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