much the same way that a corporate
or national balance sheet does. Sometimes the labels
net creditor or net debtor, according to algebraic sign,
are used to describe the net position. Although useful
for some purposes, such labels are not appropriate as a
depiction of the net position. Rather, it is more relevant
to view only the nonequity components of the position
as debt (i.e., all recorded liabilities other than equity
securities and direct investment equity capital, including
reinvested earnings). Such a view is in general
concordance with the core definition of gross external
debt in the joint study External Debt: Definition,
Statistical Coverage, and Methodology (1988) by the
IMF, World Bank, OECD, and Bank for International
Settlements.14
Investment Income, Rates of Return, and the
International Investment Position
475. The links between investment income in the
balance of payments accounts and the international
investment position—particularly those between net
investment income and the net position—are complex
and underline the importance of consistent
classification of transactions and stocks and of viewing
the two as an integrated set of accounts.
476. A number of factors can contribute to apparent
anomalies between net investment income, on the one
hand, and the net investment position on the other. For
instance, the former can be positive and the latter
negative as a reflection of a higher net rate of return on
external assets than on liabilities. That higher rate of
return could reflect a greater risk factor abroad; more
mature, outward direct investments with higher returns
than less mature, inward investments; and/or the
relative magnitude of components of the position. In
regard to the latter, for example, there might be a large
net positive position for the banking sector. As banks
earn more on loans than they pay on deposits, their net
income would probably more than offset a net negative
position (e.g., in equity investment on which dividend
payments generally are low in relation to the value of
the equity involved). In association with the stock of
direct investment, another factor that could result in an
artificially high rate of return is the use of historical cost
balance sheet values, which may be substantially less
than current market values, as the denominator in
calculating the rate of return.
STRUCTURE AND CLASSIFICATION
106
14Gross external debt is the amount, at any specific time, of disbursed and
outstanding contractual liabilities of residents of a country to repay principal,
with or without interest, or to pay interest, with or without principal, to
nonresidents.
477. The utilization of stocks to derive income flow
estimates, as opposed to direct reporting of the latter,
may present measurement problems. In cases in which
various interest rate and yield assumptions are applied
to stocks to estimate income flows (e.g. for securities
holdings), the quality of estimates of dividend and
interest flows depends not only on the assumptions but
on the stock estimates. Estimates based on outdated
sources or surveys may well be unreliable. In contrast,
income estimates based on direct reporting (e.g., in
direct investment surveys) are subject to fewer errors.
In any event, both stock and flow estimates can serve
as cross-checks on each other. When problems arise,
such checks can indicate that up-to-date surveys on
stocks of the assets in question are necessary, that
methods of collecting data on transactions should be
improved, and/or that other avenues to improve
estimates be explored. (See the Guide.) Finally, the
interrelationship between the international investment
position and cumulative balance of payments flows and
the effects of these on the net lender or net borrower
status of an economy have important analytical and
policy implications for matters such as the formulation
and implementation of adjustment programs, the relative
costs and financing requirements of these programs, and
the role of the IMF in these matters. (See Appendix 5.)
CHAPTER XXIII
107
International Investment Position: Standard Components
_____C_h__a_n_g__e_s_ _in__ P__o_s_it_i_o_n__ R__e_f_le_c_t_i_n_g__:____
Position at Exchange Other Position
Beginning Trans- Price Rate Adjust- at End of
of Year actions Changes Changes ments Year
A. Assets
A. 1. Direct investment abroad*
1.1 Equity capital and reinvested earnings
1.1.1 Claims on affiliated enterprises
1.1.2 Liabilities to affiliated enterprises
A. 1. 1.2 Other capital
1.2.1 Claims on affiliated enterprises
1.2.2 Liabilities to affiliated enterprises
A. 2. Portfolio investment
2.1 Equity securities
2.1.1 Monetary authorities
2.1.2 General government
2.1.3 Banks
2.1.4 Other sectors
A. 1. 2.2 Debt securities
2.2.1 Bonds and notes
2.2.1.1 Monetary authorities
2.2.1.2 General government
2.2.1.3 Banks
2.2.1.4 Other sectors
A. 1. 2.2 2.2.2 Money market instruments
2.2.2.1 Monetary authorities
2.2.2.2 General government
2.2.2.3 Banks
2.2.2.4 Other sectors
A. 1. 2.2 2.2.3 Financial derivatives
2.2.3.1 Monetary authorities
2.2.3.2 General government
2.2.3.3 Banks
2.2.3.4 Other sectors
A. 3. Other investment
3.1 Trade credits
3.1.1 General government
3.1.1.1 Long-term
3.1.1.2 Short-term
A. 1. 2.2 3.1.2 Other sectors
3.1.2.1 Long-term
3.1.2.2 Short-term
108
*Because direct investment is classified primarily on a directional basis—abroad under the heading Assets and in the reporting economy under
the heading Liabilities—claim/liability breakdowns are shown for the components of each, although these sub-items do not strictly conform to
the overall headings of Assets and Liabilities.
A. 1. 3.2 Loans
3.2.1 Monetary authorities
3.2.1.1 Long-term
3.2.1.2 Short-term
A. 1. 3.2 3.2.2 General government
3.2.2.1 Long-term
3.2.2.2 Short-term
A. 1. 3.2 3.2.3 Banks
3.2.3.1 Long-term
3.2.3.2 Short-term
A. 1. 3.2 3.2.4 Other sectors
3.2.4.1 Long-term
3.2.4.2 Short-term
A. 1. 3.3 Currency and deposits
3.3.1 Monetary authorities
3.3.2 General government
3.3.3 Banks
3.3.4 Other sectors
A. 1. 3.4 Other assets
3.4.1 Monetary authorities
3.4.1.1 Long-term
3.4.1.2 Short-ter m
A. 1. 3.2 3.4.2 General government
3.4.2.1 Long-term
3.4.2.2 Short-term
A. 1. 3.2 3.4.3 Banks
3.4.3.1 Long-term
3.4.3.2 Short-term
A. 1. 3.2 3.4.4 Other sectors
3.4.4.1 Long-term
3.4.4.2 Short-term
A. 4. Reserve assets
4.1 Monetary gold
4.2 Special drawing rights
4.3 Reserve position in the Fund
4.4 Foreign exchange
4.4.1 Currency and deposits
4.4.1.1 With monetary authorities
4.4.1.2 With banks
A. 1. 3.2 4.4.2 Securities
4.4.2.1 Equities
109
International Investment Position: Standard Components (continued)
_____C_h__a_n_g__e_s_ _in__ P__o_s_it_i_o_n__ R__e_f_le_c_t_i_n_g__:____
Position at Exchange Other Position
Beginning Trans- Price Rate Adjust- at End of
of Year actions Changes Changes ments Year
4.4.2.2 Bonds and notes
4.4.2.3 Money market instruments
and financial derivatives
A. 1. 4.5 Other claims
B. Liabilities
B. 1. Direct investment in reporting economy*
1.1 Equity capital and reinvested earnings
1.1.1 Claims on direct investors
1.1.2 Liabilities to direct investors
B. 1. 1.2 Other capital
1.2.1 Claims on direct investors
1.2.2 Liabilities to direct investors
B. 2. Portfolio investment
2.1 Equity securities
2.1.1 Banks
2.1.2 Other sectors
B. 2. 2.2 Debt securities
2.2.1 Bonds and notes
2.2.1.1 Monetary authorities
2.2.1.2 General government
2.2.1.3 Banks
2.2.1.4 Other sectors
B. 2. 2.2 2.2.2 Money market instruments
2.2.2.1 Monetary authorities
2.2.2.2 General government
2.2.2.3 Banks
2.2.2.4 Other sectors
B. 2. 2.2 2.2.3 Financial derivatives
2.2.3.1 Monetary authorities
2.2.3.2 General government
2.2.3.3 Banks
2.2.3.4 Other sectors
B. 3. Other investment
B. 2. 3.1 Trade credits
B. 2. 2.2 3.1.1 General government
3.1.1.1 Long-term
3.1.1.2 Short-term
110
International Investment Position: Standard Components (continued)
_____C_h__a_n_g__e_s_ _in__ P__o_s_it_i_o_n__ R__e_f_le_c_t_i_n_g__:____
Position at Exchange Other Position
Beginning Trans- Price Rate Adjust- at End of
of Year actions Changes Changes ments Year
*Because direct investment is classified primarily on a directional basis—abroad under the heading Assets and in the reporting economy under
the heading Liabilities—claim/liability breakdowns are shown for the components of each, although these sub-items do not strictly conform to
the overall headings of Assets and Liabilities.
B. 2. 2.2 3.1.2 Other sectors
3.1.2.1 Long-term
3.1.2.2 Short-term
B. 2. 3.2 Loans
3.2.1 Monetary authorities
3.2.1.1 Use of Fund credit and
loans from the Fund
B. 2. 2.2 3.2.2 3.2.1.2 Other long-term
3.2.1.3 Short-term
B. 2. 2.2 3.2.2 General government
3.2.2.1 Long-term
3.2.2.2 Short-term
B. 2. 2.2 3.2.3 Banks
3.2.3.1 Long-term
3.2.3.2 Short-term
B. 2. 2.2 3.2.4 Other sectors
3.2.4.1 Long-term
3.2.4.2 Short-term
B. 2. 3.3 Currency and deposits
3.3.1 Monetary authorities
3.3.2 Banks
B. 2. 3.4 Other liabilities
B. 2. 2.2 3.4.1 Monetary authorities
3.4.1.1 Long-term
3.4.1.2 Short-term
B. 2. 2.2 3.4.2 General government
3.4.2.1 Long-term
3.4.2.2 Short-term
B. 2. 2.2 3.4.3 Banks
3.4.3.1 Long-term
3.4.3.2 Short-term
B. 2. 2.2 3.4.4 Other sectors
3.4.4.1 Long-term
3.4.4.2 Short-term
111
International Investment Position: Standard Components (concluded)
_____C_h__a_n_g__e_s_ _in__ P__o_s_it_i_o_n__ R__e_f_le_c_t_i_n_g__:____
Position at Exchange Other Position
Beginning Trans- Price Rate Adjust- at End of
of Year actions Changes Changes ments Year
B A L A N C E O F PAY M E N T S
REGIONAL ALLOCATION
478. Part three of the Manual contains a discussion of
conceptual and practical issues concerning regional
allocation of transactions and stocks of external assets
and liabilities.
479. Previous chapters have covered the compilation of
global balance of payments and international investment
position statements (i.e., statistics concerning the external
transactions and the stock of external financial assets and
liabilities of an economy in relation to the rest of the
world). Similar statements can be compiled on a regional
or bilateral basis to show—for a selected group of
economies or a particular economy—the external
transactions with, or position vis-à-vis, another selected
group of economies or a particular economy. Regional
compilations have assumed increased importance for
statistical, analytical, and policy purposes since the fourth
edition of the Manual was published. The increased
importance of regional compilations reflects
developments such as the emergence of large payments
imbalances between and among certain individual
economies and groups of economies and the transition
towards economic and monetary integration, particularly
in the European Community but also in other areas.
Indeed, if and when such integration is fully achieved,
regional balance of payments and position statements
will become even more important while statistics for
indivi-dual member countries of the integrated areas may
become less important. In any event, harmonization of
concepts, methodology, and data collection for global
and regional balance of payments and position
statements will mutually reinforce and improve the
quality of international economic accounts.
480. Concepts and recommendations noted in earlier
chapters for the compilation of global statements also
apply to regional statements, but specific references to
residents of the relevant foreign economy or group of
economies should be substituted for general references
to nonresidents or the rest of the world. This substitution
should be made for the compiling economy’s
payments statements of transactions in goods, services,
and income; transactions involving financial claims and
liabilities; transactions, which are classified as transfers,
with a particular economy or group of economies; and
for the position vis-à-vis those economies.
Regional Allocation Principles
481. As for major components of the classifications
noted in previous paragraphs, trade in goods generally
shows—as a reflection of the change of ownership
principle associated with coverage of this item—exports
allocated to the region of residence of the new owner
and imports allocated to the region of residence of the
former owner.15 When there is no change in ownership
(e.g., processing and financial leases), exports and
imports of goods are treated as if such a change occurs.
For trade in services, allocation is to the region where
the provider or acquirer of the service is resident and,
for income, to the region where the resident receives or
pays the income. For transfers, allocation is to the
region of the donor or recipient, as appropriate.
482. In regard to financial flows, there are two principles
that may serve as the basis for regional allocation:
the debtor/creditor principle and the transactor principle.
Under the debtor/creditor principle, changes in
financial claims of the compiling economy are allocated
to the country of residence of the nonresident debtor,
and changes in liabilities are allocated to the country of
residence of the nonresident creditor. Under the transactor
principle, changes in the claims and liabilities are
allocated to the country of residence of the nonresident
party to the transaction (the transactor).
483. In many instances, regional allocation of
transactions on either basis will coincide (e.g., for bank
deposit claims and liabilities, trade credits, and most
direct investment transactions). However, in others (i.e.,
tradable claims), quite different regional allocations may
arise, according to which one of the two principles is
used. Examples are (portfolio) securities transactions
and direct investment acquisitions involving third
parties.
484. As concerns the international investment position,
data compiled on a regional basis for stocks of financial
assets and liabilities are geographically allocated on the
115
XXIV. Regional Statements
15 See the Guide for a full discussion of the allocation aspects of trade in
goods—in particular those aspects related to country of shipment versus
country of origin for imports and country shipped to versus country of ultimate
destination for exports.
basis of the debtor/creditor principle. Financial claims
of the compiling economy are allocated to the country
of residence of the nonresident debtor, and liabilities
are allocated to the country of residence of the
nonresident creditor.
Problems and Limitations
Securities transactions
485. The regional allocation of securities transactions
illustrates the dissimilar results produced by, and the
limitations of, the debtor/creditor and the transactor
principles. Broad secondary markets and the participation
of a variety of financial intermediaries characterize
international securities transactions. In broad
secondary markets, when the debtor/creditor principle
is applied to cross-border transactions in domestic
securities (those issued by the compiling economy), the
resident issuer (debtor) may not be aware of the results
of secondary market trading. That is, the issuer may not
know the identity or residence of the nonresident buyer
(creditor). If financial intermediaries are not acting for
their own accounts (if that can be determined), issuers
would not usually be aware of the identities or
residence of creditors who purchase securities through
intermediaries—particularly in an international financial
center to which many transactions are directed. Thus,
although the debtor/creditor principle is effective on
one side the (creditor knows the residency of the
debtor), it is not effective on the other; the debtor does
not necessarily know, unless such information can be
obtained from the intermediary or the creditor, the
residency of the creditor. As a result, one could
characterize such a situation as the operation of a
debtor/transactor principle.16
486. However, for transactions in foreign securities, the
debtor/creditor principle is effective on both sides
because the buyer or seller knows the identity and
residence of the issuer (debtor) and can allocate the
transaction to the economy of the debtor.17
487. Under the transactor principle, as applied to
transactions in domestic securities, the sale of a security
issued by country A to an intermediary acting for its
own account in country B would be allocated by
country A to country B because country B is the
nonresident counter party (transactor) to the transaction.
If the intermediary in country B were acting on
behalf of a resident in country C (if that can be
determined), country A would allocate the transaction
to country C. No transaction would be recorded
between countries A and B. Similarly, a sale of a
foreign security (issued by country B) by country A to a
country C intermediary acting on behalf of a resident in
country D (if that can be determined) would be
allocated by country A to country D. No transactions
would be recorded by country A with country B or
with country C. If the intermediary in country C were
acting for its own account, country A would allocate
the transaction to country C. No transactions would be
recorded, on the basis of the transactor principle, by
country A with country B.
488. In practice, whether a foreign intermediary is
acting for its own account or on behalf of a resident of
another country is seldom known, and information is
difficult to obtain. Also, there may be differing
interpretations as to whether or not the intermediary
actually assumes ownership of the securities before
engaging in subsequent transactions. As a result, in
practice, allocation of securities transactions on the
basis of the transactor principle often is attributed, by
the compiling economy, to the financial intermediary’s
country of residence rather than to the economy of
residence of the party on whose behalf the
intermediary is acting.
Monetary gold and SDRs
489. Transactions in, or holdings of, monetary gold
and SDRs cannot be allocated to any particular region
on the basis of the debtor/creditor principle because
the two are financial assets for which there are no
outstanding liabilities. Thus, such transactions can
only be attributed to an unallocated or residual,
regional category. On the basis of the transactor
principle, purchases or sales of monetary gold are
recorded as increases or decreases in reserve assets for
the compiling economy and vice versa for the
counterpart economy. As for SDRs, which are not
considered liabilities of the Fund, transactions are
recorded in a manner similar to those recorded for
monetary gold.
REGIONAL ALLOCATION
116
16As an example, if a resident in country A sells a domestic security (issued by
country A) to a country B intermediary acting on behalf of a buyer resident in
country C, compilers in country A (the debtor) generally would not know that
the creditor (buyer) is a resident of country C. Only if that information were
provided by country B or C to country A could the debtor/creditor principle be
implemented, and that is usually not the case. In practice, the sale of the
security would most often be recorded by country A as a transaction,
equivalent to one made on a debtor/transactor basis, with country B.
17For instance, if a resident in country A sells or buys a foreign security issued
by country C to or from a resident of country B, the transaction, which is based
on the debtor/creditor principle, could be allocated by country A to country C
because the identity of country C as the debtor is known to country A.
Direct investment transactions involving
third parties
490. For direct investment, there also may be
difficulties concerning the regional allocation of
transactions. For instance, a direct investor in country A
acquires, from a resident of country C, a direct
investment enterprise (or shares in that enterprise)
located in country B. Under the debtor/creditor
principle, from the standpoint of country A, such a
transaction should be recorded between country A and
country B because the direct investment position of
country A in country B is affected. Under the transactor
principle, the transaction should be recorded between
country A and country C, which is the residence of the
other party to the transaction. A reconciliation item then
would be required to bridge the difference between the
balance of payments entries and the position because
the latter is compiled on the basis of the debtor/creditor
principle. (See paragraph 484.)
Multilateral settlements
491. Regional allocation may not necessarily result in a
balanced statement for a region. For instance, a resident
in the compiling economy may make payment to, or
accept payment from, a nonresident (resident of country
A) in the form of a claim on another nonresident
(resident of country B). Such a situation may arise when
claims on a reserve currency country are used by other
economies as media for making settlements. The
inconsistencies resulting from the allocation of
transactions in real resources to the region of the
nonresident owner/transactor and changes in financial
items to the region of the nonresident creditor or
debtor, however, are explicitly recognized by presenting
a regional statement compiled in that way. Thus, an
item for multilateral settlements restores an accounting
balance by serving as an offset to the inconsistencies in
the regional statement. That item may be seen to
represent, in concept, the settlement of an imbalance in
the compiling economy’s transactions with one region
by a transfer to or from that region of claims on, or
liabilities to, some other region or regions.
492. The data on multilateral settlements, however, are
seldom available. In practice, therefore, the item is
usually derived as a residual; however, it can be
calculated only in combination with the item for net
errors and omissions, which is also a residual or
balancing item. Inconsistencies or errors of this or any
other kind in classifying entries regionally should not
have any effect on a global statement, which represents
the sum total of all regional statements, because
multilateral settlements appearing in individual regional
statements cancel each other when all regions are
combined.
Analytical Implications
493. As noted in paragraph 484, data reflected in the
international investment position are geographically
allocated on the basis of the debtor/creditor principle.
Therefore, adherence to that principle—although it is
often difficult to implement—for the allocation of
transactions results in a complete and conceptually
consistent set of flows and stocks data at a country or
regional level. Use of the transactor principle for flows
requires a reconciliation to be effected between stocks
and flows data.
494. From an analytical perspective, both the
debtor/creditor principle and the transactor principle
are of interest. The debtor/creditor basis facilitates
analyses concerned with such issues as whose
securities are being purchased and sold; the relative
importance of securities transactions attributable to
individual countries (and entities within them) and to
regional groups; types of offerings, etc. The transactor
basis allows for analysis of where residents engage in
securities transactions with nonresidents, changes in the
relative importance and growth of international
financial centers, etc. In practice, both principles have
limitations for assessment of regional and bilateral
portfolio transactions.
495. If it is feasible for countries to exchange position
data on stocks of appropriate assets and liabilities, the
data exchange is helpful for developing more
consistent and useful regional allocations of such
stocks. Such data provide better information about the
identities of nonresident creditors holding the liabilities
of the compiling economies.
Selection of Regions
496. Regional statements generally refer to
classification of entries by a compiling economy
according to the residence of a foreign economic
entity, which is either the owner/transactor or the
creditor/debtor. The rules on residence presented in
this Manual (see Chapter 4) are applicable for
determining the residence of the entity. A region
would then comprise an economic territory or a group
of economic territories, as the residence of any entity
is based on its association with a specific economic
CHAPTER XXIV
117
territory. The methods of allocation discussed
previously are concerned principally with a regional
classification of that sort. A regional statement,
however, is sometimes viewed in other ways. A
statement may be prepared that shows, for example,
those transactions that were originally denominated in
a certain currency or undertaken with the residents of
a particular currency area, rather than an economic
territory.
497. A special case is presented by an international
organization that is not included in the economic
territory of the country of location or considered
resident in that economy. Thus, a separate region
for international organizations would be
appropriate for allocation purposes.
498. The regional subclassification relevant for a
particular economy or group of economies depends
primarily on how the statement is to be utilized. This
Manual does not contain a standard list of countries
or regions for which the reporting economy or group
should compile separate statements.
REGIONAL ALLOCATION
118
B A L A N C E O F PAY M E N T S
APPENDICES
Introduction
499. Balance of payments accounts and related data on
the international investment position (stocks of external
financial assets and liabilities) are closely linked to the
SNA. This linkage is reinforced by the fact that, in most
countries, data on the balance of payments and the
international investment position (IIP) are compiled first
and subsequently incorporated in relevant external
account components of the SNA rest of the world
account. There is virtually complete concordance
between the SNA and the Manual with respect to the
delineation of resident units (either producers or
consumers); valuation of transactions and of the stock
of external assets and liabilities; time of recording of
transactions; conversion procedures; coverage of
international transactions in goods and services, income
flows, current transfers, capital transfers, and foreign
financial assets and liabilities; and coverage of the IIP.
Differences in classification or level of detail exist,
however, between the rest of the world account and
the balance of payments accounts. These reflect, inter
alia, differences in analytical requirements and the
necessity of using, in the SNA, a uniform classification
scheme for all sectors of the economy. The bulk of the
discussion in this appendix focuses on the relationship
between aggregates and details contained in the rest of
the world account and corresponding items in balance
of payments accounts.
Resident units
500. In the SNA and the Manual, resident producers
and consumers are identified in the same fashion.
Chapter 4 of the Manual, which contains a discussion
on residence, is entirely consistent with Chapter XIV of
the SNA. In both the SNA and in balance of payments
accounts, resident units are identified on the basis of
the center of economic interest concept and the
definition of economic territory. (These definitions are
contained in Chapter 4.)
Valuation
501. In both the SNA and the balance of payments
accounts, market price is used as the primary basis of
valuation. For transactions accounts, market price refers
to the actual price agreed upon by transactors (that is,
the amount that a willing buyer pays to acquire
something from a willing seller when the exchange is
one that occurs between independent parties and one
into which nothing but commercial considerations
enter). It is noted in Chapter 5 of the Manual that
market price proxies or equivalents should be used in
situations in which market prices in the literal sense
cannot be determined (for example, transfer pricing
that significantly distorts measurement in resource
transfers between affiliated enterprises, barter
transactions, grants in kind, etc.). The use of end-ofperiod
market (current) prices or proxies is advocated
for both systems in balance sheet accounts affecting
external claims and liabilities.
Time of Recording
502. For both systems, the time of recording
transactions is the same as that for accrual accounting
(that is, when economic value is created, transformed,
exchanged, transferred, or extinguished). Claims and
liabilities are deemed to arise when there are changes
in ownership. Application of the accrual basis is
essentially identical in specific categories of transactions
in both systems. For example, exports and imports of
goods are, in principle, recorded on the basis of
changes of ownership although, in both systems, there
are specific exceptions with regard to goods under
financial lease, goods shipped between affiliated
enterprises, goods for processing, and goods underlying
merchanting transactions. Services are recorded when
actually rendered—times that often coincide with the
times at which the services are produced. Interest is
recorded on an accrual basis; dividends are recorded as
of the dates payable. Reinvested earnings on direct
investment are recorded in the periods in which the
earnings are generated. Transfers (taxes, fines, etc.)
imposed by one party on another are recorded as of
the dates of occurrence of the transactions giving rise
to the liabilities to pay; other transfers are recorded at
the times that the resources to which the transfers are
offsets change ownership. Transactions in financial
claims and liabilities are recorded on the basis of
121
I.
Relationship of the Rest of the World Account to the Balance
of Payments Accounts and the International Investment Position
changes of ownership (that is, when both the creditor
and debtor enter the claim and liability, respectively, on
their books). Chapter 6 contains a full discussion of the
application of the accrual basis underlying the balance
of payments accounts.
Conversion Procedures
503. Consistent procedures are employed for
converting transactions denominated in a variety of
currencies or units of account into the unit of account
(usually the national currency) used for compiling the
balance of payments statement and the national
accounts. Under a single exchange rate system, use of
the market exchange rate prevailing at the time the
transaction takes place is suggested in the SNA and the
Manual. This rate is defined as the midpoint between
buying and selling rates applicable to the transaction or,
alternatively, as the average rate for the shortest period
applicable. When parallel markets are in existence, the
appropriate conversion rate is the rate (midpoint spot
rate) applying to foreign currencies purchased or sold
in parallel markets.
504. A system of multiple official exchange rates gives
rise to implicit taxes and subsidies. In the SNA, it is
recommended that transactions be converted at the actual
(multiple) rates applicable. However, global adjustments
reflecting the amount of taxes or subsidies should be
shown in the rest of the world account, and counterpart
entries should be made under capital transfers. Taxes
and subsidies are calculated as the difference between
(i) the values of transactions at the actual multiple rates
applicable to specific transactions and (ii) the values at a
unitary rate, which is calculated as a weighted average of
all official rates used for external transactions. When
multiple rates exist, the use of a unitary or principal
rate—that is, the actual (multiple) exchange rate that
applies to the largest part of external transactions—is
suggested in the Manual.
505. For conversion of balance sheet items (stocks of
external financial assets and liabilities), the use of
actual market exchange rates applicable to specific
assets and liabilities on the date to which the balance
sheet relates is suggested in the Manual.
Classification and Linkages
506. Although harmonization of the coverage of major
aggregates has been attained between the two systems,
differences in level of detail reflect differences in
analytical requirements, the relative quantitative
significance of some items in international transactions,
and constraints imposed by the internal structures of
the respective systems. Nonetheless, bridges can be
constructed to derive relevant national accounting
flows and stocks from balance of payments accounts
and the IIP.
507. In terms of transactions, these accounts are distinguished
in the SNA rest of the world account (external
transactions account): V.I External account of goods
and services, V.II External account of primary incomes
and current transfers, V.III.1 Capital account, and
V.III.2 Financial account. The latter two are components
of V.III External accumulation accounts. In balance of
payments accounts, the transactions reflected in
accounts V.I and V.II are contained in the current
account; those reflected in account V.III.1 are
contained in the capital account of the capital and
financial account. Flows reflected in account V.III.2
are shown in the financial account of the capital
and financial account. Account V.III.3.1 Other
changes in volume of assets and V.III.3.2 Revaluation
account are separate subdivisions of the IIP statement.
Thus, account V.III.3.1 corresponds to the column for
other adjustments in the IIP, while account V.III.3.2
corresponds to the columns for valuation changes (that
is, price changes and exchange rate changes) in the IIP.
Account V.IV External assets and liabilities is equivalent
to the IIP, which is that part of the national wealth
statement representing the stock of external financial
assets and liabilities. Located at the end of this
appendix, tables 1 through 6 provide a reconciliation
between categories shown in relevant external accounts
of the SNA and corresponding items in balance of
payments accounts and the IIP; tables 7 through 9 refer
to the classification scheme that is reflected in the
Manual and underlies balance of payments accounts
and the IIP statement. Items marked with asterisks (*)
denote additional details necessary to derive relevant
national accounting flows from balance of payments
and IIP data.
508. As indicated in Table 1, SNA coverage of exports
and imports of goods and exports and imports of
services is identical to balance of payments coverage of
corresponding items—with the exception of the item
“financial intermediation charge indirectly measured.”
According to the Manual, this service is included under
investment income as an indistinguishable part of
interest income. In balance of payments accounts,
exports and imports of services are disaggregated in
considerable detail to provide data for analysis and
policy decisions—particularly for negotiations in
international trade in services within the framework of
the General Agreement on Tariffs and Trade. Categories
BALANCE OF PAYMENTS MANUAL
122
of services identified in the balance of payments are
consistent with those of the Central Product
Classification (CPC)—except for travel and government
services n.i.e., which have no counterparts.
509. For account V.II, external account of primary
incomes and current transfers, comparable categories in
the balance of payments are 1. B. Income and 1. C.
Current transfers. Account V.II coverage of
compensation of employees and property income is
virtually identical with that of 1. B. Income except that
the latter includes “financial intermediation charge
indirectly measured” indistinguishably under investment
income-direct investment-interest. This treatment was
adopted because of the practical difficulties of
deriving—by sector, instrument, currency, and term
structure—a multiplicity of reference rates for interest
and appropriate asset or liability positions to estimate
the imputed financial intermediary service charge.
510. The major elements of account V.III.1, the capital
account of the external accumulation accounts, are
identical with the capital account of the capital and
financial account of the balance of payments.
Although the balancing item net lending/net borrowing
in account V.III.1 is not explicitly identified in the
balance of payments, this item can be derived by adding
the balance of the current account and the balance of
the transactions reflected in the capital account.
511. Coverage of account V.III.2, the SNA financial
account, is identical with that of the financial account
of the capital and financial account in the balance of
payments, although the level of detail is different. (See
Table 4 at the end of this appendix.) In the SNA,
financial assets are classified primarily by type of
instrument. In the balance of payments, financial items
are classified primarily by function—direct investment,
portfolio investment, other investment (including loans),
and reserve assets. In addition to categories identifying
types of financial instruments (insurance technical
reserves being an exception), the balance of payments
contains an abbreviated sector breakdown ( monetary
authorities, general government, banks, and other
sectors) to provide links with other bodies of economic
and financial statistics such as money and banking,
government finance, international banking, and external
debt. Furthermore, to conform with the SNA, the
Manual states that entries in the financial account of
the balance of payments are recorded, in principle, on
a net basis (increases less decreases in assets or
liabilities). However, gross recording is included as
supplementary information (for example, in the case of
drawings and repayments on long-term loans).
APPENDIX I
123
Reconciliation of Rest of the World Accounts with Balance of Payments Accounts
Table 1
Account V.I External Account of Goods and Services
SNA categories Correspond to Balance of Payments Standard Components
(items), Additional Details, and Aggregates
USES CREDIT
P.6 Exports of goods and services Item 1.A.a and 1.A.b.1 through 11, as noted
subsequently
P.61 Exports of goods Item 1.A.a goods
P.62 Exports of services Sum of items 1.A.b.1 through 11 services plus
items 1.B.2.2.2.1.1 and 1.B.2.3.1 financial
intermediation charge indirectly measured
RESOURCES DEBIT
P.7 Imports of goods and services Items 1.A.a and 1.A.b.1 through 11,
as noted subsequently
P.71 Imports of goods Item 1.A.a goods
P.72 Imports of services Sum of items 1.a.b.1 through 11 services plus
items 1.B.2.2.2.1.1 and 1.B.2.3.1 financial
intermediation charge indirectly measured
B.11 EXTERNAL BALANCE OF GOODS
AND SERVICES Item 1.A
Table 2
Account V.II External Account of Primary Incomes and Current Transfers
SNA categories Correspond to Balance of Payments Standard Components
(items), Additional Details, and Aggregates
USES CREDIT
D.1 Compensation of employees Item 1.B.1 compensation of employees
D.29 Other taxes on production Item 1.C.1.2 other taxes on production
D.39 Other subsidies on production Item 1.C.1.3 other subsidies on production
D.4 Property income Item 1.B.2 investment income minus items
1.B.2.2.2.1.1 and 1.B.2.3.1 financial
intermediation charge indirectly measured
D.5 Current taxes on income, wealth, etc. Item 1.C.1.1 current taxes on income, wealth,
etc.
D.61 Social contributions Item 1.C.1.4 social contributions
124
Table 2 (concluded)
Account V.II External Account of Primary Incomes and Current Transfers
SNA categories Correspond to Balance of Payments Standard Components
(items), Additional Details, and Aggregates
USES CREDIT
D.62 Social benefits Item 1.C.2.2.5 social benefits
D.7 Other current transfers Item 1.C.2.1 workers’ remittances plus item
1.C.1.6 other current transfers of general
government plus item 1.C.2.2.6 other current
transfers of other sectors
D.8 Adjustment for the change in net equity
of households in pension funds*
RESOURCES DEBIT
D.1 Compensation of employees Item 1.B.1 compensation of employees
D.29 Other taxes on production Item 1.C.2.2.2 other taxes on production
D.39 Other subsidies on production Item 1.C.2.2.3 other subsidies on production
D.4 Property income Item 1.B.2 investment income minus items
1.B.2.2.2.1.1 and 1.B.2.3.1 financial
intermediation charge indirectly measured
D.5 Current taxes on income, wealth, etc. Item 1.C.2.2.1 current taxes on income, wealth
etc.
D.61 Social contributions Item 1.C.2.2.4 social contributions
D.62 Social benefits Item 1.C.1.5 social benefits
D.7 Other current transfers Item 1.C.2.1 workers’ remittances plus item
1.C.1.6 other current transfers of general
government plus item 1.C.2.2.6 other current
transfers of other sectors
B.12 CURRENT EXTERNAL BALANCE Item 1. current account
*Item D.8 is not included in the current account in the balance
of payments, nor are the receipts of pensions from,
or net contributions to, (funded) pension funds.
Table 3
Account V.III.1 Capital Account [of Account V.III External Accumulation Accounts]
SNA categories Correspond to Balance of Payments Components (items),
Additional Details, and Aggregates
CHANGES IN ASSETS TRANSACTIONS IN ASSETS
K.2 Acquisitions less disposals of Item 2.A.2 acquisition/disposal of nonproduced,
nonproduced, nonfinancial assets nonfinancial assets
B.9 NET LENDING (+)/NET BORROWING (–) Item 1. current account balance plus item 2. A
capital account balance
125
Table 3 (concluded)
Account V.III.1 Capital Account [of Account V.III External Accumulation Accounts]
SNA categories Correspond to Balance of Payments Components (items),
Additional Details, and Aggregates
CHANGES IN LIABILITIES AND NET WORTH TRANSACTIONS IN LIABILITIES
B.12 CURRENT EXTERNAL BALANCE Item 1. current account
D.9 Capital transfers receivable Item 2.A.1 capital transfers
D.9 Capital transfers payable Item 2.A.1 capital transfers
B.10.1 CHANGES IN NET WORTH DUE TO Item 1. current account balance plus item
SAVING AND NET CAPITAL TRANSFERS 2.A.1 net capital transfers
Table 4
Account V.III.2 Financial Account [of Account V.III External Accumulation Accounts]
SNA categories Correspond to Balance of Payments Standard Components
(items), Additional Details, and Aggregates
CHANGES IN ASSETS TRANSACTIONS IN ASSETS
F.1 Monetary gold and SDRs Sum of items 2.B.4.1 monetary gold and 2.B.4.2
special drawing rights
F.2 Currency and deposits Sum of items 2.B.3.1.3 currency and deposits
(part of other investment) and 2.B.4.3.1
deposits (part of reserve position in the Fund),
2.B.4.4.1 currency and deposits (part of foreign
exchange), and 2.B.4.5.1 currency and deposits
(part of other reserve claims)
F.3 Securities other than shares Sum of items 2.B.2.1.2 debt securities (part of
portfolio investment), 2.B.4.4.2.2 bonds and
notes (part of foreign exchange), 2.B.4.4.2.3
money market instruments and financial
derivatives (part of foreign exchange),
2.B.4.5.2.2 debt securities (part of other
reserve claims), 2.B.1.2.3.1.1 debt securities
issued by direct investors (part of direct
investment in the reporting economy), and
2.B.1.1.3.1.1 debt securities issued by affiliated
enterprises (part of direct investment abroad)
F.4 Loans Sum of items 2.B.3.1.2 loans (part of other
investment) and 2.B.4.3.2 loans (part of
reserve position in the Fund)
126
Table 4 (continued)
Account V.III.2 Financial Account [of Account V.III External Accumulation Accounts]
SNA categories Correspond to Balance of Payments Standard Components
(items), Additional Details, and Aggregates
F.5 Shares and other equity Sum of items 2.B.1.1.1.1 equity capital-claims
on affiliated enterprises (part of direct
investment abroad), 2.B.1.1.2 reinvested
earnings (part of direct investment abroad),
2.B.1.2.1.1 equity capital-claims on direct
investors (part of direct investment in the
reporting economy), 2.B.2.1.1 equity securities
(part of portfolio investment), and 2.B.4.4.2.1
and 2.B.4.5.2.1 equities (part of foreign
exchange and other reserve claims)
F.6 Insurance technical reserves Sum of items 2.B.3.1.4.4.1.1 net equity of
households in life insurance reserves and in
pension funds and 2.B.3.1.4.1.1.1,
2.B.3.1.4.2.1.1, 2.B.3.1.4.3.1.1, and
2.B.3.1.4.4.1.2 prepayments of premiums and
reserves against outstanding claims (all part of
other investment)
F.7 Other accounts receivable Sum of items 2.B.1.1.3.1.2 other claims on
affiliated enterprises (part of direct investment
abroad), 2.B.1.2.3.1.2 other claims on direct
investors (part of direct investment in the
reporting economy), 2.B.3.1.1 trade credits
(part of other investment), and 2.B.3.1.4 other
assets
minus items 2.B.3.1.4.4.1.1, net equity of
households in life insurance reserves and in
pension funds, and 2.B.3.1.4.1.1.1,
2.B.3.1.4.2.1.1, 2.B.3.1.4.3.1.1, and
2.B.3.1.4.4.1.2 prepayments of premiums and
reserves against outstanding claims (all part of
other investment)
CHANGES IN LIABILITIES AND NET WORTH TRANSACTIONS IN LIABILITIES
F.2 Currency and deposits Item 2.B.3.2.3 currency and deposits
F.3 Securities other than shares Item 2.B.1.1.3.2.1 debt securities issued by
direct investors plus item 2.B.1.2.3.2.1 debt
securities issued by affiliated enterprises plus
item 2.B.2.2.2 debt securities (part of portfolio
investment)
F.4 Loans Item 2.B.3.2.2 loans
127
Table 4 (concluded)
Account V.III.2 Financial Account [of Account V.III External Accumulation Accounts]
SNA categories Correspond to Balance of Payments Standard Components
(items), Additional Details, and Aggregates
F.5 Shares and other equity Sum of items 2.B.1.1.1.2 equity capital-liabilities
to affiliated enterprises (part of direct
investment abroad), item 2.B.1.2.1.2 equity
capital-liabilities to direct investors (part of
direct investment in the reporting economy),
item 2.B.1.2.2 reinvested earnings (part of
direct investment in the reporting economy),
and item 2.B.2.2.1 equity securities (part of
portfolio investment)
F.6 Insurance technical reserves Sum of items 2.B.3.2.4.4.1.1 net equity of
households in life insurance reserves and in
pension funds and 2.B.3.2.4.4.1.2 prepayments
of premiums and reserves against outstanding
claims
F.7 Other accounts payable Sum of items 2.B.1.1.3.2.2 other liabilities of
direct investors (part of direct investment
abroad), 2.B.1.2.3.2.2 other liabilities to direct
investors (part of direct investment in the
reporting economy), item 2.B.3.2.1 trade credits
(part of other investment), and item 2.B.3.2.4
other liabilities
minus items 2.B.3.2.4.4.1.1 net equity of
households in life insurance reserves and in
pension funds, and 2.B.3.2.4.4.1.2 prepayments
of premiums and reserves against outstanding
claims (all part of other investment)
B.9 NET LENDING (+)/NET BORROWING (–)
Table 5
Account V.III.3.1 Other Changes in Volume of Assets Account
SNA Categories Correspond to IIP Standard Components and Additional Details
CHANGES IN ASSETS CHANGES IN ASSETS
K.7 Catastrophic losses Catastrophic losses (part of other adjustments)
K.8 Uncompensated seizures Uncompensated seizures (part of other
adjustments)
K.10 Other volume changes in financial assets Other volume changes (part of other
and liabilities n.e.c. adjustments)
128
Table 5 (concluded)
Account V.III.3.1 Other Changes in Volume of Assets Account
SNA Categories Correspond to IIP Standard Components and Additional Details
K.12 Changes in classifications and structure Change in classifications and structure (part of
other adjustments)
CHANGES IN LIABILITIES AND NET WORTH CHANGES IN LIABILITIES
K.7 Catastrophic losses Catastrophic losses (part of other adjustments)
K.12 Changes in classifications and structure Changes in classifications and structure (part of
other adjustments)
B.10.2 CHANGES IN NET WORTH DUE TO OTHER
CHANGES IN VOLUME OF ASSETS
Account V.III.3.2 Revaluation Account
SNA Categories Correspond to IIP Standard Components and Additional Details
CHANGES IN ASSETS CHANGES IN ASSETS
K.11 Nominal holding gains/losses in financial assets Sum of entries in the columns for price and
exchange rate changes
K.11.1 Neutral holding gains/losses in financial assets Sum of entries in the columns for neutral
holding gains/losses
K.11.2 Real holding gains/losses in financial assets Sum of entries in the columns for real holding
gains/losses
CHANGES IN LIABILITIES AND NET WORTH CHANGES IN LIABILITIES
K.11 Nominal holding gains/losses in liabilities Sum of entries in the columns for price and
exchange rate changes
K.11.1 Neutral holding gains/losses in liabilties Sum of entries in the columns for neutral
holding gains/losses in liabilities
K.11.2 Real holding gains/losses in liabilities Sum of entries in the columns for real holding
gains/ losses in liabilities
B.10.3 CHANGES IN NET WORTH DUE TO Price and exchange rate changes in assets less
NOMINAL HOLDING GAINS/LOSSES price and exchange rate changes in liabilities
B.10.31 CHANGES IN NET WORTH DUE TO Neutral holding gains/losses in assets less
NEUTRAL HOLDING GAINS/LOSSES neutral holding gains/losses in liabilities
B.10.32 CHANGES IN NET WORTH DUE TO Real holding gains/losses in assets less real
REAL HOLDING GAINS/LOSSES holding gains/losses in liabilities
129
Table 6
Account V.IV External Assets and Liabilities
Account V.IV.1 Opening Balance Sheet
SNA Categories Correspond to IIP Standard Components and Additional Details
AF Financial assets ASSETS
Sum of items A.1.1.1 claims (equity capital and
reinvested earnings) on affiliated enterprises
(part of direct investment abroad), A.1.2.1
claims (other capital) on affiliated enterprises
(part of direct investment abroad), B.1.1.1
claims (equity capital and reinvested earnings)
on direct investors (part of direct investment in
the reporting economy), B.1.2.1 claims (other
capital) on direct investors (part of direct
investment in the reporting economy), A.2
portfolio investment, A.3 other investment, and
A.4 reserve assets
AF Liabilities LIABILITIES
Sum of items B.1.1.2 liabilities (equity capital
and reinvested earnings) to direct investors
(part of direct investment in the reporting
economy), B.1.2.2 liabilities (other capital) to
direct investors (part of direct investment in
the reporting economy), A.1.1.2 liabilities
(equity capital and reinvested earnings) to
affiliated enterprises (part of direct investment
abroad), A.1.2.2 liabilities (other capital) to
affiliated enterprises (part of direct investment
abroad), B.2 portfolio investment, and B.3
other investment
B.90 NET WORTH
Account V.IV.2 Changes Between Balance Sheets
SNA categories Correspond to IIP Standard Components and Additional Details
AF Total changes in financial assets Sum of transactions, price and exchange rate
changes, and other adjustments in respect of
the corresponding IIP items identified in
account V.IV.1 of the SNA
AF Total changes in liabilities Sum of transactions, price and exchange rate
changes, and other adjustments in respect of
corresponding IIP items identified in account
V.IV.I of the SNA
130
Table 6 (concluded)
Account V.IV.1 Opening Balance Sheet
SNA Categories Correspond to IIP Standard Components and Additional Details
ASSETS
B.10 CHANGES IN NET WORTH, TOTAL Total changes in item A (assets) minus total
changes in item B (liabilities)
Account V.IV.3 Closing Balance Sheet
SNA Categories Correspond to IIP Standard Components and Additional Details
AF Financial assets Sum of end-of-period values of corresponding
items contained in the IIP and identified in
account V.IV.I of the SNA
AF Liabilities Sum of end-of-period values of corresponding
items contained in the IIP and identified in
account V.I.V.I of the SNA
131
Table 7
Balance of Payments: Standard Components and Additional Detail
Credit Debit
1. Current account
1. A. Goods and services
a. Goods
1. General merchandise
2. Goods for processing
3. Repairs on goods
4. Goods procured in ports by carriers
5. Nonmonetary gold
5.1 Held as a store of value
5.2 Other
1. A. b. Services
1. Transportation
1.1 Sea transport
1.1.1 Passenger
1.1.2 Freight
1.1.3 Other
1. A. b. 1. 1.2 Air transport
1.2.1 Passenger
1.2.2 Freight
1.2.3 Other
1. A. b. 1. 1.3 Other transport
1.3.1 Passenger
1.3.2 Freight
1.3.3 Other
1. A. b. 2. Travel
1. A. b. 1. 2.1 Business
2.2 Personala
1. A. b. 3. Communications services
1. A. b. 4. Construction services
1. A. b. 5. Insurance servicesb
1. A. b. 6. Financial services
1. A. b. 7. Computer and information services
1. A. b. 8. Royalties and license fees
1. A. b. 9. Other business services
9.1 Merchanting and other trade-related services
9.2 Operational leasing services
9.3 Miscellaneous business, professional,
and technical servicesa
1. A. b. 10. Personal, cultural, and recreational services
10.1 Audiovisual and related services
10.2 Other cultural and recreational services
1. A. b. 11. Government services n.i.e.
132
aSee Selected Supplementary Information table on page 139 for components.
bMemorandum items: 5.1 Gross premiums; 5.2 Gross claims
1. B. Income
1. B. 1. Compensation of employees
2. Investment income
2.1 Direct investment
2.1.1 Income on equity
2.1.1.1 Dividends and distributed branch profitsc
2.1.1.2 Reinvested earnings and undistributed
branch profitsc
1. B. 2. 2.2 2.1.2 Income on debt (interest)
1. B. 2. 2.2 Portfolio investment
2.2.1 Income on equity (dividends)
2.2.2 Income on debt (interest)
2.2.2.1 Bonds and notes
2.2.2.1.1 Financial intermediation charge
indirectly measured*
1. B. 2. 2.2 2.2.2.1 2.1.2 2.2.2.1.2 Other interest
1. B. 2. 2.2 2.2.2. 2.2.2.2 Money market instruments and financial
derivatives
1. B. 2. 2.3 Other investment
2.3.1 Financial intermediation charge indirectly
measured*
1. B. 2. 2.2 2.3.2 Other interest
2.3.3 Imputed income to households from net equity
in life insurance reserves and in pension funds*
1. C. Current transfers
C. 1. 1. General government
1.1 Current taxes on income, wealth etc.* XXX
1.2 Other taxes on production* XXX
1.3 Other subsidies on production* XXX
1.4 Social contributions* XXX
1.5 Social benefits* XXX
1.6 Other current transfers of general government*
C. 1. 2. Other sectors
2.1 Workers’ remittances
2.2 Other transfers
2.2.1 Current taxes on income, wealth, etc.* XXX
2.2.2 Other taxes on production* XXX
2.2.3 Other subsidies on production* XXX
2.2.4 Social contributions* XXX
2.2.5 Social benefits* XXX
2.2.6 Other current transfers of other sectors*
133
Table 7 (continued)
Balance of Payments: Standard Components and Additional Detail
Credit Debit
cIf distributed branch profits are not identified, all branch profits are considered to be distributed.
*Details necessary for reconciliation with classifications used in the SNA Rest of the World Account
2. Capital and Financial Account
C. A. Capital account
1. Capital transfers
1.1 General government
1.1.1 Debt forgiveness
1.1.2 Other
C. A. 1. 1.2 Other
1.2.1 Migrants’ transfers
1.2.2 Debt forgiveness
1.2.3 Other
2. A. 2. Acquisition/disposal of nonproduced, nonfinancial assets
C. B. Financial account
1. Direct investment
1.1 Abroad
1.1.1 Equity capital
1.1.1.1 Claims on affiliated enterprises
1.1.1.2 Liabilities to affiliated enterprises
C. A. 1. 1.1 1.1.2 Reinvested earnings
1.1.3 Other capital
1.1.3.1 Claims on affiliated enterprises
1.1.3.1.1 Debt securities issued by affiliated
enterprises*
C. A. 1. 1.1 1.1.2 1.1.3.2 1.1.3.1.2 Other claims on affiliated enterprises*
C. A. 1. 1.1 1.1.2 1.1.3.2 Liabilities to affiliated enterprises
1.1.3.2.1 Debt securities issued by direct investors*
1.1.3.2.2 Other liabilities of direct investors*
C. A. 1. 1.2 In reporting economy
1.2.1 Equity capital
1.2.1.1 Claims on direct investors
1.2.1.2 Liabilities to direct investors
C. A. 1. 1.1 1.2.2 Reinvested earnings
1.2.3 Other capital
1.2.3.1 Claims on direct investors
1.2.3.1.1 Debt securities issued by direct investors*
1.2.3.1.2 Other claims on direct investors*
C. A. 1. 1.1 1.1.2 1.2.3.2 Liabilities to direct investors
1.2.3.2.1 Debt securities issued by affiliated
enterprises*
C. A. 1. 1.1 1.1.2 1.1.3.2 1.2.3.2.2 Other liabilities to direct investors*
C. A. 2. Portfolio investment
2.1 Assets
2.1.1 Equity securities
2.1.1.1 Monetary authorities
2.1.1.2 General government
2.1.1.3 Banks
2.1.1.4 Other sectors
134
Table 7 (continued)
Balance of Payments: Standard Components and Additional Detail
Credit Debit
*Details necessary for reconciliation with classifications used in the SNA Rest of the World Account
C. A. 1. 1.1 2.1.2 Debt securities
2.1.2.1 Bonds and notes
2.1.2.1.1 Monetary authorities
2.1.2.1.2 General government
2.1.2.1.3 Banks
2.1.2.1.4 Other sectors
C. A. 1. 1.1 2.1.2 2.1.2.2 Money market instruments
2.1.2.2.1 Monetary authorities
2.1.2.2.2 General government
2.1.2.2.3 Banks
2.1.2.2.4 Other sectors
C. A. 1. 1.1 2.1.2 2.1.2.3 Financial derivatives
2.1.2.3.1 Monetary authorities
2.1.2.3.2 General government
2.1.2.3.3 Banks
2.1.2.3.4 Other sectors
1. B. 2. 2.2 Liabilities
2.2.1 Equity securities
2.2.1.1 Banks
2.2.1.2 Other sectors
C. A. 1. 1.1 2.2.2 Debt securities
2.2.2.1 Bonds and notes
2.2.2.1.1 Monetary authorities
2.2.2.1.2 General government
2.2.2.1.3 Banks
2.2.2.1.4 Other sectors
C. A. 1. 1.1 2.1.2 2.2.2.2 Money market instruments
2.2.2.2.1 Monetary authorities
2.2.2.2.2 General government
2.2.2.2.3 Banks
2.2.2.2.4 Other sectors
C. A. 1. 1.1 2.1.2 2.2.2.3 Financial derivatives
2.2.2.3.1 Banks
2.2.2.3.2 Other sectors
C. A. 3. Other investment
3.1 Assets
3.1.1 Trade credits
3.1.1.1 General government
3.1.1.1.1 Long-term
3.1.1.1.2 Short-term
C. A. 1. 1.1 2.1.2 3.1.1.2 Other sectors
3.1.1.3.1 Long-term
3.1.1.3.2 Short-term
C. A. 1. 1.1 3.1.2 Loans
3.1.2.1 Monetary authorities
3.1.2.1.1 Long-term
3.1.2.1.2 Short-term
135
Table 7 (continued)
Balance of Payments: Standard Components and Additional Detail
Credit Debit
C. A. 1. 1.1 2.1.2 3.1.2.2 General government
3.1.2.2.1 Long-term
3.1.2.2.2 Short-term
C. A. 1. 1.1 2.1.2 3.1.2.3 Banks
3.1.2.3.1 Long-term
3.1.2.3.2 Short -term
C. A. 1. 1.1 2.1.2 3.1.2.4 Other sectors
3.1.2.4.1 Long-term
3.1.2.4.2 Short-term
C. A. 1. 1.1 3.1.3 Currency and deposits
3.1.3.1 Monetary authorities
3.1.3.2 General government
3.1.3.3 Banks
3.1.3.4 Other sectors
C. A. 1. 1.1 3.1.4 Other assets
3.1.4.1 Monetary authorities
3.1.4.1.1 Long-term
3.1.4.1.1.1 Prepayments of premiums
and reserves against
outstanding claims*
C. A. 1. 1.1 2.1.2 3.1.2.4 3.1.4.1.1 3.1.4.1.1.2 Other assets*
C. A. 1. 1.1 2.1.2 3.1.2.4 3.1.4.1.2 Short-term
C. A. 1. 1.1 2.1.2 3.1.4.2 General government
3.1.4.2.1 Long-term
3.1.4.2.1.1 Prepayments of premiums
and reserves against
outstanding claims*
C. A. 1. 1.1 2.1.2 3.1.2.4 3.1.4.1.1 3.1.4.2.1.2 Other assets*
C. A. 1. 1.1 2.1.2 3.1.2.4 3.1.4.2.2 Short-term
C. A. 1. 1.1 2.1.2 3.1.4.3 Banks
3.1.4.3.1 Long-term
3.1.4.3.1.1 Prepayments of premiums
and reserves against
outstanding claims*
C. A. 1. 1.1 2.1.2 3.1.2.4 3.1.4.1.1 3.1.4.3.1.2 Other assets*
C. A. 1. 1.1 2.1.2 3.1.2.4 3.1.4.3.2 Short-term
C. A. 1. 1.1 2.1.2 3.1.4.4 Other sectors
3.1.4.4.1 Long-term
3.1.4.4.1.1 Net equity of households in
life insurance reserves
and in pension funds*
C. A. 1. 1.1 2.1.2 3.1.2.4 3.1.4.1.1 3.1.4.4.1.2 Prepayments of premiums
and reserves against
outstanding claims*
C. A. 1. 1.1 2.1.2 3.1.2.4 3.1.4.1.1 3.1.4.4.1.3 Other assets*
C. A. 1. 1.1 2.1.2 3.1.2.4 3.1.4.4.2 Short-term
136
Table 7 (continued)
Balance of Payments: Standard Components and Additional Detail
Credit Debit
*Details necessary for reconciliation with classifications used in the SNA Rest of the World Account
1. B. 2. 3.2 Liabilities
3.2.1 Trade credits
3.2.1.1 General government
3.2.1.1.1 Long-term
3.2.1.1.2 Short-term
C. A. 1. 1.1 2.1.2 3.2.1.2 Other sectors
3.2.1.3.1 Long-term
3.2.1.3.2 Short-term
C. A. 1. 1.1 3.2.2 Loans
3.2.2.1 Monetary authorities
3.2.2.1.1 Use of Fund credit and loans
from the Fund
C. A. 1. 1.1 2.1.2 3.1.2.4 3.2.2.1.2 Other long-term
3.2.2.1.3 Short-term
C. A. 1. 1.1 2.1.2 3.2.2.2 General government
3.2.2.2.1 Long-term
3.2.2.2.2 Short-term
C. A. 1. 1.1 2.1.2 3.2.2.3 Banks
3.2.2.3.1 Long-term
3.2.2.3.2 Short -term
C. A. 1. 1.1 2.1.2 3.2.2.4 Other sectors
3.2.2.4.1 Long-term
3.2.2.4.2 Short-term
C. A. 1. 1.1 3.2.3 Currency and deposits
3.2.3.1 Monetary authorities
3.2.3.2 Banks
C. A. 1. 1.1 3.2.4 Other liabilities
3.2.4.1 Monetary authorities
3.2.4.1.1 Long-term
3.2.4.1.2 Short-term
C. A. 1. 1.1 2.1.2 3.2.4.2 General government
3.2.4.2.1 Long-term
3.2.4.2.2 Short-term
C. A. 1. 1.1 2.1.2 3.2.4.3 Banks
3.2.4.3.1 Long-term
3.2.4.3.2 Short -term
C. A. 1. 1.1 2.1.2 3.2.4.4 Other sectors
3.2.4.4.1 Long-term
3.2.4.4.1.1 Net equity of households in
life insurance reserves and
in pension funds*
C. A. 1. 1.1 2.1.2 3.1.2.4 3.1.4.1.1 3.2.4.4.1.2 Prepayments of premiums
and reserves against
outstanding claims*
C. A. 1. 1.1 2.1.2 3.1.2.4 3.1.4.1.1 3.2.4.4.1.3 Other liabilities*
C. A. 1. 1.1 2.1.2 3.1.2.4 3.2.4.4.2 Short-term
137
Table 7 (continued)
Balance of Payments: Standard Components and Additional Detail
Credit Debit
*Details necessary for reconciliation with classifications used in the SNA Rest of the World Account
2. A. 4. Reserve assets
4.1 Monetary gold
4.2 Special drawing rights
4.3 Reserve position in the Fund
4.3.1 Deposits*
4.3.2 Loans*
2. A. 4. 4.4 Foreign exchange
4.4.1 Currency and deposits
4.4.1.1 With monetary authorities
4.4.1.2 With banks
2. A. 4. 4.4 4.4.2 Securities
4.4.2.1 Equities
4.4.2.2 Bonds and notes
4.4.2.3 Money market instruments and financial derivatives
2. A. 4. 4.5 Other claims
4.5.1 Currency and deposits*
4.5.2 Securities*
4.5.2.1 Equities*
4.5.2.2 Debt securities*
*Details necessary for reconciliation with classifications used in the SNA Rest of the World Account
138
Table 7 (concluded)
Balance of Payments: Standard Components and Additional Detail
Credit Debit
Table 8
Selected Supplementary Information
1. Liabilities constituting foreign authorities’ reserves
1.1 Bonds and other securities
1.1.1 Monetary authorities
1.1.2 General government
1.1.3 Banks
1.1.4 Other sectors
1. 1.2 Deposits
1.2.1 Monetary authorities
1.2.2 Banks
1. 1.3 Other liabilities
1.3.1 Monetary authorities
1.3.2 General government
1.3.3 Banks
1.3.4 Other sectors
2. Exceptional financing transactions
2.1 Transfers
2.1.1 Debt forgiveness
2.1.2 Other intergovernmental grants
2.1.3 Grants received from Fund subsidy accounts
1. 2.2 Direct investment
2.2.1 Investment associated with debt reduction
2.2.2 Other
1. 2.3 Portfolio investment: borrowing by authorities or by other sectors
on behalf of authorities—liabilities*
1. 2.4 Other investment—liabilities*
2.4.1 Drawings on new loans by authorities or by other sectors on
behalf of authorities
1. 2.4 2.4.2 Rescheduling of existing debt
2.4.3 Accumulation of arrears
2.4.3.1 Principal on short-term debt
2.4.3.2 Principal on long-term debt
2.4.3.3 Original interest
2.4.3.4 Penalty interest
1. 2.4 2.4.4 Repayments of arrears
2.4.4.1 Principal
2.4.4.2 Interest
1. 2.4 2.4.5 Rescheduling of arrears
2.4.5.1 Principal
2.4.5.2 Interest
1. 2.4 2.4.6 Cancellation of arrears
2.4.6.1 Principal
2.4.6.2 Interest
3. Other transactions
3.1 Portfolio investment income
3.1.1 Monetary authorities
139
*Specify sector involved and standard component in which the item is included.
1. 2.4 3.1.2 General government
3.1.3 Banks
3.1.4 Other sectors
1. 3.2 Other (than direct investment) income
3.2.1 Monetary authorities
3.2.2 General government
3.2.3 Banks
3.2.4 Other sectors
1. 3.3 Other investment (liabilities)
3.3.1 Drawings on long-term trade credits
3.3.2 Repayments of long-term trade credits
3.3.3 Drawings on long-term loans
3.3.4 Repayments of long-term loans
4. Services sub-items
4.1 Travel (personal)
4.1.1 Health-related
4.1.2 Education-related
4.1.3 Other
1. 4.2 Miscellaneous business, professional, and technical services
4.2.1 Legal, accounting, management consulting, and public
relations
1. 4.2 4.2.2 Advertising, market research, and public opinion
polling
1. 4.2 4.2.3 Research and development
4.2.4 Architectural, engineering, and other technical services
4.2.5 Agricultural, mining, and on-site processing
4.2.6 Other
140
Table 8 (concluded)
Selected Supplementary Information
Table 9
International Investment Position: Standard Components and Additional Details
_____C__h__a_n_g__e_s_ i_n_ _P_o__s_it_i_o_n_ _R__e_fl_e_c_t_i_n_g______
Position Exchange
at Price Rate Other Position
Beginning Trans- Changes Changes Adjust- at End of
of Year actions *a *b *a *b ments Year
A. Assets
A. 1. Direct investment abroad¨
1.1 Equity capital and reinvested earnings
1.1.1 Claims on affiliated enterprises
1.1.2 Liabilities to affiliated enterprises
A. 1. 1.2 Other capital
1.2.1 Claims on affiliated enterprises
1.2.2 Liabilities to affiliated enterprises
A. 2. Portfolio investment
2.1 Equity securities
2.1.1 Monetary authorities
2.1.2 General government
2.1.3 Banks
2.1.4 Other sectors
A. 1. 2.2 Debt securities
2.2.1 Bonds and notes
2.2.1.1 Monetary authorities
2.2.1.2 General government
2.2.1.3 Banks
2.2.1.4 Other sectors
A. 1. 2.2 2.2.2 Money market instruments
2.2.2.1 Monetary authorities
2.2.2.2 General government
2.2.2.3 Banks
2.2.2.4 Other sectors
A. 1. 2.2 2.2.3 Financial derivatives
2.2.3.1 Monetary authorities
2.2.3.2 General government
2.2.3.3 Banks
2.2.3.4 Other sectors
A. 3. Other investment
3.1 Trade credits
3.1.1 General government
3.1.1.1 Long-term
3.1.1.2 Short-term
A. 1. 2.2 3.1.2 Other sectors
3.1.2.1 Long-term
3.1.2.2 Short-term
141
¨Because direct investment is classified primarily on a directional basis—abroad under the heading Assets and in the reporting economy under
the heading Liabilities—disaggregations of claims/liabilities are shown for the components of each, although these sub-items do not strictly
conform to the overall headings of Assets and Liabilities.
*Details necessary for reconciliation with classifications used in the SNA Rest of the World Account: a = neutral holding gains/losses; b = real
holding gains/losses
A. 1. 3.2 Loans
3.2.1 Monetary authorities
3.2.1.1 Long-term
3.2.1.2 Short-term
A. 1. 2.2 3.2.2 General government
3.2.2.1 Long-term
3.2.2.2 Short-term
A. 1. 2.2 3.2.3 Banks
3.2.3.1 Long-term
3.2.3.2 Short-term
A. 1. 2.2 3.2.4 Other sectors
3.2.4.1 Long-term
3.2.4.2 Short-term
A. 1. 3.3 Currency and deposits
3.3.1 Monetary authorities
3.3.2 General government
3.3.3 Banks
3.3.4 Other sectors
A. 1. 3.4 Other assets
3.4.1 Monetary authorities
3.4.1.1 Long-term
3.4.1.2 Short-term
A. 1. 2.2 3.4.2 General government
3.4.2.1 Long-term
3.4.2.2 Short-term
A. 1. 2.2 3.4.3 Banks
3.4.3.1 Long-term
3.4.3.2 Short-term
A. 1. 2.2 3.4.4 Other sectors
3.4.4.1 Long-term
3.4.4.2 Short-term
A. 4. Reserve assets
4.1 Monetary gold
4.2 Special drawing rights
4.3 Reserve position in the Fund
4.4 Foreign exchange
4.4.1 Currency and deposits
4.4.1.1 With monetary authorities
4.4.1.2 With banks
A. 1. 2.2 4.4.2 Securities
4.4.2.1 Equities
142
Table 9 (continued)
International Investment Position: Standard Components and Additional Details
_____C__h_a_n__g_e_s_ _in__ _P_o_s_i_t_io_n__ _R_e_f_le__c_t_in__g______
Position Exchange
at Price Rate Other Position
Beginning Trans- Changes Changes Adjust- at End of
of Year actions *a *b *a *b ments Year
*Details necessary for reconciliation with classifications used in the SNA Rest of the World Account: a = neutral holding gains/losses; b = real
holding gains/losses
A. 1. 2.2 3.2.2 4.4.2.2 Bonds and notes
4.4.2.3 Money market instruments
and financial derivatives
A. 1. 4.5 Other claims
B. Liabilities
1. Direct investment in reporting economy¨
1.1 Equity capital and reinvested earnings
1.1.1 Claims on direct investors
1.1.2 Liabilities to direct investors
A. 1. 1.2 Other capital
1.2.1 Claims on direct investors
1.2.2 Liabilities to direct investors
B. 2. Portfolio investment
2.1 Equity securities
2.1.1 Banks
2.1.2 Other sectors
A. 1. 2.2 Debt securities
2.2.1 Bonds and notes
2.2.1.1 Monetary authorities
2.2.1.2 General government
2.2.1.3 Banks
2.2.1.4 Other sectors
A. 1. 2.2 2.2.2 Money market instruments
2.2.2.1 Monetary authorities
2.2.2.2 General government
2.2.2.3 Banks
2.2.2.4 Other sectors
A. 1. 2.2 2.2.3 Financial derivatives
2.2.3.1 Monetary authorities
2.2.3.2 General government
2.2.3.3 Banks
2.2.3.4 Other sectors
B. 3. Other investment
3.1 Trade credits
3.1.1 General government
3.1.1.1 Long-term
3.1.1.2 Short-term
143
Table 9 (continued)
International Investment Position: Standard Components and Additional Details
_____C__h_a_n__g_e_s_ _in__ _P_o_s_i_t_io_n__ _R_e_f_le__c_t_in__g______
Position Exchange
at Price Rate Other Position
Beginning Trans- Changes Changes Adjust- at End of
of Year actions *a *b *a *b ments Year
¨Because direct investment is classified primarily on a directional basis—abroad under the heading Assets and in the reporting economy under
the heading Liabilities—disaggregations of claims/liabilities are shown for the components of each, although these sub-items do not strictly
conform to the overall headings of Assets and Liabilities.
*Details necessary for reconciliation with classifications used in the SNA Rest of the World Account: a = neutral holding gains/losses; b = real
holding gains/losses
A. 1. 2.2 3.1.2 Other sectors
3.1.2.1 Long-term
3.1.2.2 Short-term
A. 1. 3.2 Loans
3.2.1 Monetary authorities
3.2.1.1 Use of Fund credit and
loans from the Fund
A. 1. 2.2 3.2.1 3.2.1.2 Other long-term
3.2.1.3 Short-term
A. 1. 2.2 3.2.2 General government
3.2.2.1 Long-term
3.2.2.2 Short-term
A. 1. 2.2 3.2.3 Banks
3.2.3.1 Long-term
3.2.3.2 Short-term
A. 1. 2.2 3.2.4 Other sectors
3.2.4.1 Long-term
3.2.4.2 Short-term
A. 1. 3.3 Currency and deposits
3.3.1 Monetary authorities
3.3.2 Banks
A. 1. 3.4 Other liabilities
3.4.1 Monetary authorities
3.4.1.1 Long-term
3.4.1.2 Short-term
A. 1. 2.2 3.4.2 General government
3.4.2.1 Long-term
3.4.2.2 Short-term
A. 1. 2.2 3.4.3 Banks
3.4.3.1 Long-term
3.4.3.2 Short-term
A. 1. 2.2 3.4.4 Other sectors
3.4.4.1 Long-term
3.4.4.2 Short-term
144
Table 9 (concluded)
International Investment Position: Standard Components and Additional Details
_____C__h_a_n__g_e_s_ _in__ _P_o_s_i_t_io_n__ _R_e_f_le__c_t_in__g______
Position Exchange
at Price Rate Other Position
Beginning Trans- Changes Changes Adjust- at End of
of Year actions *a *b *a *b ments Year
*Details necessary for reconciliation with classifications used in the SNA Rest of the World Account: a = neutral holding gains/losses; b = real
holding gains/losses
512. As presented in this Manual, sectorization of the
balance of payments portfolio investment and other
investment accounts and related components of the
international investment position strengthens the links
between the international accounts, the SNA, and IMF
statistical systems such as money and banking,
government finance, and international banking. In
addition, the sectorization enhances the analytic
usefulness of the accounts.
513. Identification of four sectors—monetary
authorities, general government, banks, and other
sectors—of the compiling economy provides a
combined functional and institutional approach to
sectorization. Although the sectors do not comprise
institutional units as in the SNA, there is a significant
degree of concordance with that system. Specific
differences are noted subsequently.
514. The monetary authorities sector, which is based
on a functional concept, includes the central bank (or
currency board, monetary agency, etc.) and certain
operations that are usually attributed to the central
bank but are sometimes carried out by other
government institutions or commercial banks. Such
operations include the issuance of currency;
maintenance and management of international reserves,
including those resulting from transactions with the
IMF; and the operation of exchange stabilization funds.
Such transactions are, in effect, rerouted through the
central bank. This coverage of monetary authorities is
consistent with that described in the IMF draft of the
Manual on Monetary and Financial Statistics. In the
SNA, the central bank is a subsector of the financial
corporate sector.
515. The general government sector, with the
exception noted in the previous paragraph, is
consistent with that sector in the SNA. General
government consists of (i) government units that exist
at each level—central, state, or local—of government
within the national economy; (ii) social security funds
operated at each level of government; (iii) nonprofit
institutions that are majority financed and controlled
by government units; and (iv) unincorporated
enterprises that are owned and operated by
government units and that produce goods and
services, including collective services or public goods.
(However, if it is appropriate under SNA guidelines to
treat unincorporated enterprises as quasi-corporations,
such enterprises are allocated to the financial or
nonfinancial corporate sectors.)
516. The banking sector is identical with the “other
(than the central bank) depository corporations”
subsector of the financial corporate sector in the SNA
and the “other (than the central bank) depository
institutions” subsector of the financial institutions
sector in IMF money and banking statistics. Included
are all resident units engaging in financial
intermediation as a principal activity and having
liabilities in the form of deposits or financial
instruments (such as short-term certificates of deposit)
that are close substitutes for deposits. Deposits include
those payable on demand and transferable by check
or otherwise usable for making payments and those
that, while not readily transferable, may be viewed as
substitutes for transferable deposits. Thus, in addition
to commercial banks, the banking sector encompasses
institutions such as savings banks, savings and loan
associations, credit unions or cooperatives, building
societies, and post office savings banks or other
government-controlled savings banks (if such banks
are institutional units separate from government).
517. The other sectors category is comprised of
nonfinancial corporations (private, public, and
quasi-corporations), insurance companies, pension
funds, other nondepository financial intermediaries,
private nonprofit institutions, and households.
145
II. A Note on Sectors
Classification of International Transactions in
Services
Scope
518. The classification of international transactions in
services, which is included among the standard
components of the balance of payments, provides for
the recording of all international trade in services. The
classification is not as detailed as the Central Product
Classification (CPC), mainly because the CPC applies to
the structure of total production and encompasses
domestic as well as international transactions.
Meaningful analytical categories are formed by
combining appropriate items that may be comparatively
insignificant in international transactions, although such
items may be important in domestic transactions.
Structure and coding system of the
classification
519. The structure of the classification is hierarchical,
and the related coding system is decimal—as is the
CPC. The categories were developed from the
subclasses (five-digit codes), classes (four-digit codes),
groups (three-digit codes), and divisions (two-digit
codes) of the CPC, although the classification
corresponds with the CPC mostly at the three-digit
level. Other differences from the CPC are discussed
subsequently in this appendix.
520. The classification is flexible in that each
three-digit category (the most detailed in the classification)
can be expanded by the addition of another
decimal place. Conversely, if less detail is available,
one- or two-digit categories are appropriate.
Central Product Classification
Objectives
521. The main objective of the CPC is to provide a
framework for international comparison of various
kinds of statistics on goods, services, and assets. The
CPC is a useful guide for countries and international
organizations that are developing new systems or
revising existing schemes in order to make such
systems or schemes compatible with the international
standard.
Scope
522. The CPC covers categories for all products that
can be the objects of domestic or international
transactions or entered into stocks. In addition to
products that are the output of economic activity,
nonproduced assets—including land and intangible
assets such as patents, licenses, trademarks, and
copyrights—that arise from legal contracts are also
covered.
Structure and coding system
523. The structure of the CPC is hierarchical, and the
coding system is purely decimal. The classification
consists of sections (identified by the first digit),
divisions (identified by the first and second digits),
groups (identified by the first three digits), classes
(identified by the first four digits), and subclasses
(identified by five digits). Codes for the sections range
from zero through nine, and each section may be
divided into nine divisions. At the third digit of the
code, each division may, in turn, be divided into nine
groups, which may be further divided into nine classes
and into nine subclasses.
Differences Between the CPC and the Balance
of Payments Classification
524. Although the balance of payments classification
closely follows the CPC, there are a number of
differences in coverage and classification between the
two systems:
Two categories, travel and government services n.i.e.,
in the balance of payments classification of services
do not have analogues in the CPC.
146
III.
Balance of Payments Classification of International Services
and the Central Product Classification
Travel is covered as a balance of payments category
because it subsumes a number of related services
such as appropriate transportation, catering,
entertainment, etc. Also, data for this item are
collected from the consumers of these services, and
most countries present data in this form in balance
of payments statements.
Government services n.i.e., includes the consumption
of goods and services by embassies, consulates,
military, and other establishments of foreign
governments; of diplomatic and consular staff and
their dependents in the countries where they are
stationed; and of international and regional
organizations. This category also includes public
administration and other services provided by
governments and extraterritorial organizations.
Whereas the CPC treats all processing and repairs as
service items, the balance of payments classification
treats only the value of on-site processing and
certain repairs (e.g., on computers, construction, and
transport equipment maintenance performed in ports
and airports) as services to be reported under the
appropriate category. All other processing and the
value of all other repairs are included in the balance
of payments under goods on the practical grounds
that most processing involves transformation of the
goods and most repairs are made to investment
goods.
525. The table on pages 148 and 149 shows the
correspondence of balance of payments standard
components to various CPC categories.
APPENDIX III
147
Comparison of the Balance of Payments Classification of International Transactions in Services and
the Central Product Classification (CPC)1
Central Product Classification2 ________________________________________________________________________
Section Division Group Class
1. Transportation 7
1.1 Sea transport 721+part
1.1.1 Passenger of 745 7211
1.1.2 Freight 7212
1.1.3 Other 7213+7214+part of
sea-going vessels in 745
1. 1.2 Air transport 73
1.2.1 Passenger 731 7311+7312
1.2.2 Freight 732 7321+7322+7329
1.2.3 Other 734+746
1. 1.3 Other transport3
1.3.1 Passenger
1.3.2 Freight
1.3.3 Other
2. Travel4
2.1 Business
2.2 Personal5
2.2.1 Health-related*
2.2.2 Education-related*
2.2.3 Other
3. Communications services 756 7511+7512
4. Construction services 51 511 through
518
5. Insurance services7 812+814
6. Financial services part of 811 8111 through 8113
81
7. Computer and information services 84 + 962 9621
8. Royalties and license fees 892 8921+8922
9. Other business services8
9.1 Merchanting and other trade-related 62 621 6211
services
1. 9.2 Operational leasing services 83 831 8310
9.3 Miscellaneous business, professional,
and technical services*
148
10. Personal, cultural, and recreational services 96+97 (excluding 962)
10.1 Audiovisual and related services 961 9611 through 9613
10.2 Other cultural and recreational 963, 964, 970,
services 9619
1Categories left blank have no direct correspondence with the Central Product Classification (CPC).
2Section = one-digit; division = two-digit; group = three-digit; class = four-digit
3Comprises CPC groups 711, 712, 713, 722, 733, 741 through 744, part of 745, 748, and 749
4Includes CPC classes 7471 and 7472
5Includes CPC divisions 92 and 93
6Excludes classes 7541 and 7542
7Memorandum items: 5.1 Gross premiums and 5.2 Gross claims
8Comprises CPC divisions 62, 83, and 85 through 88
*These subdivisions are not included among the standard components of the balance of payments but are included under selected
supplementary information.
149
Central Product Classification2 ________________________________________________________________________
Section Division Group Class
_______________________C_e_n_t_r_a_l _P_ro__d_u_c_t _C_l_a_s_si_f_ic_a_t_io_n_______________________
S__e_ct_i_o_n _D_iv_i_s_io_n_ G__r_o_u_p__________ C__la_s_s__________________
9.3.1 Research and Development 85 851 through 853 8510 through 8530
9.3.2 Legal, accounting, management 861+862 8611 through 8613+8619
consulting, and public relations +865+part of 864 +8621 through 8622
9.3.3 Advertising, market research, 871+864 8711 through 8712+8719
and public opinion polling
9.3.4 Architectural, engineering, and 867 8671 through 8676
other technical services
9.3.5 Agricultural, mining, and 88° 881 through 883 8811 through 8830
on-site processing
9.3.6 Other 82 863+866+ 8720+8730+8740+
872 through 879 8750+8760+8790
°Part of 88 relates to maintenance of transportation equipment.
526. The accounting procedures for recording
exceptional financing transactions in the balance of
payments are relevant in the context of an analytic
presentation such as the IMF’s aggregated presentation
in the Balance of Payments Statistics Yearbook (BOPSY).
In an analytic presentation, exceptional financing
transactions that accommodate balance of payments
needs are shown below the line in the appropriate
accounts; credit entries and corresponding debit entries
are shown above the line. However, there are some
cases in which below-the-line debit entries are also
recorded under exceptional financing (e.g., when
payments arrears are extinguished by way of
repayment, forgiveness, refinancing, rescheduling, or
other arrangements and when the authorities—for
balance of payments reasons—make loan repayments
in advance of the due dates).
527. The table at the end of Appendix 4 summarizes
(in both analytic and standard presentations)
appropriate balance of payments entries for recording
selected exceptional financing transactions for debtor
countries. Entries for creditor countries should be fully
symmetrical. However, for creditor countries, there
should be no below-the-line entries under exceptional
financing. The table, for illustrative purposes, shows
separate credit and debit entries for each relevant item
of the financial account, although net recording is
generally recomended in the Manual for the financial
account. In practice, credit and debit entries affecting
the same item of the financial account will cancel
each other and thus will not appear as separate entries
in the balance of payments statement.
Accumulation of Arrears
528. In the standard presentation of the balance of
payments, arrears of interest and amortization—that is,
amounts that are past due and unpaid—are recorded as
if the amounts had been paid on schedule. An
offsetting entry is made to reflect the associated new
short-term liability. For arrears of interest accrued in the
current recording period, a debit entry is recorded
under investment income in the current account, and
a corresponding credit entry is made under other
investment-other liabilities (short-term) in the financial
account for the accrual of arrears. For arears of interest
accrued in a previous recording period, the entries are
somewhat different. The accrual principle for recording
interest requires a debit entry under investment income
in the period in which interest was accrued and an
offsetting credit entry in the financial account under
the appropriate instrument. Subsequently, when arrears
are incurred on interest accrued in a previous period, a
debit entry is recorded under the appropriate
instrument in the financial account and a credit
contra entry is recorded for the accrual of arrears under
other investment-other liabilities (short-term). For
amortization arrears, a debit entry is made in the
appropriate component of the financial account (for
example, short- or long-term loans under other
investment) and a credit contra entry is made under
other investment-other liabilities (short-term) for the
accrual of arrears.
529. In the analytic presentation, only payments
arrears resulting from balance of payments difficulties
(that is, arrears resulting from the inability of the
authorities to provide foreign exchange and not from
the inability of the original debtor to provide national
currency) are included under exceptional financing.
Such payments arrears are recorded below the line as
credit entries under exceptional financing, and
offsetting debit entries are recorded above the line
under the appropriate account.
Repayment of Arrears
530. In the standard presentation of the balance of
payments, the repayment of arrears—cash settlements
(only) of both interest and amortization—is recorded as
a debit entry under other investment-other liabilities
(short-term), and a corresponding credit entry is
recorded under reserve assets.
531. In the analytic presentation, repayments of arrears
arising from balance of payments needs are recorded
below the line as debit entries under exceptional
financing (for the reduction of liabilities), and
corresponding credit contra entries are recorded under
reserve assets.
150
IV. Accounting for Exceptional Financing Transactions
Debt Forgiveness
532. In the standard presentation of the balance of
payments, debt forgiveness—the voluntary cancellation
of all or part of a debt within a contractual arrangement
between a creditor in one economy and a debtor in
another economy that is experiencing balance of
payments difficulties—is recorded by the debtor as a
credit entry under capital transfers. An offsetting debit
entry is recorded for the reduction of the liability in the
financial account. The appropriate debit entries
depend upon the recording period in which the
forgiven debt service obligations fall due. For
forgiveness of obligations past due (that is, arrears of
interest and amortization), a debit entry is recorded
under other investment-other liabilities (short-term). For
forgiveness of obligations due in the current recording
period, a debit entry is recorded, under the appropriate
debt instrument in the financial account, for the
reduction of the principal and for any interest accrued
in the previous period. For interest accruing in the
current recording period, a debit entry is recorded
under investment income in the current account. For
forgiveness of an obligation not yet due, a debit entry
is recorded under the appropriate debt instrument in
the financial account. No entry is made for interest
not yet due.
533. In the analytic presentation, debt forgiveness for
obligations falling due in the current recording period
and in arrears is recorded below the line as a credit
entry under exceptional financing. Corresponding debit
entries are recorded above the line—except when
arrears are forgiven, in which case the debit entry is
recorded below the line. In contrast, for the forgiveness
of debt not yet due, credit and debit entries are
recorded above the line so that entries are the same in
both the analytic and standard presentations.
534. For valuation of debts forgiven, it is recomended
in the Manual that, in principle, market prices be used
as the valuation basis for both flows and stocks.
Because typical debt forgiveness agreements are usually
restricted to debt that is owed to official creditors and
not traded in organized markets, the value recorded for
such nonmarketable debt instruments is nominal or
face value, which—in this case—is an acceptable proxy
for market value.
Other Intergovernmental Grants
535. Grants (including grants from Fund subsidy
accounts) provided for the purpose of satisfying balance
of payments needs in the recipient country are part of
exceptional financing. In the analytic presentation, the
grants are recorded below the line as credit entries
under exceptional financing, and a corresponding debit
entry is recorded under reserve assets.
Debt/Bond Swaps
536. In the standard balance of payments presentation,
a debt/bond swap (the exchange, usually at a discount,
of an existing debt instrument such as a loan for
another form of debt instrument such as a bond) is
recorded by the debtor as a credit entry under
portfolio investment to show the creation of the new
obligation. An offsetting debit entry is made under the
appropriate debt instrument for the reduction in
liabilities. Appropriate debit entries are shown in the
table at the end of Appendix 4.
537. In the analytic presentation, debt/bond swaps of
obligations falling due in the reporting period and in
arrears are recorded below the line as credit entries
under exceptional financing; corresponding debit
entries are made above the line. However, when
arrears are canceled as a result of debt/bond swaps,
debit entries are recorded below the line. For obligations
not yet due, appropriate entries are recorded
above the line.
538. A debt/bond swap often involves a difference
between the nominal or face value of the debt
swapped and the face value of the bond being issued.
In the balance of payments, such swaps are recorded
at market prices. If the bond is similar to other bonds
being traded, the market price of a traded bond
would be an appropriate proxy for the value of the
new bond. If the debt being swapped was recently
acquired by the creditor, the acquisition price would
be an appropriate proxy. Alternatively, if the coupon
interest rate on the new bond is below the prevailing
interest rate, the discounted value of the bond could
serve as a proxy. If such information is not available,
the face value of the bond being issued may be used
as a proxy. The difference between the face value of
the old debt and the market price of the new bond
represents a realized holding (capital) loss for the
creditor.
Debt/Equity Swaps
539. Debt/equity swaps consist of the exchange,
usually at a discount, of bank claims on, or other debt
instruments of, debtor economies for nonresident
investors’ equity investments in those economies.
APPENDIX IV
151
540. For debt exchanged directly for equity investment,
the recording is similar to that for debt/bond swaps
(discussed in paragraphs 536 through 538). In this case,
however, the credit entries should be made under
direct investment-equity capital. These transactions
should be recorded at the prices at which the equity
investors acquired the claims in the secondary market.
541. Under a second modality, a fixed-payment
liability denominated in foreign currency (e.g., a debt
security or loan) is exchanged at a discount for a
financial instrument denominated in domestic or
foreign currency or exchanged directly for a domestic
deposit. In the standard presentation, this transaction is
recorded by the debtor as an increase in liabilities
(credit) under the appropriate financial instrument
exchanged for the debt being redeemed; corresponding
debit entries depend on the classification of the
obligation (liability) being redeemed. Subsequently, the
nonresident investor exchanges the financial instrument
received for equity investment in an enterprise of the
debtor economy. At this point, a credit entry is
recorded under direct investment-equity capital, and an
offsetting debit entry is made under the appropriate
financial instrument being exchanged. Specific entries
are shown in the table at the end of Appendix 4.
542. In the analytic presentation, only the initial
transaction associated with a debt/equity swap is
relevant. Swaps of obligations falling due in the
reporting period and in arrears are recorded below the
line as credit entries under exceptional financing;
corresponding debit entries are made above the line. A
debit entry is also recorded below the line if arrears are
canceled as a result of the debt/equity swap agreement.
For obligations not yet due, no entries are recorded
below the line as exceptional financing.
543. Debt/equity swaps are valued at market prices in
the balance of payments. If the balance of payments is
compiled in foreign currency, the market value in
foreign currency of the first transaction—the exchange
of the debt instrument for another type of financial
instrument—is the price at which the claim on the
debtor country was acquired from the original creditor
by the nonresident equity investor. The second
transaction associated with the debt/equity swap is
recorded on the basis of the price (paid in domestic
currency and converted into foreign currency at the
market exchange rate) for the equity acquired by the
nonresident investor. If the balance of payments is
compiled in domestic currency, the value for the first
transaction is the amount received by the equity
investor in exchange for the debt instrument.18 For the
second transaction, the value is the domestic currency
value of the equity acquired by the nonresident
investor.
Borrowing for Balance of Payments Support
544. Borrowing for balance of payments support refers
to borrowing (including bond issues) by the
government or central bank (or by other sectors on
behalf of the authorities) to meet balance of payments
needs. In the analytical presentation, the drawing of
such a loan or the issue of such a bond is recorded
below the line as a credit entry under exceptional
financing; subsequent repayments are recorded above
the line. Advance repayments for balance of payments
purposes are also recorded under exceptional
financing.
Rescheduling and Refinancing
545. Debt rescheduling refers to the formal deferment
of debt service payments and the application of new
and extened maturities to the deferred amounts; debt
refinancing refers to the conversion of an original debt,
including any arrears, into a new loan. In the standard
balance of payments presentation, appropriate debit
entries for debt rescheduling depend upon the
recording period in which the debt obligations fall due.
Corresponding credit contra entries are recorded under
other investment-liabilities-loans (long-term) in the
financial account to reflect the drawing of a new loan.
For rescheduling of obligations past due (that is, arrears
of interest and amortization), a debit entry is recorded
under other investment-other liabilities (short-term). For
rescheduling or refinancing of obligations due in the
current recording period, debit entries are recorded
under the appropriate debt instruments in the financial
account for the reduction of principal and for any
interest accrued in the previous recording period. For
interest accruing in the current recording period, a debit
entry is recorded in the current account under
investment income. For rescheduling of obligations not
yet due, debit entries are recorded under the
appropriate debt instruments in the financial account.
No entry is made for interest not yet due.
BALANCE OF PAYMENT MANUAL
152
18 There will be a discrepancy, in terms of domestic currency, between the
value of the financial instrument received by the investor and the value at
which he acquired the debt instrument from the original creditor when the
debt instrument is converted into domestic currency at the market exchange
rate. This discrepancy should be viewed as a favorable exchange rate involving
an implicit subsidy granted by the authorities to the equity investor.
546. Some debt restructuring agreements link the
rescheduling of obligations due beyond the current
recording period to the fulfillment of certain
conditions by the time that the obligations fall due.
In such cases, entries are recorded in the balance of
payments only in the period in which the specified
conditions are met.
547. In the analytic presentation, only rescheduling or
refinancing arising from balance of payments needs is
recorded. Reschedulings or refinancings of debt falling
due in current recording periods and in arrears are
recorded below the line as credit entries under
exceptional financing; offsetting debit entries are
made above the line, except when arrears are
rescheduled or refinanced. In this case, debit entries
are also recorded below the line. For rescheduling or
refinancing of obligations not yet due, there are only
entries above the line under the appropriate debt
instrument.
New Money Facilities
548. Some debt restructurings feature new money
facilities (new loan facilities that may be used for the
payment of existing debt service obligations). In the
standard balance of payments presentation, successive
drawings on new money facilities are recorded, usually
under other investment-liabilities-loans-monetary
authorities (long-term), in the current recording period
as a credit for the debtor. Offsetting debit entries are
made under reserve assets. As debt service payments are
made on the loans included in the debt restructuring,
debit entries are recorded under investment income in
the current account; the repayment of principal,
interest accrued in the previous recording period, and
arrears (if any) are recorded under the appropriate
liability.
549. In the analytic presentation, the entries are the
same as those described in paragraph 547.
APPENDIX IV
153
Balance of Payments Accounting for Selected Exceptional Financing Transactions1
Analytic Standard
_T_y_p_e_ _o_f_ T_r_a_n_s_a_c_t_io__n_2 _C_r_e_d_i_t _D_e_b_i_t _C_r_e_d_i_t _D_e_b_i_t_
ACCUMULATION OF ARREARS
Interest Exceptional financing Investment income, other Other investment, other Investment income, other
investment3 liabilities (short-term) investment3
Other investment, liabilities, Other investment, liabilities,
loans (long-term)4 loans (long-term)4
Amortization Exceptional financing Other investment, liabilities, Other investment, other Other investment, liabilities,
loans (long-term) liabilities (short-term) loans (long-term)
REPAYMENT OF ARREARS5
Interest Reserve assets Exceptional financing Reserve assets Other investment, other
liabilities (short-term)
Amortization Reserve assets Exceptional financing Reserve assets Other investment, other
liabilities (short-term)
DEBT FORGIVENESS
Payments falling due in the
current recording period
Interest Exceptional financing Investment income, other Capital transfers, debt Investment income,
investment3 forgiveness other investment3
Other investment, liabilities, Other investment, liabilities,
loans (long-term)4 loans (long-term)4
Amortization Exceptional financing Other investment, liabilities, Capital transfers, debt Other investment, liabilities,
loans (long-term) forgiveness loans (long-term)
Payments in arrears
Interest Exceptional financing Exceptional financing Capital transfers, debt Other investment, other
forgiveness liabilities (short-term)
Amortization Exceptional financing Exceptional financing Capital transfers, debt Other investment, other
forgiveness liabilities (short-term)
Payments not yet due in the
current recording period
Amortization Capital transfers, debt Other investment, liabilities, Capital transfers, debt Other investment, liabilities,
forgiveness loans (long-term) forgiveness loans (long-term)
154
155
OTHER INTERGOVERNMENTAL
GRANTS6
Exceptional financing Reserve assets Current transfers, general Reserve assets
government
DEBT/BOND SWAPS
Payments falling due in the
current recording period7
Amortization Exceptional financing Other investment, liabilities, Portfolio investment, Other investment, liabilities,
loans (long-term) liabilities, debt securities loans (long-term)
Payments in arrears7
Interest Exceptional financing Exceptional financing Portfolio investment, Other investment, other
liabilities, debt securities liabilities (short-term)
Amortization7 Exceptional financing Exceptional financing Portfolio investment, Other investment, other
liabilities, debt securities liabilities (short-term)
Payments not yet due
Amortization Portfolio investment, Other investment, liabilities, Portfolio investment, Other investment, liabilities,
liabilities, debt loans (long-term) liabilities, debt securities loans (long-term)
securities
DEBT/EQUITY SWAPS
Direct swaps
Payments falling due in the
current recording period8
Amortization Exceptional financing Other investment, liabilities, Direct investment, equity Other investment, liabilities,
loans (long-term) capital loans (long-term)
Payments in arrears8
Interest Exceptional financing Exceptional financing Direct investment, equity Other investment, other
capital` liabilities (short-term)
Amortization Exceptional financing Exceptional financing Direct investment, equity Other investment, other
capital liabilities (short-term)
Payments not yet due
Amortization Direct investment, Other investment, liabilities, Direct investment, equity Other investment, liabilities,
equity capital loans (long-term) capital loans (long-term)
Balance of Payments Accounting for Selected Exceptional Financing Transactions1 (continued)
Analytic Standard
_T_y_p_e_ _o_f_ T_r_a_n_s_a_c_t_io__n_2 _C_r_e_d_i_t _D_e_b_i_t _C_r_e_d_i_t _D_e_b_i_t_
156
Indirect swaps
Exchange of a fixed-payment
liability denominated in
foreign currency for a security
denominated in domestic currency9
Payments falling due in the
current recording period8
Amortization Exceptional financing Other investment, liabilities, Portfolio investment, Other investment, liabilities,
loans (long-term) liabilities, debt securities loans (long-term)
Payments in arrears8
Interest Exceptional financing Exceptional financing Portfolio investment, Other investment, other
liabilities, debt securities liabilities (short-term)
Amortization Except ional financing Exceptional financing Portfolio investment, Other investment, other
liabilities, debt securities liabilities (short-term)
Payments not yet due8
Amortization Portfolio investment, Other investment, liabilities, Portfolio investment, Other investment, liabilities,
liabilities, debt loans (long-term) liabilities, debt securities loans (long-term)
securities
Exchange of a liability
denominated in domestic
currency for equity investment
Direct investment, Portfolio investment, liabilities, Direct investment, equity Portfolio investment,
equity capital debt securites capital liabilities, debt securities
BORROWING FOR BALANCE
OF PAYMENTS SUPPORT10
Drawings on new loans Exceptional financing Reserve assets Other investment, liabilities, Reserve assets
loans
(long- /short-term)
Bond issues Exceptional financing Reserve assets Portfolio investment, Reserve assets
liabilities, debt securities
Balance of Payments Accounting for Selected Exceptional Financing Transactions1 (continued)
Analytic Standard
_T_y_p_e_ _o_f_ T_r_a_n_s_a_c_t_io__n_2 _C_r_e_d_i_t _D_e_b_i_t _C_r_e_d_i_t _D_e_b_i_t_
157
RESCHEDULING AND REFINANCING
Payments falling due in the
current recording period
Interest Exceptional financing Investment income, other Other investment, liabilities, Investment income, other
investment3 loans (long-term) investment3
Other investment, liabilities, Other investment, liabilities,
loans (long-term)4 loans (long-term)4
Amortization Exceptional financing Other investment, liabilities, Other investment, liabilities, Other investment, liabilities,
loans (long-term) loans (long-term) loans (long-term)
Payments in arrears
Interest Exceptional financing Exceptional financing Other investment, liabilities, Other investment, other
loans (long-term) liabilities (short-term)
Amortization Exceptional financing Exceptional financing Other investment, liabilities, Other investment, other
loans (long-term) liabilities (short-term)
Payments not yet due in
the current recording period
Amortization Other investment, Other investment, liabilities, Other investment, liabilities, Other investment, liabilities,
liabilities, loans loans (long-term) loans (long-term) loans (long-term)
(long-term)
1For debt rescheduled or refinanced, swapped into equity or bonds, or canceled before maturity, the reduction in the liability should be attributed to the appropriate debt instrument in the financial
account. In this table, it has been assumed that long-term loans are the instrument.
2This presentation, for illustrative purposes, shows separate debit and credit entries for financial account items. In practice, because net recording is recommended for financial account items, entries
affecting the same item will be offsetting and thus will not appear as separate entries in a balance of payments statement.
3For interest accrued in the current recoding period
4For interest accrued in the previous period
5Cash settlement only
6Only intergovernmental grants received to finance balance of payments need (Grants received from Fund subsidy accounts are included since such grants are considered exceptional financing
transactions.)
7These payments are recorded by using the market price of the new security issued.
8These payments are recorded by using the price at which the claim on the debtor country was acquired by the nonresident equity investor.
9Initially, the debtor country can exchange the liability denominated in a foreign currency for a security denominated in domestic currency, a security denominated in foreign currency, or domestic
deposits. Therefore, the appropriate debit entry depends on the type of liability for which the liability that is denominated in foreign currency is exchanged.
10Borrowing (including bond issues) by authorities or other sectors on the authorities’ behalf to finance balance of payments need
Balance of Payments Accounting for Selected Exceptional Financing Transactions1 (concluded)
Analytic Standard
T__y_p_e_ _o_f_ T_r_a_n_s_a_c_t_io__n_2 C__r_e_d_i_t _D_e_b_i_t _C_r_e_d_i_t _D_e_b_i_t_
Introduction
550. Preceding sections of the Manual present, in
considerable detail, concepts underlying the standard
components of the balance of payments and the
international investment position of an economy. The
importance of this accounting and statistical reporting
framework describing a country’s international transactions
derives primarily from the links between these
transactions and the domestic economy. These links go
in two directions: (i) from the external to the internal
side of the economy and (ii) from changes in domestic
economic conditions to changes in a country’s transactions
with the rest of the world. This section discusses
some of these major links and a number of important
connections between the major components of the
balance of payments and between these components
and a country’s international investment position. This
discussion directs particular emphasis to the factors
influencing external transactions and the extent to
which such factors are sustainable. Finally, some of the
implications of balance of payments adjustments for
economic policy are considered. In this appendix, it is
assumed, by and large, that international and domestic
transactions are not constrained by formal or informal
administrative controls and that market participants are
free to respond to price signals and macroeconomic
policies.
General Framework
551. The relationship between the balance of payments
and the domestic economy has already been described
(in Chapter 3 and Appendix 1) in terms of the SNA and
the current account. Embodied in an identity derived
in Chapter 3, this relationship shows that the current
account balance is equal to the difference between
gross domestic saving (S) and investment (I):
(1) CAB = X–M+NY+NCT = S–I
when
X = exports of goods and services
M = imports of goods and services
NY = net income from abroad
NCT = net current transfers
Thus the current account balance mirrors the saving
and investment behavior of the domestic economy. In
analyzing changes in the current account position of
a country, it is therefore important to understand the
manner in which these changes reflect movements in
saving and investment. For example, an increase in
domestic investment relative to domestic saving will
have the same impact on the current account—at
least in the short run—as a decline in saving relative to
investment. However, the longer-run implications for
the external position of the country may be quite
different. More generally, equation (1) shows that any
change in a country’s current account position (e.g., a
larger surplus or smaller deficit) must necessarily be
matched by an increase in domestic saving relative to
investment. This highlights the importance of
ascertaining the extent to which any policy measures
designed to alter the current account balance directly
(e.g., changes in tariffs, quotas, and exchange rates)
will affect domestic saving and investment behavior in
such a way as to achieve the intended effects of the
policy measures on the external sector.
552. This link between the domestic and external
sectors of an economy can be expressed alternatively
in terms of the difference between gross national
disposable income (GNDY) and expenditure on goods
and services by domestic residents (A). These two
variables are defined as:
(2) GNDY = C+I+G+CAB
(3) A = C+I+G = domestic absorption or expenditure
From these two equations, it follows that the balance
on goods, services, and net income plus net current
transfers is equal to the difference between gross
national disposable income and the use or absorption
of this income through expenditures by residents:
(4) CAB = GNDY–A
The implication of this relationship for balance of
payments analysis is the same as that already noted:
improvement in a country’s current account requires
that resources must be released through a fall in
domestic absorption (i.e., a reduction in expenditure
relative to income). Alternatively, it may be possible to
158
V. Selected Issues in Balance of Payments Analysis
achieve an improvement in the external position by
means of an increase in national income that is not
matched by a commensurate rise in absorption.
Implementation of structural measures that reduce
distortions and increase the efficiency of the economy
would be one way to achieve this objective.
553. This last point highlights an important aspect of
the equations shown previously; these are identities
that define relationships among variables rather than
describe the behavior of economic agents. By
themselves, the equations cannot provide a full analysis
of the factors determining developments in the current
account. For example, total spending on goods and
services by domestic residents (A) is likely to be
influenced in part by their income (GNDY). Thus it
would be inappropriate to use equation (4) to
analyze the impact of a change in GNDY on the
balance of goods and services without taking full
account of the induced response in A of such a
change. In particular, if an increase in income were
spent by domestic residents entirely on additional
goods and services (foreign and domestically
produced), higher income would have no impact on
the external balance. This example illustrates the
necessity for understanding the spending propensities
of domestic residents when analyzing the balance of
payments.
554. The interrelationship between the internal and
external sectors of an economy can be seen in greater
detail by distinguishing between the private and
government sectors. Private saving and investment
(Sp and Ip) and government saving and investment
(Sg and Ig) are identified:
(5) S–I = Sp+Sg–Ip–Ig
Use of the definition of the current account from
equation (1) then gives:
(6) CAB = (Sp–Ip)+(Sg–Ig) = S–I
This equation shows that, if government sector
dissaving is not offset by net saving on the part of the
private sector, the current account will be in deficit.
More specifically, the equation shows that the
budgetary position of the government (Sg-Ig) may be
an important factor influencing the current account
balance. In particular, a sustained current account
deficit may reflect persistent government spending in
excess of receipts, and such excess spending suggests
that fiscal tightening is the appropriate policy action.
555. To reiterate an important point, however,
equation (6) cannot be used by itself to analyze
developments in the foreign sector in terms of
investment and saving on the part of the private and
government sectors because there are links between the
variables on the right-hand side of equation (6). For
example, an increase in taxes could be considered the
appropriate policy measure both to raise government
saving (or reduce dissaving) and to contribute to an
improvement in a country’s current account position. In
analyzing the impact of higher taxes, it is necessary to
take account of the behavioral response of private
saving and private investment. Private investment could
be positively or negatively affected by higher taxes. The
effect would depend, in part, on whether the taxes
were levied on consumption, an action that would
release domestic resources and thereby tend to “crowd
in” domestic investment, or on returns to capital. In
addition, private saving would tend to fall because of
the decline in disposable income caused by taxes on
consumption. Thus equation (6) provides only a starting
point for an analysis of the interaction between
domestic saving and investment decisions and the
external sector; the equation must be supplemented by
specific information about the factors that determine the
behavior of both the private sector and the government
before the effect of policy measures on a country’s
current account can be ascertained.
556. In addition to current transactions (i.e., those
involving the exchange of goods, the provision of
services, and the receipt and payment of income and
transfers), the flow of financial transactions (i.e., those
involving changes in financial claims on, and liabilities
to, the rest of the world) must be analyzed. As noted in
chapters 8 and 16, these transactions have two main
components: (i) narrowly defined financial transactions
in direct investment, portfolio investment, and other
investment (including trade credits, loans, and deposits)
and (ii) transactions in reserve assets. There are direct
linkages between these components of a country’s
international transactions. For example, imports of
goods are often financed by nonresident suppliers so
that an increase in imports will typically be matched by
a financial inflow. At the expiration of the financing
period, the payment to the nonresident supplier will
involve either a drawdown of foreign assets (e.g.,
foreign deposits held by domestic banks) or the
replacement of the liability to the nonresident supplier
by another liability to nonresidents. There are also close
connections between many financial account transactions.
For example, the proceeds from the sale of
bonds in foreign capital markets (a financial inflow)
may be invested temporarily in short-term assets abroad
(a financial outflow).
APPENDIX V
159
557. As noted in Chapter 2, the basic principle of
double-entry bookkeeping used in constructing the
balance of payments implies that the sum of all
international transactions—current and capital and
financial, including reserve assets—is in principle equal
to zero. However, because data for balance of
payments entries often are derived independently from
different sources, implementation of the double-entry
recording system is not perfect. As a result, there
typically are net credits or net debits (i.e., net errors
and omissions in the accounts). To simplify the
exposition in this section, it is assumed that there are
no recording errors or omissions and that the sum of
all current and capital and financial account items,
including reserve assets, is equal to zero. This property
of the entire set of a country’s international
transactions, which is called the balance of payments
identity, is stated by equation (7), in which (again for
simplicity) it is assumed that net capital transfers are
equal to zero.
(7) CAB = NKA+RT
when
NKA = net capital and financial account (i.e., all
capital and financial transactions excluding
reserve assets)
RT = reserve asset transactions
558. This equation shows that the current account
balance is necessarily equal (with sign reversed) to the
net capital and financial account balance plus reserve
asset transactions. This relationship shows that the net
provision, as measured by the current account balance,
of resources to or from the rest of the world must—by
definition—be matched by a change in net claims on
the rest of the world. For example, a current account
surplus is reflected in an increase in net claims, which
may be in the form of official or private claims, on
nonresidents or in the acquisition of reserve assets on
the part of the monetary authorities. Alternatively, a
deficit implies that the net acquisition of resources from
the rest of the world must be paid for by either
liquidating foreign assets or increasing liabilities to
nonresidents. Seen in this light, the balance of
payments identity constitutes the budget constraint for
the entire economy.
559. The previously described framework for analysis
of the balance of payments is applicable, irrespective of
the exchange rate regime adopted by a country. For
example, if the exchange rate is pegged, then
transactions in reserve assets will be determined by the
net demand or supply of foreign exchange at that
exchange rate (i.e., RT = CAB–NKA). At the other
extreme, if the exchange rate arrangement involves a
pure float so that no exchange market intervention
takes place, then CAB = NKA. In the intermediate case
of a managed float, purchases and sales of reserve
assets are typically undertaken to achieve a desired
exchange rate path for the domestic currency in terms
of one or more foreign currencies. (This section does
not cover the advantages and disadvantages of
particular exchange rate arrangements and policies.
However, the exchange rate is an important instrument
of balance of payments adjustment, and a subsequent
section includes information on this topic.)
The Capital and Financial Account and
Balance of Payments Financing
560. The capital and financial account measures net
foreign investment or net lending/net borrowing
vis-à-vis the rest of the world. This account is one
channel through which a country invests its net wealth;
the other is primarily tangible domestic capital. The
wealth accumulation aspect of the capital and
financial account can be seen more clearly by
recalling that the current account is equal to the
difference between total domestic saving and
investment. Hence equation (7) can be rewritten as:
(8) S–I = NKA+RT
Thus, to the extent that domestic saving is not matched
by an increase in domestic capital accumulation, there
will be an increase in private or official assets held in
the rest of the world.
561. Equation (8) describes flows of resources and
capital over time. The summation, over an extended
period of time, of a country’s saving provides a picture
of the stock of its total wealth. As defined in Chapter 3,
a nation’s stock of assets consists of nonfinancial and
financial assets. As the financial assets and liabilities of
domestic sectors cancel each other, a country’s balance
sheet consists of its stock of domestic nonfinancial
assets plus its net international investment position (the
stock of external financial assets minus the stock of
external liabilities).
562. Concepts and measurement issues related to a
country’s international investment position are
discussed in Chapter 23. As noted there, the net
international investment position of a country at the
end of a specific period reflects not only financial
flows, which are given by the right-hand side of
equation (8), but also valuation changes and other
adjustments during the period, all of which affect the
BALANCE OF PAYMENTS MANUAL
160
current value of a country’s total (private and official)
claims on nonresidents and its total liabilities to
nonresidents. (Valuation and other adjustments are
omitted as the primary focus of this discussion of the
balance of payments is on links between stocks of
claims and liabilities vis-à-vis nonresidents, changes in
these stocks, and the current account.)
563. There is another connection between the
financial account and the current account. Financial
flows generate changes in foreign claims and liabilities.
In nearly all cases, these financial stocks earn a rate of
return (interest, dividends, or profits) that appears in
the current account as investment income. This link
between the accounts is particularly relevant in the case
of a country running a current account deficit because
there is an important dynamic relationship between an
existing deficit and the future current account position.
A deficit in the current account must be financed by
some combination of an increase in liabilities to
nonresidents and a reduction in claims on nonresidents
so that the net result is a decline in net foreign assets.
As a consequence, there will be a reduction in net
investment income (unless rates of return adjust in an
offsetting manner), and this reduction will increase the
current account deficit. This interaction between the
current account and the financial account can lead
to a destabilizing situation in which the current account
position progressively worsens unless changes in
economic policies or adjustments in certain variables
(e.g., exchange rates) are made to arrest the
deterioration.
564. In analyzing the balance of payments and, in
particular, the sustainability of any specific current
account situation, it is important to consider the determinants
of financial flows. These relate mainly to
factors affecting the rate of return and risk on foreign
and domestic assets. Such factors include interest rates,
the profitability of direct and other investments,
expected changes in exchange rates, and tax considerations.
These factors are embodied in the expected real
(i.e., adjusted for exchange rates and inflation) after-tax
rate of return on the stock of foreign assets held by
residents and on the stock of claims held by nonresidents.
Residents and nonresidents are subject to
different legal and tax considerations, which affect the
rates of return on asset holdings. However, both are
similarly affected by economic conditions external to
the countries in which they are resident. Moreover,
these external conditions are exogenous to an
individual country. Therefore (for the purposes of this
discussion), it seems reasonable to assume that these
conditions are constant and to focus on the domestic
economic situation affecting rates of return on
investments in the relevant country.
565. In addition, domestic and nonresident investors
appear to be influenced largely by the same set of
factors affecting rates of return on domestic investments.
In other words, irrespective of whether the
investor’s residence is in the home country or abroad,
the decision of whether to invest in the home country
or another country will be influenced—for the most
part—by the same set of considerations relating to
expected returns on domestic assets. Changes (such as
interest rates, rate of profit, inflation, and the exchange
rate) in domestic variables are therefore likely to have
similar effects on residents deciding to invest at home
or abroad and on nonresidents choosing to invest in
their home countries rather than in other, worldwide
investment opportunities. Consequently, when one
views the net financial account, one may plausibly
assume that the stock of claims on nonresidents and
the stock of liabilities to nonresidents are influenced by
the same array of considerations.19
566. On the basis of this background, it is possible to
examine a key aspect of balance of payments analysis
(namely, the financing of a current account deficit by
means of net financial inflows and reserve assets) and
some of the economic policy issues involved.20 For
such an analysis, it would be helpful to use equation
(7), the balance of payments identity, and to assume
that initially S = I (i.e., that the current account is
zero and that net capital and financial account and
reserve asset account transactions are also zero). From
this initial situation, it is instructive to trace the effects,
APPENDIX V
161
19This perspective includes the assumption that there are no controls on
international capital flows. As such controls are not typically applied in the
same manner to transactions involving residents and to those undertaken by
nonresidents, the presence of such controls implies that the same factors are
likely to affect residents and nonresidents in different ways.
20Balance of payments presentations sometimes show an overall balance,
which has been variously defined according to the perspectives of the analyst.
This measure involves distinguishing transactions recorded above the line from
those recorded below the line. This procedure is linked to the double-entry
system of recording balance of payments entries because the two groups must
be numerically equal with opposite signs. Drawing the line involves making
certain analytical distinctions. In many instances, the overall balance is equal,
with the exclusion of transactions in reserve assets and exceptional financing, to
the sum of current and capital and financial account transactions. According to
this definition of the overall balance, below-the-line transactions are considered
to be accommodating or financing the net result of above-the-line transactions,
which are considered autonomous. In other balance of payments presentations,
the overall balance is equal, with the exclusion of transactions (including those
in reserve assets) of the domestic banking sector, to the sum of current and
capital and financial account transactions. In such a presentation, the
below-the-line transactions correspond to the net foreign assets of the banking
system (including the central bank). This presentation may be helpful in
analyzing the impact of such transactions on the creation of domestic liquidity.
on the current account and the financial account,
of an autonomous increase, which is generated by a
rise in the productivity of capital, in domestic investment.
If this additional investment is not matched by a
corresponding rise in domestic saving, interest rates will
tend to rise as long as the monetary authorities do not
peg the rates. The excess of investment over domestic
saving will be reflected in a current account deficit,
which may be financed by a net financial inflow
induced by the rise (in comparison to interest rates
abroad) in domestic interest rates.
567. Whether there is spontaneous financial account
financing of a current account deficit depends on a
number of considerations. First, the financial inflow
may be directly related to increased domestic capital
spending in the form of foreign direct investment, loans
obtained from foreign banks, or bonds issued in
international capital markets. The foreign financing can
be for the purchase of foreign goods and services
required for an investment project and for the purchase
of domestic inputs. Alternatively, additional investment
may be financed domestically by means of bank loans
or issues of equities and bonds. In this case, there is no
direct link between increased domestic expenditures
and foreign financing. However, the tendency for
domestic interest rates to rise (in comparison with rates
abroad) because of the increased investment will
provide an incentive for funds to flow into the country.
Whether or not funds do so depends largely on how
investors view the economic prospects of the country.
The prevalence of stable economic and political
conditions—particularly if it is not likely that the higher
interest rate will be offset by a continuing depreciation
of the exchange rate of the country—will increase the
spontaneous movement of funds into the country.
568. The financial inflow associated with the excess of
investment over saving involves a reduction in the net
foreign asset position of the country and the reduction,
in turn, will change the net investment income flow of
the country. The key analytical issue is whether the
country will be able to service the change in the net
foreign investment position without undertaking significant
modifications in economic policies or without
incurring undesirable changes in interest rates or
exchange rates. Servicing is likely to occur without
changes if the investment makes a significant contribution
to the productivity of the economy. Such a
contribution can be manifested in two ways: first, the
firm or government enterprise undertaking the
investment must be sufficiently profitable to pay the
rate of return that will attract the funds to finance the
investment; second, the additional investment must
enhance the debt-servicing capacity of the economy. As
long as funds imported from abroad are invested
productively in the domestic economy, external
financing for a current account deficit is likely to be
forthcoming for a considerable period of time. In this
situation, the capital-importing country’s current
account deficit manifests an efficient allocation of
resources.
569. Alternatively, it is useful to consider a case in
which investment is unchanged but domestic saving
declines—either because of an increase in government
spending not matched by a rise in tax and other
revenue or because of an increase in private
consumption not matched by an offsetting change in
government saving. In this situation, domestic interest
rates would also tend to rise. However, unlike the
previous case, the shift to a current account deficit is
not paralleled by an increase in productivity in the
economy. Under these conditions, there may not be a
spontaneous inflow of funds if investors view the
deterioration in the current account as reflecting
inappropriate and unsustainable government policies.
For example, the decline in domestic saving may reflect
an enlarged public sector deficit that is not associated
with increased investment. Alternatively, the rise in
absorption may be due to higher private spending
generated by an expansionary monetary policy. Under
these circumstances, investors may not wish to increase
their net claims on the country.
570. In the absence of a spontaneous financial inflow,
some combination of the following will be necessary:
policy actions to attract private funds, the use of reserve
assets for balance of payments financing, and/or the
implementation of balance of payments adjustment
measures. From the balance of payments identity
(equation (7), it can be seen that, if the current
account shifts into deficit, financing must take place
either by drawing down the country’s international
reserve assets or by increasing incentives for attracting
private funds. The latter can be achieved by enhancing
the domestic economic environment for long-term
investment. The adoption of monetary and fiscal
policies that support stable economic conditions and
encourage direct and other investment would tend to
induce financial inflows on a sustained basis. Funds
may also be induced to flow in from abroad—and to
provide balance of payments financing—by the raising
of domestic interest rates. Such a policy may well be
appropriate if the current account deficit is caused by
aggregate demand pressures; a restrictive monetary
policy would have the effect of dampening excess
demand and providing short-term financing. However,
BALANCE OF PAYMENTS MANUAL
162
such financing may not be dependable from a
long-term perspective as, for example, changes in
foreign monetary conditions may make investment of
liquid assets in the domestic economy appear
unattractive. Therefore, it is necessary to look at the
underlying causes of a current account deficit requiring
fundamental balance of payments adjustment to such
an extent that the deficit cannot be financed by
financial inflows on a sustained basis.
571. The appropriateness of using reserve assets to
finance a gap between domestic expenditure and
income, rather than undertaking adjustment measures
to reduce or eliminate this gap, depends on the extent
to which the gap is temporary or reversible. As a
country’s stock of owned reserve assets (as well as the
resources it can borrow to supplement its reserve
assets) are limited, the use of reserve assets to finance a
current account deficit is confined within these limits.
However, by mitigating the necessity for balance of
payments adjustment, official financing can perform a
useful buffer function. For example, temporary shocks,
such as poor harvests or other temporary supply
disruptions, to domestic output do not necessarily
require comparable changes in the domestic absorption
of goods and services. Thus the financing, through the
use of reserve assets, of a temporary excess of
consumption and investment over national income can
provide a desirable smoothing of the path of expenditures
by residents. The reserve assets can also be used
to finance seasonal swings in foreign payments and
receipts. While the financing of temporary shocks is
appropriate, recourse—although it can make the
adjustment path smoother and more gradual—to
owned or borrowed reserve assets does not obviate the
necessity for adjustment if deterioration in the current
account persists.
572. There are limits on the extent to which private
funds and official resources can finance a current
account deficit. The willingness of the private sector to
invest in the country may be directly influenced by
ongoing changes in reserve assets. If the existing stock
of reserve assets is relatively low in comparison with the
current account deficit and the monetary authorities are
expected to exhaust the country’s reserve assets within
the investment horizon of the investors, then the
probability of a depreciation of the exchange rate or
the introduction of other policy measures adversely
affecting the rate of return expected by investors would
tend to increase significantly. Under these circumstances,
any private funds from abroad that are
financing all or part of a current account deficit could
quickly switch from a net inflow to a net outflow. As
can be seen from equation (8), unless adjustment
measures are implemented to reverse both the current
account deficit and the financial account outflow,
reserve assets would be required to finance both an
excess of domestic investment over saving and a net
increase in claims on nonresidents. Such a situation
would probably result in a loss of confidence in the
currency, exacerbation of the financial outflow, and a
rapid exhaustion of reserve assets.
Balance of Payments Adjustment
573. There are many situations in which it may not be
feasible to rely on private and official resources to
finance a current account deficit on a sustained basis.
For balance of payments analysis, it is therefore
important to consider the possible introduction of
adjustment measures to achieve a viable external
payments position (i.e., conditions under which a
deficit on goods and services can be financed by
private and official transfers, private capital inflows, and
some recourse to reserve assets). The subsequent
discussion examines briefly the roles of exchange rate
changes, fiscal measures, and monetary policy in
achieving balance of payments adjustment.
574. In this analysis, it is useful to rewrite equation (8)
as:
(9) S–I = CAB = TB+SIB+TRANB = NKA+RT
when
TB = trade balance
SIB = service and income balance
TRANB = current transfer balance
The magnitude of the necessary adjustment in the
balance of payments depends, to some extent, on the
nature of the components of the current account
balance. For example, a country may have been
running a persistent trade deficit that was financed, in
part, by borrowing from private and official sources. In
this situation, the country is also likely to be running a
deficit on the service and income balance that reflects
the servicing of this debt. Part of the deficit arising from
trade, service, and income transactions may, however,
be offset by a surplus from current transfers, which
could reflect both official and private transfers. If such
inward transfers are expected to be of a long-term
nature and can confidently be relied upon to finance all
or part of the deficit in other components of the
current account, then the extent of the necessary
balance of payments adjustment may be rather small.
APPENDIX V
163
575. However, even in the case of a small adjustment,
it is nonetheless important to be fully cognizant of the
fact that foreign debts must be paid in the future. Thus
the amortization schedule of the country is an
important factor for judging the sustainability of a
particular balance of payments position. If large
amortization payments are due in the near future and
expected financial inflows are not sufficient to cover
payments falling due, it may be necessary to undertake
adjustment measures beforehand to avoid more drastic
measures required for dealing with a subsequent
balance of payments crisis.
576. In the face of an unsustainable current account
deficit, one adjustment measure that should be
considered is a depreciation of the exchange rate of the
domestic currency. Such a depreciation may be
necessary to offset a domestic price rise (relative to
prices abroad) that—by penalizing exports and
encouraging imports—worsens the trade balance. To
the extent that the depreciation raises the prices of
traded goods (i.e., exports and imports) in comparison
with the prices of non-traded goods and services,
depreciation will promote the substitution of domestic
products for imported goods and stimulate foreign
demand for domestic output. However, as the
depreciation will be accompanied by a rise in domestic
prices in response to the increase in the cost of
imported goods and services and the rise in demand
for exports and domestically produced import
substitutes, the improvement in international
competitiveness generated by the exchange rate change
will be partially or fully eroded. Such a development
underscores the importance of supplementing the
exchange rate adjustment with restrictive monetary and
fiscal policies to facilitate the shift in resources signaled
by the change (caused by the depreciation) in relative
prices. Thus, an expenditure-switching policy in the
form of exchange rate depreciation must generally be
supported by expenditure-reducing measures; indeed,
such measures are essential if there is no excess
capacity in the economy.
577. The need for such action can be seen from
equation (9), which shows that any improvement in the
current account must be matched by a corresponding
positive change in the difference between domestic
saving and investment. An exchange rate depreciation
by itself may generate such a change in the desired
direction. In particular, if there is no change in the
stance of monetary policy, the increase in demand
generated by the depreciation will raise the demand for
money. With an unchanged money supply, the greater
demand for money will tend to increase nominal and
real domestic interest rates. As a result, interest-sensitive
expenditures will be dampened, and there could be a
positive impact on domestic saving. However, it is
unlikely that this induced effect on the gap between
savings and investment will itself be sufficient,
particularly if the economy is at full employment, to
achieve the desired improvement in the current
account. Therefore, in all likelihood, it will be
necessary to accompany the adjustment in the
exchange rate with measures to reduce the level of
domestic expenditure through tighter monetary and
fiscal policies that release resources to expand output
in the exporting and import-substitution industries.
578. The discussion of equation (6) pointed to fiscal
deficits as one potential cause of external imbalances.
Changes in government spending and taxation may
therefore be mandated to achieve the required
reduction in the saving/investment gap—to the extent
that an exchange rate depreciation does not induce a
sufficient response in the difference between total
domestic saving and investment. However, it is
important that fiscal policy measures be designed to
achieve the desired objective and not exacerbate the
adjustment problem. For example, cuts in infrastructure
investment may have the desired short-run balance of
payments effect, but such cuts could have, particularly
if the spending reductions are in such areas as
transportation, a long-run adverse impact on the supply
potential of the country and the generation and supply
of energy designed to relieve bottlenecks. Moreover,
tax measures that result in very high marginal tax rates
or that are aimed particularly at capital income could
have the undesired side effect of inducing offsetting
reductions in private saving and reducing incentives to
invest in the country. Such disincentive effects can be
avoided by implementing fiscal action aimed at
reducing or eliminating subsidies to inefficient government
enterprises and the private sector and by cutting
back on government activity that can be performed
equally well, if not better, by the private sector.
579. The stance of monetary policy plays an important
role in balance of payments adjustment. The existing
external imbalance may reflect an excess of domestic
investment over saving (or what is the same thing—an
excess of domestic spending over income) that results
from an excessively expansionary monetary policy. It is,
first of all, important to adjust the stance of monetary
policy so that interest rates are generally positive in real
terms and provide an incentive to savers and so that
domestic economic conditions are sufficiently stable to
encourage investment. From the perspective of
aggregate supply and demand, it can be seen from
BALANCE OF PAYMENTS MANUAL
164
equation (4) that monetary policy should ensure that
the level of domestic expenditure is in line with the
productive capacity of the economy. Thus, from the
point of view of balance of payments analysis, the
objective of monetary and fiscal policies is to limit
domestic spending to what is available from domestic
resources and foreign financing.
580. One important aspect of monetary policy in
balance of payments adjustment is the link between
reserve asset transactions and domestic monetary
conditions. A decline in reserve assets may be
associated with a current account deficit and/or a net
financial outflow caused by an expansionary monetary
policy. The reserve asset decline can lead to a
reduction in the monetary base and therefore to a
tightening in the stance of monetary policy. A more
restrictive monetary policy tends to correct the payments
imbalance through higher interest rates that
dampen domestic demand and make domestic assets
more attractive to investors. However, this built-in
adjustment mechanism can be short-circuited if the
monetary authorities offset the effect of the loss of
reserve assets on the monetary base by increasing the
domestic component of the base (e.g., through open
market purchases of securities held by the banking
system). Such offsetting action tends to prevent domestic
interest rates from rising and thereby contributes to
the persistence of the balance of payments deficit.
581. The foregoing discussion focuses entirely on an
economy that faces an actual or incipient balance of
payments problem in the form of a persistent current
account deficit or financial outflow that may also be
accompanied by a loss of reserve assets. This concentration
on external deficits reflects the more prevalent
tendency for domestic expenditure to exceed available
income and the frequent necessity of formulating
policies to deal with the financing or adjustment of a
balance of payments deficit.21 The opposite situation
(namely, a persistent current account surplus, inflow of
capital, and substantial accumulation of reserve assets)
occurs less often and generally does not pose as severe
a problem for economic policy.
582. Nonetheless, an analysis of some aspects of a
surplus balance of payments situation is useful. As can
be seen from equation (7), the balance of payments
identity, a surplus in the current account is reflected
in an increase in net claims held by the private sector
or government (NKA) on nonresidents and/or an
increase in official reserve assets (RT). The change in
the net foreign asset position may be due to a
reduction in liabilities to nonresidents rather than to an
increase in gross claims. Such a reduction may well be
a desirable development if a previous large buildup of
liabilities has imposed a severe debt service burden on
the country. In this case, a current account surplus can
be an appropriate step toward achieving a viable
balance of payments position.
583. The case of an economy with no recent deficits
of payments and an increase in its gross private claims
on the rest of the world reflects an excess of aggregate
domestic saving over domestic investment. If the
government’s fiscal position is in deficit, private sector
saving will exceed domestic investment. The allocation
of part of domestic saving to foreign assets presumably
reflects the fact that investors find the rate of return on
these assets more attractive, at the margin, than
investment opportunities in the domestic economy.
The provision of resources to the rest of the world in
the form of a buildup of net claims on nonresidents
will, by and large, result in an efficient allocation of
the domestic economy’s saving as long as the buildup
of net claims reflects the operation of market forces
rather than government policies designed directly or
indirectly to increase such claims.
584. Thus, for analyzing the balance of payments of a
country in persistent surplus, one key consideration is
whether government policies distort saving/investment
decisions and thereby bias the payments position of an
economy toward a surplus. Such distortions can take
many forms. First, there are measures aimed directly at
influencing the current account. Examples are tariffs
and quotas that limit imports, restrictions on payments
abroad, and export subsidies and government
procurement policies that give preference to domestic
producers. Moreover, an exchange market intervention
policy may be directed at deliberately undervaluing the
country’s currency to achieve a current account
surplus. Finally, there may be measures that limit
foreign acquisition of domestic assets—a limitation that
would tend to bias the financial account toward a
net outflow and thereby shift the current account in
the direction of a surplus.
585. These measures may, in fact, not be successful in
achieving a larger current account surplus. Policy
APPENDIX V
165
21Of course, for the world as a whole, the balance of payments positions of all
countries are equal to zero. Nonetheless, the recorded balance of payments
position for the world, which is equal to the sum of the positions of all
countries, is not equal to zero because of measurement problems. For a
discussion of this issue, see the International Monetary Fund’s Report on the
World Current Account Discrepancy, September 1987, and Report on the
Measurement of International Capital Flows, September 1992.
actions aimed at particular components of the balance
of payments will, over time, lead to offsetting
movements in other components in the absence of
changes in the underlying determinants of saving and
investment. In any event, if a large and persistent
current account surplus appears to arise from such
distortionary measures, the appropriate policy action is
the reduction and eventual removal of these distortions.
If a persistent surplus remains after such measures are
eliminated, then the accumulation of net claims on the
rest of the world would appear to manifest the saving
and investment propensities of the economy. If, in this
case, one were to identify the surplus as a problem, it
would generally be necessary to establish that private
saving or government saving was excessively high or
that domestic investment was too low. It is considerably
more difficult to arrive at such a conclusion than to
identify the previously enumerated distortions that
relate directly to international transactions.
586. A current account surplus, while reflecting entirely
a response to market forces, may cause economic
difficulties for a country. For example, a country with
“Dutch disease” experiences either a natural resource
discovery or a substantial improvement in the terms of
trade for the natural resources sector. The expanding
sector or terms of trade gains lead to an improvement
in the current account and an appreciation of the
exchange rate. This development tends to make other
sectors of the economy contract and be less
competitive internationally. If the newly discovered
resources are expected to be depleted fairly rapidly and
the gains in terms of trade to be transitory, it may be
appropriate to protect the sectors adversely affected.
One way to achieve this objective is through exchange
market intervention to prevent or moderate the
exchange rate appreciation. The accumulation of
reserve assets tends to insulate the real economy from
having to adjust to the short-run disturbance.
587. The general conclusion of such an analysis is that,
when no government policy actions are aimed at
achieving a surplus balance of payments position, it
may be difficult to establish that an economy is
investing too much of its saving abroad. However, it
may be somewhat easier to reach a conclusion with
respect to reserve assets. Rather than leading to a rise in
net foreign assets held by the private sector, a current
account surplus can be reflected in a buildup of foreign
reserve assets. A buildup represents specific government
policy action in the form of foreign exchange market
intervention. Intervention, which involves the sale of
domestic currency in exchange for foreign currency,
has the tendency to keep the foreign exchange value of
the domestic currency lower than it otherwise would
be. The accumulation of reserve assets may therefore
limit the extent to which the currency appreciates and
thereby prevent the operation of the self-correcting
mechanism that would tend to reduce the current
account surplus.
588. Thus, one aspect of balance of payments analysis
for a country with a persistent current account surplus
involves an appraisal of the level of external reserve
assets held by monetary authorities. The accumulation
of such assets is excessive if the assets exceed, by a
wide margin, the amount required to finance short-run
balance of payments deficits. In such a situation, the
country’s resources may well be better invested in
domestic capital formation. If the private and
government sectors are unlikely to increase domestic
capital formation, cessation of reserve asset
accumulation would lead to an increase in domestic
absorption and/or to a rise in net foreign investment by
domestic residents.22 In either case, allocation of the
economy’s resources would tend to be more efficient as
the allocation would be responding to market forces.
BALANCE OF PAYMENTS MANUAL
166
22Countries that are large exporters of nonrenewable resources, such as oil,
may have limited domestic investment opportunities. In such cases, the buildup
of foreign assets can be viewed not so much as an accumulation of reserve
assets for balance-of-payments financing purposes but rather as a diversification
of the country’s stock of wealth. Also, there may be a case for the accumulation
of reserve assets in the instance of a country subject to Dutch disease if
the effects are expected to be transitory.
B A L A N C E O F PAY M E N T S
INDEX
167
Numbers refer to paragraphs; ranges (e.g., 175–
185) are inclusive. References followed by n
indicate footnotes.
Above-the-line entries, 452, 526, 566n
Absorption or expenditure, domestic, 552, 553
Accounting
accrual, 121, 396, 458
for exceptional financing, 454–459, 526–549
Accounting services, 264
Accounts receivable and payable, 413, 422
Accrual accounting, 121, 396, 458
Accumulation accounts, 45, 47
Acquisition or disposal of nonproduced, nonfinancial
assets, 175, 312, 358
valuation and timing, 341, 342
Adjustment(s), 383, 573–588. See also Time of recording
monetary policy in, 579, 580
in reserve assets, 436
seasonal, 433
ADRs. See American Depositary Receipts
Advance repayment, 454, 544
Advertising services, 264
Affiliated enterprise(s), 93, 97–103, 119, 205, 316
Agents, 83
commissions, 255
fees, 228, 240
Agricultural services, 264
Aid, development, 432
Aid agencies, 59
Aircraft, 208, 217, 263
Airfield facilities, repairs of, 230
Airport fees, 300
Airport services, 240
Alimony, 303
Allocation. See Regional allocation
American Depositary Receipts (ADRs), 388
Amortization, 458, 528, 575
cash settlements of, 530
Analysis, 550–588
general framework, 551–559
Animals for breeding, show, or racing, 209
Annual or regular contributions to international
organizations, 298
Arbitrage, 323
Architectural services, 264
Arrears. See also Exceptional financing
accumulation of, 453, 528–529
of interest and amortization, 458, 528
repayment of, 453, 530–531
Art exhibits, 209
Asset-backed securities, 390
Assets, 331, 413, 422. See also
Acquisition or disposal of nonproduced,
nonfinancial assets; Financial assets;
International investment position; Reserve assets
classification of, 464
committed, 433
external, 505
immovable, 316
intangible, 358
net recording of, 324
nonfinancial, 214
not considered reserves, 432
169
Index
other than reserves, 32
stocks of, 35
regional allocation principles, 484
valuation of, 107–108
subsoil, 312, 358
transactions in, 317–320
borderline cases, 322–323
valuation changes in, 310
Associates, 362, 384
Auction sales, 262
Audiovisual services, 265
Auxiliary services, 240
Bad debts, 285. See also Write-offs
Baggage fees, 232
Balance of payments, 139–181, 292. See also specific
accounts
conceptual framework, 12–33
definition of, 13
SNA rest of the world account and, 499–511
standard components, 143–145
structure, 139–142
uses of, 7–10
Balance of Payments Compilation Guide, 2, 481n
Balance of payments identity, 557, 566
Balance of payments need, 451–453
borrowing for, 544
Balance sheets, 45, 54, 55, 377, 467, 561
Balancing item (label), 147
Bank deposits, 442
Bankers acceptances, 258, 391
Banking sector, 516
Banknotes, uncirculated, 420
Banks, 333, 372, 516
central, 442, 514
regional, 90
commercial, 516
savings, 516
Barter, 93
Below-the-line entries, 452, 454, 526, 566n
Bilateral statements, 479
Black market rates, 137–138
BMD. See OECD Detailed Benchmark Definition of
Foreign Direct Investment
Bonds, 387, 389, 390, 442, 544. See also Debt securities
convertible, 390, 390n
deep discounted, 283, 390, 396
dual currency, 390
floating rate, 390
indexed, 390
with optional maturity dates, 390
zero coupon, 390, 396
Bond swaps. See Debt/bond swaps
Bonus shares, 290
Book values, 99, 377, 467
Border workers, 67
Borrowing, 453
for balance of payments support, 544
Branches (direct investment), 362, 384
Brokerage fees, 258
Buffer stock, 441
Buildings. See Structures
Building societies, 516
Bunker fuel. See Fuels
Business services, 264
other, 166, 212, 230, 254, 261, 267
Business travel, 246–248
Business travelers, 246
CAB. See Current account balance
Cable services. See Communications services
Call option, 401
Cancellation of debt. See Debt forgiveness
BALANCE OF PAYMENTS MANUAL
170
Capital
direct investment, 368–374
equity, 369
Capital account, 4, 50, 172, 311–312, 507
components, 175
coverage, 309, 343
SNA, 47, 50, 510
Capital and financial account, 4, 50, 149, 150, 172–181,
343
coverage, 308–310
and financing, 560–572
structure and characteristics, 308–342
valuation and timing, 341–342
Capital gains and losses. See Holdings
Capital subscriptions to international organizations, 422
Capital transfers, 28, 175, 294, 311, 344–345
characteristics, 295
classification, 311, 345, 346–357
distinction between current transfers and, 295–297,
344
general government, 347–350
net, 50
other sectors, 351–357
taxes on, 350, 357
valuation, 341
Cargo handling, 240
Carriers. See also Mobile equipment; Transportation
equipment
crews, 246
goods procured in ports by, 156, 195, 230
registration fees, 300
rentals (charters) of carriers without crew, 230
Cash items, 106
Cash settlements of interest and amortization, 530
Cash transfers, 297, 298
Catastrophes, 285
Center(s) of economic interest, 21–22, 39, 58, 62–64
guidelines, 63
international, 71
Central bank currency swaps, 405, 434
Central banks, 442, 514
regional, 90
Central Product Classification (CPC), 518
differences between balance of payments
classification and, 508, 524
objectives, 521
scope, 522
structure and coding system, 523
Certificates of deposit, 390
negotiable, 391
short-term, 516
Change(s) of ownership, 112, 113, 114–118, 126,
203–210, 216, 316, 317. See also Time of recording
convention for recording, 204
exceptions, 119–120, 205–207
temporary, 207, 208
Charters. See also Leases; Rentals
time, 239
of transportation equipment without crew, 230, 263
c.i.f. valuation. See Valuation
Circus equipment, 209
Civil servants, 70
Claims, 372, 424, 442. See also Financial account
availability for use, 431
direct investment, 371
intercompany, 270
for non-life insurance, 304
reclassification of, 32
tradable, 483
Classification, 43–44, 506–511. See also Reclassification;
specific items
detailed, 151
differences between CPC and, 524–525
of income, 269–281
of international investment position, 464–466
of international transactions in services, 518–520
major, 149–150
CMOs. See Collateralized mortgage obligations
Coin(s), 214, 215, 420
commemorative, 420
Collateralized mortgage obligations (CMOs), 390
Commemorative coins, 420
Commercial banks, 516
Commercial paper, 391
INDEX
171
Commissions, 240, 255, 258, 262
Commitment charges, 258, 281
Commodities, 262, 392
Commodity gold, 157, 184, 195, 208, 215
classification, 438
definition, 202
Common stocks, 388. See also Securities; Shares
Communications services, 160, 253
Compensation of employees, 5, 169, 190, 191, 270
classification, 272
coverage, 509
definition, 269
Compensation payments, 350, 357
Compensatory financing, 441. See also Exceptional
financing
Compilation guide, balance of payments, 2
Computer and information services, 164, 200, 212, 259
Confidentiality, 442
Consignment. See Goods
Construction enterprises, 380
Construction services, 161, 200, 230, 254
Consular fees, 229
Consulates, 59
Contingency financing, 441
Contracts. See also Futures contracts; Transaction(s)
transferable, 358. See also Leases
Contributions. See also Transfers
to international organizations, 298, 303
to social security, 304
Conversion, 128. See also Exchange rate(s)
multiple official exchange rates and, 134–136
principles and practices, 132–133
procedures, 42, 503–505
Conversion rate, 503
Copyrights, 312, 358
Corporate bonds. See Bonds
Corporate equity. See Equity
Corporation(s)
definition of, 74
nonfinancial, 517
public, 77
incorporated, 76
Correspondence courses, 244
Counterparts, 3, 304, 436
Courier services, 253
Coverage, 195
CPC. See Central Product Classification
Credit(s), 16, 19. See also Accounting; Loans
from IMF, 413, 415, 419
letters, 258
lines, 258
trade, 413, 414, 416
Credit tranches, 441
Credit unions or cooperatives, 516
Crews
of carriers, 246
rentals of transportation equipment with, 239
of transportation equipment, 67
Cross-border investment in equity and debt securities,
330
Cross-currency warrant, 404
CTB. See Current transfer balance
Cultural services. See Personal, cultural, and
recreational services
Currency, 413, 420, 442. See also Conversion
domestic
exchange rate depreciation, 576
sale of, for foreign currency, 587
reserve assets, 442
Currency swaps, 392, 405, 434, 470
Currency warrant, 404
Current account, 50, 149, 150, 152–171, 182–194
classification, 174, 183–191
BALANCE OF PAYMENTS MANUAL
172
connections between financial account and,
562–563
gross recording, 192–193
SNA, 45, 46
structure, 183
time of recording, 121, 194
valuation, 106, 194
Current account balance (CAB), 53, 182, 551, 552–555,
557, 558, 559, 574
Current account deficit, 553, 558, 563, 569
adjustment for, 573–588
financing, 566–568, 570–572, 588
Current account surplus, 558, 581, 582–585, 586, 587,
588
policy aimed to achieve, 584–585
reduction of, 587
Current transfer balance (CTB), 574
Current transfers, 28, 152, 171, 191
classification, 298–305, 345
definition and coverage, 291–294
distinction between capital transfers and, 295–297,
344
external account, 507, 509
valuation and timing, 306–307
Customs frontiers, 203, 219, 222, 224
Customs returns, 203, 215
Damages, 350
Data, uses of, 7–10
Death duties, 350, 357
Debentures, 389, 390. See also Debt securities
Debit(s), 16, 19. See also Accounting
Debt. See also Loans
external, 474
forgiven, 534
gross external, 474n
income on, 279, 280
negotiable, 389
Debt/bond swaps, 536–538
Debt cancellation. See Debt forgiveness
Debt/equity swaps, 453, 456, 472, 539–543
valuation of, 543
Debt forgiveness, 348, 356, 453, 455, 532–534
Debtor/creditor principle, 482, 486n
analytical implications, 493–494
Debtor/transactor principle, 485, 485n
Debt refinancing, 457, 547
Debt reorganization, 453, 454, 456
Debt repayment, 316
Debt rescheduling, 453, 457, 545, 547
Debt restructuring, 546
Debt securities, 332, 387, 389, 394. See also Bonds
cross-border investment in, 330
Deep discounted bonds, 283, 390, 396
Deficit. See also Current account deficit
external, 581
Demonetization of gold, 3, 310, 436, 439
Depletion of natural resources, 285
Depository institutions, 372, 516
Deposits, 372, 413, 420, 421, 423, 516. See also
Certificates of deposit
bank, 442
reciprocal, 434
reserve assets, 442
savings, 421
temporary exchange of, 434
time, 421
transferable, 421
Depreciation, 576
calculation of, 286
Destroyed goods, 208, 209
Development aid, 432
Diamonds, 215
Diplomatic shipments, 209
Diplomats, 70
Direct insurance, 255. See also Insurance services
INDEX
173
Direct investment, 32, 176, 177, 330, 339, 359–384
capital, 368–374
classification, 329, 330, 465
concept and characteristics, 359–361
enterprises, 362–366, 378–383
income, 170, 276–279
measurement and recording of earnings, 285–289
net recording, 375
profitability of, 564
recording, 326
reinvested earnings, 31, 277, 278, 284, 288, 321,
369
supplementary information, 384
transactions involving third parties, 490
valuation of, 376–377, 467
Direct investors, 367, 384
Direct transit trade, 209
Discounts, 274, 283, 391, 396, 400
Display equipment, 209
Distributive services, 221, 222, 227. See also Shipping
services
Diversification, 588n
Dividends, 274, 277. See also Bonus shares; Investment
income
liquidating, 290
stock, 290
time of recording of, 282, 284
Doctors’ fees, 244
Domestic absorption or expenditure, 552, 553
Domestic currency
exchange rate depreciation, 576
sale of, 587
Domestic saving. See Gross saving
Domestic sector, 333–335
Domestic securities, 485, 487
Double entry system, 16–20, 109, 113, 557
Dowries, 303
Dual currency bonds, 390
“Dutch disease,” 586, 588n
Duties. See Customs returns; Death duties
Earnings. See also Income; Investment income
measurement and recording of direct investment,
285–289
operational, 285
reinvested, 31, 277, 278, 321, 369
recording of, 288
time of recording of, 284
Economic interest, center(s) of. See Center(s) of
economic interest
Economic territory, 21–22, 39, 58, 59–61
Economic transactions. See Transactions
ECUs, 442, 442n
Education services. See Personal, cultural, and
recreational services
Electricity, 215
Embassies, 59
Employees, 67, 269. See also Compensation of
employees; Personnel
government, 70, 215, 243, 246, 248
of international organizations, 67, 88, 246, 248
Engineering services, 264
Enterprise(s)
affiliated, 93, 97–103, 119, 205, 316
attribution of production, 78–79
definition of, 74
direct investment, 362–366
government, 77
incorporated, 76
offshore, 79
operating mobile equipment, 80–82
owned by two or more governments, 89
private, 76
public, 76, 362
residence of, 73–83, 231
guideline for, 73
types of, 75–77
unincorporated, 76, 316
Enterprise surveys, 384
Equipment, 214, 349
display, 209
BALANCE OF PAYMENTS MANUAL
174
military, 349
gifts of, 298
mobile, 208, 209. See also Transportation
equipment
units operating, 80–82
stage and circus, 209
Equity
cross-border investment in, 330
income on, 274, 277, 280
reverse investment in, 371
Equity capital, 369
Equity securities, 387, 388, 394, 442
Errors. See Net errors and omissions
Eurocommercial paper, 399
Exceptional financing, 446, 451–453
accounting for, 454–459, 526–549
identification of, 453
Exchange rate(s), 132, 133, 559. See also Conversion
appreciation, 586
black or parallel market, 137–138
changes, 466
depreciation, 576, 577, 578
expected changes in, 564
favorable, 543n
floating, 559
market, 132, 133
multiple, 131
multiple official, 134–136, 138, 504
official, 137, 138
principal, 135
unitary, 135
Exchanges, 27
Excursionists, 243
Exhibits, 209
Expenditure(s)
domestic, 552, 553
shipboard, 232
Exports
of general merchandise, 199
of goods, 114, 508
exclusions, 209–210
inclusions, 208
government, 215
returned, 209
of services, 508
temporary, 209
Expropriation, 285, 310
Extended Fund facility, 441
External assets, stocks of, 505
conversion of, 133, 136
External debt
gross, 474n
relation of international investment position to, 474
External deficits, 581
External financing for current account deficit, 568
External liabilities, stocks of, 505
conversion of, 133, 136
External transactions account, 507, 509
Extraordinary income, 285
Fares, passenger, 232
f.a.s. valuation, 225
Fees, 300. See also specific types
Financial account, 268, 313–339, 507. See also Capital
and financial account
borderline cases, 322–323
classification of components, 6, 174, 176–181, 308,
328–329
connections between current account and, 562–563
coverage, 309, 313–316, 446
net recording, 527
SNA, 47, 50, 52, 511
supplementary information, 446–460
time of recording, 121
Financial assets, 149
classification of, 316, 511
external, 133, 136
foreign, 313
Financial derivatives, 315, 387, 389, 392, 393, 442
valuation of, 469
Financial external assets, conversion of stocks of, 133,
136
INDEX
175
Financial instruments. See specific instruments
Financial intermediaries, non-depository, 517
Financial intermediation charge indirectly measured,
258n, 508, 509
Financial items. See also specific items
valuation of, 106
Financial leases, 206, 239, 258, 267, 417
goods transferred under, 93, 119, 316
Financial liabilities, 149
conversion of stocks of external, 133, 136
Financial paper, 391
Financial services, 163, 258
Financial transactions, 52, 106, 123
analysis of, 556
regional allocation principles, 482–483
type of instrument, 332
Financing. See also Refinancing
capital and financial account and, 560–572
compensatory, 441. See also Financing, exceptional
contingency, 441
current account deficit, 566–568, 570–572, 588
exceptional, 446, 451–453
accounting for, 454–459, 526–549
identification of, 453
external, 568
foreign sources of, 460
official resources for, 572
private funds for, 572
reserve assets for, 571, 572
Fines, 300
Fiscal policy. See also Monetary policy
objective of, 579
Fish, 208
Fishing licenses, 300
Fishing vessels, 209
Flags of convenience, ships flying, 81
Floating exchange rates, 559
Floating rate bonds, 390
f.o.b. valuation, 219, 222, 225, 228
Foreign currency, sale of domestic currency for, 587
Foreign exchange, 258, 330, 442. See also Exchange
rate(s)
Foreign exchange assets, 180, 424, 442. See also
Reserve assets
held by monetary authorities, 432, 433
liabilities, 313, 340
valuation of, 473
Foreign exchange holdings, availability for use, 431
Foreign exchange market intervention, 587
for exchange rate appreciation, 586
Foreign general government, 87
Foreign sector, 334
Foreign securities, 486, 487
Foreign sources of financing, 460
Forwarding. See Distributive services
Forward rate agreements (FRAs), 408
Franchises, 312, 358
FRAs. See Forward rate agreements
Freight insurance, 158, 162, 187, 230, 255, 256
Freight services, 187, 233–238. See also Transportation
fuels, 201
Fuels, 156, 201
Fund (IMF). See International Monetary Fund
Futures contracts, 392, 407
valuation of, 470
Gains and losses, holding, 285
Gas, 215
Gas drilling rigs, 208, 209
GDP. See Gross domestic product
General government, 85–89, 333, 515
foreign, 87
BALANCE OF PAYMENTS MANUAL
176
General government transfers, 298, 299, 347–350
General merchandise, 153, 195, 199, 353. See also
Goods
definition of, 196
exports of, 199
General Resources Account (GRA), 441
Geographic territory, 21, 59
Gifts, 13, 215, 303
large, 357
of military equipment, 298
for relief efforts, 298, 303
Gift taxes, 350, 357
Global statement, 479, 492
GNDY. See Gross national disposable income
Gold
held as store of value, 184, 202, 438
industrial (other), 184, 202
monetary, 180, 214, 330, 424, 431
classification, 438
definition, 438, 438n
regional allocation, 489
valuation, 444, 473
monetization/demonetization of, 3, 310, 436, 439
nonmonetary (commodity), 157, 184, 195, 208, 215
classification, 438
definition, 202
reclassification, 439
Gold swaps, 434
Goods, 127, 152, 153–157, 184, 185, 195–229. See also
Change of ownership; specific types
classified under other items, 211–214
on consignment, 127, 218
coverage and principles, 195
definitions, 196–202
exports, 114, 508
exclusions, 209–210
inclusions, 208
external account of, 507
general merchandise, 153, 195, 196, 199, 353
imports, 114, 508
exclusions, 209–210
inclusions, 208
lost or destroyed, 208, 209
for processing, 120, 154, 195, 196
exceptions, 199
procured in ports, 156, 195, 201, 230
regional allocation principles, 481
repairs on, 155, 195, 200
salvaged, 208
services items, 212–213
smuggled, 215
special types, 215
time of recording adjustments for, 114–118, 204
transferred under financial leases, 93, 119, 316
travel, 250–251
treated as financial items, 214
Government(s)
employees, 70, 243, 246, 248
exports and imports, 215
general, 85–89, 298, 299, 333, 347–350, 515
payments for salaries, 298
personnel, 159, 215, 243
policy actions aimed at achieving surplus, 584–585
purchases abroad, 208
regular transfers by international organizations to,
298
Government agencies
general, 85
unclassified, 86
Government-controlled savings banks, 516
Government enclaves, 70
Government enterprises, 77
unincorporated, 77
Government securities, 442
Government services, 159, 168, 212, 243, 266, 524
GRA. See General Resources Account
Grants
from Fund subsidy accounts, 453, 535
intergovernmental, 453, 535
investment, 349, 357
Gross domestic product (GDP), 48, 53
Gross external debt, definition of, 474n
Gross national disposable income, 53, 552, 553
Gross recording, 271, 325, 511
current account, 192–193
Gross saving, 53, 566
Guide. See Balance of Payments Compilation Guide
INDEX
177
Harbor fees, 240
Harbors, repairs of, 230
Haulage, 240. See also Distributive services
Health-related transactions. See Personal, cultural, and
recreational services; Travel
Hedging, 258, 393
Highway vehicles. See Mobile equipment
Holdings
foreign exchange, 431
gains and losses, 285
Households, 517
residence of, 66
IBRD obligations. See World Bank obligations
Immigration offices, 59
Immovable assets, 316
Implicit taxes and subsidies. See Multiple official
exchange rates
Imports
of goods, 114, 508
exclusions, 209–210
inclusions, 208
government, 215
returned, 209
of services, 508
temporary, 209
Imputed income, 274, 281
Imputed transactions, 31
Income, 152, 169–170, 190, 267–290. See also
Compensation of employees; Earnings
coverage, 267–268
on debt, 279, 280
definition and classification, 269–281
direct investment, 170, 276–279
distributed, 277
dividends, 274, 282, 284, 290
on equity, 274, 277, 280
external account for, 507, 509
extraordinary, 285
imputed, 274, 281
interest, 282
investment, 5, 170, 190, 267, 268, 316
classification, 275, 281
definition, 274
and international investment position, 475–476
time of recording, 282–284
types of, 274
primary, 507, 509
property, 274, 509
regional allocation principles, 481
taxes on, 122
workers’, 267
Income account, time of recording, 121
Indemnity payments, 299
Indexed bonds, 390
Index-linked securities, 397
Individuals
residence of, 66–72
resident, 67, 69
with several international residences, 72
Industrial gold, 202
Information or immigration offices, 59
Information services, 164
Infrastructure investment, 578
Inheritances, 303
Inheritance taxes, 350, 357
Institutional units, resident, 58, 65
Instruction services. See Personal, cultural, and
recreational services
Insurance
direct, 255
freight, 158, 162, 187, 230, 255, 256
life, 257
non-life, 257
premiums and claims for, 304
technical reserves, 257, 257n
Insurance companies, 517
Insurance enterprises, 379
Insurance services, 158, 162, 187, 255, 256
international, 257
memorandum items, 257
BALANCE OF PAYMENTS MANUAL
178
Intangible assets, 358. See also Acquisition/disposal of
non-produced, nonfinancial assets; Royalties
Integrated economic accounts, 45–56
algebraic summary, 53
Intercompany claims and liabilities, 270
Intercompany transactions, 372
Interest, 316
arrears of, 458, 528
cash settlements of, 530
Interest charges, on late tax payments, 300
Interest income, time of recording, 282
Interest rates, 564
Interest rate swaps, 392, 405
Intergovernmental grants, 453, 535
Intermediary service fees, 258
International Financial Statistics, 442
International investment position, 55, 181, 461–477
adjustments, 383
classification, 464–466
concept and coverage, 461–463
conceptual framework, 12–33
investment income and, 475–477
net, 55, 462, 474, 562
rates of return and, 476–477
relation to external debt, 474
uses of data, 7–10
valuation of components, 467–473
International Monetary Fund (IMF)
credit and loans from, 413, 415, 419
grants from subsidy accounts, 453, 535
International organization(s), 88
contributions to, 298, 303
employees or staff, 67, 246
nonmonetary, subscriptions to, 422, 432
payments for salaries, 298
residence, 497
International transactions in services classification
scope, 518
structure and coding system, 519–520
Inventories, 214
Investment. See also Direct investment; Portfolio
investment
classification, 332, 412–413, 465
coverage, 411
cross-border, 330
definitions and recording, 414–423
domestic sectors, 333
in equity and debt securities, 330
functional types, 330
infrastructure, 578
long-term, 336–339
other, 176, 179, 274, 330, 411–423
profitability of, 564
reverse, 371
short-term, 336–339
types of, 332
Investment grants, 349, 357
Investment income, 5, 170, 190, 267, 268, 316
classification, 275, 281
definition, 274
and international investment position, 475–476
time of recording, 282–284
types of, 274
Investment trusts, 388
Issue price, 283
Issues, placements of, 258
Joint enterprises, 82
Joint military arrangements, 266
Labeling. See Processing
Labor income. See Compensation of employees
Land, 214, 358
ownership of, 316
Land transactions, 51, 312
for noncommercial purposes, 273
LCFARs. See Liabilities constituting foreign authorities’
reserves
Leases, 312, 358
financial, 206, 239, 258, 267, 417
goods transferred under, 93, 119, 316
INDEX
179
nonfinancial, 209
operational, 80, 209, 239, 263
resident/nonresident, 263
Legacies, 357
Legal services, 264
Letters of credit, 258
Liabilities, 372, 413, 423
assets and, 331
direct investment, 371
external, 505
financial, 149
financial external, 133, 136
foreign, 313
intercompany, 270
other, 413
reclassification of, 32
stocks of
regional allocation principles, 484
valuation of, 107–108
Liabilities constituting foreign authorities’ reserves
(LCFARs), 340, 446, 447n, 447–450
classification of, 448
identification of, 445, 450
License fees, 165, 260, 300
Licensing agreements. See Intangible assets; Royalties
Life insurance, 257. See also Insurance services
reserves, 388
Lighterage, 240. See also Distributive services
Lines of credit, 258
Liquidating dividends, 290
Livestock, 215
Loading charges, 233
Loading services, 225
Loan drawings, 123
Loan repayments, 123
Loans, 413, 415, 423. See also Debt
cancellation of, 472
classification of, 316
direct, long-term, 432
forgiveness of, 472
from IMF, 413, 415, 419
recording, 416
rescheduling, 472
valuation of, 471
Local governments. See General government
Locally recruited staff, 67
Long-term investment, 336–339
Losses, 285
Lost or destroyed goods, 208, 209
Lotteries, 303
Machinery, 349
Mail, 160, 253
Maintenance, 201, 240
Managed floats, 559
Management consulting services, 264. See also Business
services
Marine insurance. See Insurance services
Marine products, 208
Market exchange rate(s), 132, 133, 137–138, 503
Market price, 98, 99, 376, 377, 444, 467n, 501
concept, 91
definition, 92
equivalents, 95–96, 98, 102, 103
transactions and, 92
Market research services, 264
Market transaction, 92
Market valuation, 97, 220
Maturities, 337, 390, 391, 396
Medical patients, 71, 159, 243, 244
Membership dues, 298, 303
Merchandise. See General merchandise; Goods
BALANCE OF PAYMENTS MANUAL
180
Merchanting, 213, 262
Midpoint spot rate, 503
Migrants, 272, 302
effects, 215
transfers, 352–355
Migration, 29–30
Military agencies and establishments, 85, 86, 87
bases, 59
personnel, 70, 159, 243
Military equipment, 349
gifts of, 298
Military shipments, 209
Mining, 264, 383
Mobile equipment, 80–82, 208, 209. See also
Transportation equipment
Monetary authorities, 333, 514
foreign assets held by, 432, 433
Monetary gold, 180, 214, 330, 424, 431
classification, 438
definition, 438, 438n
regional allocation, 489
valuation, 444, 473
Monetary policy, 579, 580, 584–585
objective of, 579
Monetization/demonetization of gold, 3, 310, 436, 439
Money. See also Currency; Deposits
paper and coin, 214, 215, 420
Money market funds, 389
Money market instruments, 387, 442
Money market securities, 391
Mortgages, 390, 415
Motor vehicles. See Mobile equipment
Multilateral settlements, regional allocation, 491–492
Multiple exchange rate system, 131
Multiple official exchange rates, 134–136, 138, 504
Multi-year arrangements, 454
Mutual funds, 388
National accounts. See System of National Accounts
National frontiers, 203
National wealth, 55
Natural resources
depletion of, 285
exploration of, 264, 383
Navigational aid services, 240
Need, balance of payments. See Balance of payments
need
Net capital transfers, 50
Net creditor (label), 474
Net debtor (label), 474
Net equity in life insurance reserves, 388
Net errors and omissions, 146–148
Net foreign investment, 53
Net international investment position, 55, 462, 474, 562
Net lending/net borrowing, 510
Net recording, 319–320, 324–327, 375, 511, 527
Net worth, 55, 462
New financial instruments, 177
New money facilities, 548–549
Newspapers, 212
NIFs. See Note issuance facilities
Noncommercial transactions, 104–105
Nonfinancial assets, 214
Nonfinancial corporations, 517
Nonfinancial leases, 209
Nonmonetary gold. See Commodity gold
Nonmonetary international organization(s),
subscriptions to, 422, 432
INDEX
181
Nonproduced, nonfinancial assets. See Acquisition or
disposal of nonproduced, nonfinancial assets
Nonprofit institutions (NPIs), 76
nonresident, 357
private, 517
residence of, 84
Nonprofit organizations, 86
Note issuance facilities (NIFs), notes issued under, 391,
399, 400
Notes, 387, 389, 390, 420, 442
issued under NIFs, 391, 399, 400
recording, 400
short-term, 391, 398, 399
NPIs. See Nonprofit institutions
Obsolescence, 285
OECD Detailed Benchmark Definition of Foreign Direct
Investment (BMD), 360, 363
Official exchange rates, 137, 138
multiple, 134–136, 138, 504
Official resources, for financing, 572
Official transactions, 266
Official travel, 246, 248
Offshore enterprise(s), 79, 381
Offshore installations, goods consumed in residentowned,
208
Oil, 588n
Oil drilling rigs, 208, 209. See also Mobile equipment
Omissions. See Net errors and omissions
On-site processing, 199, 264, 524
Operational earnings, 285
Operational leases, 80, 209, 239, 263
Option price, 401
Options, 258, 315, 389, 392, 401, 402 valuation, 470
Other business services, 166, 212, 230, 254, 261, 267
Other investments, 176, 179, 274, 330, 411–423. See
also specific types of instruments
recording, 414–423
Other services, 189, 252–266
Overall balance, 566n
Ownership. See Change of ownership
Packaging. See Processing
Packing, 240
Paper, financial, 391
Paper money, 214, 215
Parallel market rates, 137–138
Parcel post, 215
Passenger fares, 232
Passenger services, 232
Passport fees, 300
Patents, 312, 358
Payments agreements balances, 432
Peacekeeping forces, transactions associated with, 266
Penalties on late tax payments, 300
Pension funds, 86, 388, 517
Pension payments, 299
Pension plans, 303
Periodicals, 212
Personal, cultural, and recreational services, 167, 244,
265
Personal effects, 232
Personal travel, 249
Personnel. See also Employees
government, 159, 215, 243
military, 70, 159, 243
Pilotage, 240
BALANCE OF PAYMENTS MANUAL
182
Placements of issues, 258
Policy. See Monetary policy
Portfolio investment, 6, 178, 330, 339, 385–410
benefits, 361
classification, 176, 332, 387–394, 465
coverage, 385–386
definitions, 387–394
domestic sectors, 333
income, 170, 280
recording, 395–408
valuation, 409–410, 468
Ports, goods procured in, 156, 195, 201, 230
Port services, 240
Position. See International investment position
Postal and courier services, 160, 253
Post office savings banks, 516
Postpayments, 118
Precious metals and stones, 215
Preferred stock(s) or share(s), 388, 390
Premium price, 400
Premiums, for non-life insurance, 304
Prepayments, 118
Prices. See Market price; Transfer prices; Valuation
Primary incomes, external account for, 507, 509
Principal rate, 135
Private corporations, 517
Private enterprise(s), 76
Private funds for financing, 572
Private nonprofit institutions, 517
Processing, 198, 199. See also Goods
on-site, 199, 264, 524
Production, attribution of, 78–79
Professional services, 166, 264
Profitability, 564
Profits. See also Earnings; Reinvested earnings
distributed, 277
Promissory notes. See Securities
Property income, 274, 509
Public corporations, 77, 517
incorporated, 76
Public enterprise(s), 76, 362
Public relations services, 264
Purchase price, 402
Purchases abroad, 208
Put option, 401
Quasi-corporation(s), 74, 517
Railway facilities repairs, 230
Railway rolling stock, 208. See also Mobile equipment
Rates of return
factors affecting, 564
and international investment position, 476–477
Real estate investment. See also Direct investment
private, non-business, 382
Real resources, 18
Reclassification, 32, 374
of gold, 439
Recording. See also Time of recording
gross, 192–193, 271, 325, 511
net, 319–320, 324–327, 375
Recreational services. See Personal, cultural, and
recreational services
Redemptions, 258
Refinancing, 457, 545–547. See also Exceptional
financing
Refunds, tax, 299
Regional allocation, 485–492, 496–498
analytical implications, 493–495
multilateral settlements, 491–492
INDEX
183
principles, 481n, 481–484
problems and limitations, 485–492
Regional central banks, 90
Regional statements, 478–498
Reinsurance, 255, 257
Reinsurance services, 162. See also Insurance services
Reinvested earnings, 31, 277, 278, 321, 369
recording, 284, 288
Rentals. See also Leases
of transportation equipment with crew, 239
of transportation equipment without crew, 230, 263
Repacking, 240
Repairs, 524
on goods, 155, 195, 200
of railway facilities, harbors, and airfield
facilities, 230
of transportation equipment, 230
Repayment(s), 454
advance, 454, 544
of arrears, 453
debt, 316
loan, 123
Repos. See Repurchase agreements
Repurchase agreements, 391, 415, 418
Rescheduling, 457, 545–547. See also Exceptional
financing
Research and development services, 264
Reserve assets, 32, 180, 181, 330, 339, 424–445
adjustments, 436
availability for use, 431
classification, 432–435, 437–443, 450, 465
concept and coverage, 424–425
effective control of, 428–430
for financing, 571, 572
identification, 426–435, 445, 450
interpretation of changes in, 445
liabilities. See Liabilities constituting foreign
authorities’ reserves
other claims, 442
reclassifications, 310
second-line, 425
special cases, 432–435
valuation, 310, 436, 444, 473
Reserve position, 180, 330, 424, 431, 441
valuation of, 473
Reserve tranche purchases, 441
Residence, 21–22, 496
concept of, 57–58
considerations for, 565, 565n
definition of, 58
of enterprises, 73–83, 231
of households and individuals, 66–72
of nonprofit institutions, 84
Resident individuals, 67, 69
Resident/nonresident leasing, 263
Resident/nonresident transactions, 312, 358
Resident units, 39, 57–90, 500
Residual items. See Net errors and omissions
Rest of the world account, 36
and balance of payments accounts, 499–511
linkages, 506–511
Returned exports and imports, 209
Returns, trade, 215
Revaluation. See Reclassification
Reverse investment, 371
Risk, factors affecting, 564
Royalties, 165, 260
Salaries, 298. See also Compensation of employees
Salvaged goods, 208
Salvage operations, 240
Samples, 209
Saving, domestic. See Gross saving
Savings and loan associations, 516
Savings banks, 516
BALANCE OF PAYMENTS MANUAL
184
Savings deposits, non-transferable, 421
Scholarships, 244
Scientific stations, 59
SDRs. See Special drawing rights
Seasonal adjustments, 433
Seasonal workers, 67
Secondary instruments, 389, 392
Sectors, 333, 512–517
banking, 516
domestic, 333–335
foreign, 334
other, 351–357, 517
Securities, 214, 215, 268, 387. See also Bonds; Debt
securities
domestic, 485, 487
foreign, 486, 487
index-linked, 397
net recording of, 324
regional allocation of transactions, 485–488
reserve assets, 442
Seizures. See Expropriation
Service charges, 258, 258n, 402, 410
indirectly measured financial intermediation, 508,
509
Services, 121, 152, 158–168, 185, 186, 252–266. See also
specific types
classification, 212–213, 252, 518–520
coverage, 252
definitions, 253–266
external account of, 507
international, 518–520
other, 189, 252–266
regional allocation principles, 481
time of recording, 502
Settlements, cash, 530
Shares, 388, 421. See also Equity securities
preferred, 388, 390
Shipboard expenditures, 232
Shipments, 158, 187, 224, 226
military and diplomatic, 209
unrecorded, 215
Shipping services, 224
Ships, 208, 217, 262
flying flags of convenience, 81
Short-term investment, 336–339
Silver bullion, 215
Sinking funds, 314
Smuggled goods, 215
SNA. See System of National Accounts
Social benefits, 299
Social security, 86, 304
Souvenirs, 251
Special drawing rights (SDRs), 180, 330, 424, 431, 440
allocation/cancellation of, 3, 310, 436
regional allocation of, 489
valuation of, 102, 473
Special purpose entities (SPEs), 79, 365, 372
transactions through, 373
SPEs. See Special purpose entities
Staff. See also Employees; Personnel
of international organizations, 67
locally recruited, 67
Stage and circus equipment, 209
Standard components, 143–145
State government. See General government
Statistical discrepancy (label), 147
Stock(s), 388. See also Equity securities
of assets and liabilities, 35, 505
regional allocation principles, 484
valuation of, 444
conversion of, 133, 136
of goods abroad, 207, 213
preferred, 388, 390
valuation of, 107–108, 376–377
Stock dividends, 274, 290
Stock warrants. See Warrants
Storage, 201, 240
INDEX
185
Strike price, 401
Structures, 214
ownership of, 316
Students, 71, 159, 244
Subscriptions to international organizations, 432
capital, 422
Subsidiaries, 362, 384
Subsidies, 134, 453
Subsidy accounts, grants from, 453, 535
Subsoil assets, 312, 358
Supplementary information, 384, 446–460
Supporting services, 240
Support remittances, 303
Surplus. See Current account surplus
Swaps, 258, 405, 434
currency, 392, 405, 434, 470
debt/bond, 536–538
debt/equity, 456, 539–543
gold, 434
interest rate, 392, 405
recording, 406
System of National Accounts (SNA), 4, 34–56
accumulation accounts, 45, 47
balance sheet accounts, 45, 54, 55
capital account, 47, 50, 510
comparison with balance of payments, 38–44
current (transactions) accounts, 45, 46
financial account, 47, 50, 52, 511
financial intermediation charge indirectly
measured, 258n, 508, 509
integrated economic accounts, 45–56
rest of the world account, 36
and balance of payments accounts, 499–511
System of National Accounts 1993 (SNA), 5, 23, 24, 360,
362
T-accounts, 45
Tax(es), 300, 304
analysis of higher taxes, 555
on capital transfers, 350, 357
considerations, 564
gift, 350, 357
on income, 122
inheritance, 350, 357
refunds, 299
side effects of, 578
Tax payments, 93
fines, penalties, or interest charges on late
payments, 300
Teachers’ fees, 244
Technical services, 166, 264
Telecommunications, 160, 253
Temporary exports and imports, 209
Territory
economic, 21–22, 39, 59–61
enclaves, 59, 60, 61
geographic, 21, 59
Theatrical equipment, 209
Time charters, 239
Time deposits, 421
Time of recording, 41, 109–127, 502. See also Change
of ownership adjustments
to goods, 114–118, 204, 216–218
other, 124–127
to other transactions, 121–123
to transportation services, 233–238
capital and financial account, 341–342
current account, 194
of current transfers, 307
of investment income, 282–284
principle of, 24, 109–113
Tourism, definition of, 241n
Tourists, 243
Towing, 201, 239, 240
Trade. See also Goods; Services
direct transit, 209
Trade credits, 413, 414, 416
Trademarks, 312, 358
Trade-related services, 262. See also Merchanting
Trade returns, 215
BALANCE OF PAYMENTS MANUAL
186
TRANB. See Current transfer balance
Transaction(s), 3, 13, 318. See also specific types
classification, 43
definition, 13
imputed, 31
and market price, 92
types, 25–31
valuation, 91–106
Transactor principle, 482
analytical implications, 493–494
Transferable contracts, 358. See also Leases
Transfer prices, 97–103, 99
Transfers, 13, 18, 28, 150, 171. See also Capital
transfers;
Current transfers
regional allocation principles, 481
unrequited. See Grants
Transit trade, direct, 209
Transportation, 156, 187, 227, 230–240
conventions for recording, 233–238
definition and coverage, 230–231
supporting and auxiliary services, 240
Transportation equipment, 209, 349. See also Mobile
equipment
maintenance and cleaning of, 240
rentals
with crew, 239
without crew, 230, 263
repairs of, 230
Transportation fuels, 156, 201
Transportation services, 158, 159, 200, 224
Travel, 159, 188, 192, 212, 241–251, 524
business, 246–248
definition of, 241n, 242–244
goods and services covered, 250–251
nature of, 241
official, 246, 248
personal, 249
types of, 245–249
Traveler(s), 67, 159, 241
business, 246
definition of, 241n, 243
same-day, 243
Treasury bills, 391
Trusts, investment, 388
Underwritings, 258
Undistributed profits. See Reinvested earnings
Unitary rate, 135
Unit of account, 128, 129–131
Valuation, 40, 501
in absence of market price, 93–94
capital and financial account, 341–342
current account, 194
of current transfers, 306
of debt/equity swaps, 543
of debt forgiven, 534
of direct investment, 376–377, 467
of financial derivatives, 469
of financial items, 106
of goods, 219–229
of international investment position components,
467–473
market, 97, 220
point of, 221–229
of portfolio investment, 409–410, 468
principles of, 23–24
of reserve assets, 444
of SDR, 102
of stocks, 107–108
of transactions, 91–106
Valuation changes, 33, 466
in assets, 310
of portfolio investment, 409
in reserves, 310
exclusion of, 436
Value date, 123, 342
Visitor(s), 67. See also Traveler(s)
definition of, 241n
Wages. See Compensation of employees; Salaries
Warehousing, 240
Warrants, 392, 403
valuation, 470
Water, 215
INDEX
187
Wealth, national, 55
Workers, 67. See also Employees; Migrants
border, 67
income of, 267, 269
remittances by, 302
seasonal, 67
Working balances, 433
World Bank obligations, 432
World current account discrepancy, 581n
Write-offs, 285, 310. See also Debt forgiveness
Zero coupon bonds, 283, 390, 396
BALANCE OF PAYMENTS MANUAL
188