Balance of Payments Manual, Sixth Edition

Back Matter

Back Matter

Author(s):
International Monetary Fund
Published Date:
January 2010
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    Appendix 1 Exceptional Financing Transactions

    A. Introduction

    Reference:

    IMF and others, External Debt Statistics: Guide for Compilers and Users, Chapter 8, Debt Reorganization.

    A1.1 The identification of exceptional financing transactions is linked to an analytic construct rather than based on precise criteria. Exceptional financing brings together financial arrangements made by the authorities (or by other sectors fostered by authorities) of an economy to meet balance of payments needs. These transactions can be viewed as an alternative to the use of reserve assets, IMF credit, and loans to deal with payments imbalances, or in conjunction with such use. Exceptional financing is important for IMF operations, statistics, and member countries, as the use of IMF resources is subject to an analytical 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. Exceptional financing is presented in the “analytic” presentation of the balance of payments, such as published in the IMF’s Balance of Payments Statistics Yearbook, with the relevant transactions reclassified from that shown in the standard components. The analytic presentation is discussed further in paragraphs 14.16–14.17.

    A1.2 Determining the need helps to distinguish:

    • (a) the above-the-line items (i.e., those that are deemed to be autonomous in the current, capital, and financial accounts and are undertaken for the sake of the transactions) and thus contribute to or result in an overall payments deficit or surplus, and

    • (b) the below-the-line items (i.e., those considered to be accommodating or financing the deficit or surplus).

    In essence, from the viewpoint of the authorities of the reporting economy, the below-the-line transactions reflect (a) the transactions undertaken for balance of payments needs that finance payments required to be made in the current recording period such as predetermined debt service payments by the authorities as well as (b) other financial transactions undertaken by the authorities that are related to balance of payments needs (beyond those required) and impact on reserve assets in the current recording period, such as prepayments of debt, drawings on new loans, and receipt of cash transfers. Given that transactions in reserve assets and in IMF credit and loans are always considered as being undertaken to meet a balance of payments need, it is the other below-the-line transactions that are recorded under exceptional financing. There are no below-the-line entries under exceptional financing arising from the provision of financing nor for transactions other than those undertaken to meet balance of payments needs.

    A1.3 This appendix provides guidance on distinguishing transactions in the standard presentation that are exceptional financing transactions. Such a distinction involves a degree of judgment. Examples include government-to-government grants provided for debt payment linked to balance of payments needs, and rescheduling or forgiveness of debt falling due in the current period. Also, in cases of arrears, “transactions” are recorded in exceptional financing but are not recorded in the standard presentation. Exceptional financing transactions are usually recorded in the appropriate accounts of the analytic presentation as credit entries below-the-line, with corresponding debit entries shown above-the-line. However, for transactions in arrears past due from previous periods, swaps of such debts (such as described in paragraph A1.9), or where debt is repaid or cancelled through transfers (such as described in paragraph A1.5), the two entries of these transactions are recorded below-the-line.

    A1.4 The transactions identified as exceptional financing are presented below under the following sections:

    • B. Transfers—such as debt forgiveness and other intergovernmental transfers, including transfers from international organizations;

    • C. Direct or other equity investment—such as debt or equity swaps involving debt reduction;

    • D. Borrowing (including bond issues) for balance of payments support by the government or central bank, or by other sectors of the economy and induced by the authorities, usually through some form of exchange rate or interest subsidy;

    • E. Debt rescheduling or refinancing;

    • F. Debt prepayment and buybacks; and

    • G. Accumulation and repayment of arrears.

    Some of these cases involve debt reorganization that is covered in detail in Appendix 2, Debt Reorganization and Related Transactions. Table A1.1 presents selected exceptional financing transactions in the analytic and standard presentation of the balance of payments.

    B. Transfers

    1. Debt forgiveness

    A1.5 Debt forgiveness is defined as the voluntary cancellation of all or part of a debt obligation within a contractual arrangement between a creditor and a debtor (External Debt Statistics: Guide for Compilers and Users). Debt forgiveness is recorded as a capital transfer (see paragraph 13.23) from the creditor economy to the debtor economy, offset by a reduction in the liability of the debtor (reduction in the asset of the creditor) under the appropriate debt instrument in the financial account, with any interest accruing in current period recorded in the income account.

    A1.6 In the analytic presentation, for the debtor economy, the recording of debt forgiveness depends on whether the debt being forgiven is due for payment in the current reporting period, in arrears, or not yet due (Table A1.1, rows 1–6). Forgiveness of obligations due in the current period is recorded as transfers, debt forgiveness (credit item) below-the-line, whereas the reduction of the obligations (debit item) is shown above-the-line. For forgiveness on obligations past due from previous periods, that is, on arrears, the two entries are recorded below-the-line in exceptional financing,1 that is, credit (under debt forgiveness) and debit items (under cancellation of arrears). If the obligations not yet due are forgiven, there is no entry under exceptional financing, because these payments were not required to be made in the current period, and the two entries are made above the line.

    2. Other intergovernmental transfers

    A1.7 Other transfers included within exceptional financing are grants in the form of cash from governments and international organizations (including the IMF and the World Bank) to the recipient economy. To the extent that the cash is provided for the purpose of financing a balance of payments need in the recipient country, the grant received (credit item) will be recorded in the analytic presentation as exceptional financing,2 with a corresponding debit entry under reserve assets (Table A1.1, row 7). An example of other intergovernmental transfers is cash grants from donor governments or multilateral financial institutions to the debtor economy to be used to repay debt and grants to finance a current account need.

    A1.8 Only the initial transaction associated with the grant is relevant for exceptional financing. If the proceeds of the grant are used for scheduled debt service payments, no exceptional financing transactions for the debt transactions are recorded. The same applies if the grant is directly used to make advance repayments of debt for balance of payments needs, such as a debt buyback. However, it should be noted that if an advance repayment is made out of reserve assets, an exceptional financing will be recorded for the debt transaction (see Section C).

    C. Debt-for-Equity Swap

    A1.9 Exceptional financing transactions related to equity investment involve the exchange, usually at a discount, of debt instruments of an economy for nonresident investors’ equity investments in the economy (see paragraphs A2.29–A2.37). Generally, such arrangements result in the extinction (debit item) of a fixed-payment liability, a debt security, or loan (usually denominated in foreign currency), to be recorded under the appropriate instrument, and the creation (credit item) of an equity liability (denominated in domestic currency) to a nonresident, to be recorded under direct or portfolio investment as relevant. These cases include exchanges of a bank loan, or a liability of an enterprise, for equity, or the resident central bank redeeming the outstanding debt owed to a nonresident, at a discount and in local currency (credit item), with the nonresident reinvesting the proceeds as equity in the enterprise.

    A1.10 For debt exchanged directly for equity investment in the debtor economy, credit entries should be made under direct investment–equity, if the investor (equity holder) directly holds equity that entitles it to 10 percent or more of the voting power in the direct investment enterprise; otherwise, the equity claim should be recorded under portfolio investment–equity. These transactions should be recorded at the value of the equity acquired, with offsetting debit entries made under the appropriate debt instrument for the reduction in liabilities.

    A1.11 For indirect debt-for-equity swaps whereby debt is exchanged, first for a local currency claim (deposit) that is in turn exchanged for equity liability of the debtor, transactions in the balance of payments are recorded for both the initial exchange—debt for deposit at the value of the deposit—and the exchange of deposits for equity. In the IIP, equity liabilities (either direct or portfolio) increase and debt liabilities decrease by the value of the instrument extinguished.

    A1.12 In the analytic presentation, only the initial transaction associated with the debt-for-equity swap is relevant. As with debt forgiveness, the recording of the exchange of claims (either debt for equity, or debt for a local currency claim) depends on whether the debt being exchanged is due for payment in the current reporting period, in arrears, or not yet due (Table A1.1, rows 8–16). Swaps of obligations that fall due in the current recording period are recorded under equity (credit item) below-the-line under exceptional financing, with debt repayment (debit item) recorded above-the-line. For arrears swapped, equity (credit item) and repayment of arrears (debit item) are both recorded below-the-line. For debt exchanged that is not yet due, there is no recording under exceptional financing, the two entries being made above-the-line.

    A1.13 All transactions should be valued at the market price of the new claim received. If there is a difference in the value between the old and new claims, this is recorded as a valuation adjustment in the revaluation account rather than as a transaction, except when non-marketable debt owed to official creditors is involved, in which instance any reduction in the value of the old debt is recorded as debt forgiveness (capital transfer).

    D. Borrowing for Balance of Payments Support

    A1.14 In the analytic presentation, borrowing (including bond issues) by or on behalf of the authorities to meet balance of payments needs is recorded (credit item) below-the-line under exceptional financing. Subsequent debt payments as scheduled are recorded above-the-line (Table A1.1, rows 17–18). However, advance repayments for balance of payments needs financed from reserve assets are recorded as exceptional financing (debit item), so both the reserve and debt transactions are recorded below-the-line (see also Section E).

    A1.15 Regarding short-term borrowing for balance of payments support, only the initial drawing of a loan and any subsequent increases in the amount borrowed need be recorded below-the-line. In other words, a new borrowing is not recorded each time the same amount borrowed under a short-term loan is “rolled-over” and not repaid at the maturity (the debit and credit entries for the loan in such circumstances will cancel each other; see paragraph 3.115). If there is repayment of the borrowing (even partial repayment) this amount is recorded above-the-line (unless it is an advance repayment under the conditions described above). If the loan is rolled over for a number of periods, a judgment should be made as to whether the continual renewal of the amount borrowed represents exceptional financing in that the balance of payments circumstances are such that the debtor is unable to repay the loan (see paragraph A1.2, point (a)).

    E. Debt Rescheduling or Refinancing

    A1.16 Debt rescheduling or refinancing involves a change in an existing debt contract and replacement by a new debt contract, generally with extended debt service payments. Thus, payments are recorded as paid on the old debt and a new debt is recorded. Debt rescheduling refers to the formal deferment of debt service payments and the application of new and generally extended maturities to the deferred amounts. Debt refinancing refers to the replacement of an existing debt instrument or instruments including any arrears, with a new debt instrument or instruments. If, under a rescheduling, the government assumes the debt of banks or other sectors of the economy, the sector classification of the debtor will change (as described in paragraph 8.45).

    A1.17 In the analytic presentation, the recording of debt rescheduling and refinancing, as with debt forgiveness, depends on whether the debt being rescheduled or refinanced is due for payment in the current reporting period, in arrears, or not yet due (Table A1.1, rows 19–30). Rescheduling or refinancing of debt falling due in the current recording period is recorded below-the-line as a debt transaction (credit item) under exceptional financing, and the offsetting debit entry is recorded above-the-line. For arrears rescheduled or refinanced, both the arrears on the old debt (debit item) and the rescheduling of arrears (credit item) are recorded below-the-line. For rescheduling or refinancing of obligations not yet due, there is no recording under exceptional financing, both entries being above-the-line under the relevant debt instruments.

    A1.18 All transactions should be valued at the market price of the new claim received.3 If there is a difference in the value between the old and new claim, this is recorded as a valuation adjustment in the revaluation account rather than as a transaction (e.g., a capital transfer), except when nonmarketable debt owed to official creditors is involved, in which instance any reduction in the nominal value of debt is recorded as debt forgiveness. Where there is no established market price for the new claim, an appropriate proxy is used (see Appendix 2, Debt Reorganization and Related Transactions).

    F. Debt Prepayment and Debt Buyback

    A1.19 Debt prepayments consist of a repurchase, or early payment, of debt at conditions that are agreed between the debtor and the creditor; that is, debt is extinguished in return for a cash payment agreed between the debtor and the creditor. When a discount is involved relative to the nominal value of the debt, prepayments are referred to as “buybacks.”

    A1.20 In the analytic presentation, debt prepayment transactions are recorded as exceptional financing only if they are financed from reserve assets to meet balance of payment needs of the debtor economy (Table A1.1, rows 31–33). In this case, debit entries4 are recorded below-the-line in the appropriate instrument in exceptional financing with offsetting credit entries in reserve assets also below-the-line. If the prepayment was financed from external donor funds that are placed in the debtor’s reserve assets, the debtor economy records all transactions below-the-line in the analytic presentation (Table A1.1, row 31). In the IIP of the debtor economy, reserve assets increase when donor funds are received and decline, along with debt liabilities, when the prepayment takes place. Prepayments of debt using the debtor’s own financial assets other than reserve assets are recorded above-the-line in the appropriate accounts (Table A1.1, row 33).

    G. Accumulation and Repayment of Debt Arrears

    1. Accumulation of arrears—current period

    A1.21 Debt arrears arise when amounts are past due for payment and are unpaid. If the contract remains unchanged, in the standard presentation, no transactions will be recorded. Debt arrears (both interest accrued and principal) remain in the outstanding amount of the debt instrument for which payments have been missed until the liability is extinguished (see paragraph 3.56).5 Nonetheless, debt arrears are an arrangement recorded in exceptional financing.

    A1.22 In the analytic presentation, arrears are included because this presentation is focused on the actions of the monetary authorities to meet balance of payments needs, and accumulating arrears is an action the monetary authorities can take for this purpose. Arrears in the current period 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 recorded below-the-line as accumulation of arrears (credit) within exceptional financing, as de facto the creditor is financing the payments the debtor was required to make. The contra debit entries to the arrears are recorded in the reporting period above-the-line under the appropriate accounts, that is, accrued interest under the appropriate debt instrument in income in the current account, and other arrears (principal arrears, and interest arrears arising in the current period that accrued in earlier periods) under the appropriate debt instrument in the financial account (Table A1.1, rows 34–36).

    Table A1.1.Balance of Payments Accounting for Selected Exceptional Financing Transactions1
    AnalyticStandard
    Type of Transaction2CreditDebitCreditDebit
    A.1. Transfers—debt forgiveness

    Payments falling due in the current

    recording period
    1 InterestExceptional financingInvestment income, other investmentCapital transfers, debt forgivenessInvestment income, other investment
    2 Interest accrued previous periodExceptional financingOther investment, liabilities, loansCapital transfers, debt forgivenessOther investment, liabilities, loans
    3 PrincipalExceptional financingOther investment, liabilities, loansCapital transfers, debt forgivenessOther investment, liabilities, loans
    Payments in arrears
    4 InterestExceptional financingExceptional financingCapital transfers, debt forgivenessOther investment, liabilities, loans
    5 PrincipalExceptional financingExceptional financingCapital transfers, debt forgivenessOther investment, liabilities, loans
    Payments not yet due in the current

    recording period
    6 PrincipalCapital transfers, debt forgivenessOther investment, liabilities, loansCapital transfers, debt forgivenessOther investment, liabilities, loans
    A.2. Transfers—other

    intergovernmental grants3
    7Exceptional financingReserve assetsCurrent/Capital transfersReserve assets
    B. Debt/equity swaps
    B.1. Direct swaps
    Payments falling due in the current

    recording period4
    8 PrincipalExceptional financingOther investment, liabilities, loansDirect investment-equityOther investment, liabilities, loans
    Payments in arrears4
    9 InterestExceptional financingExceptional financingDirect investment-equityOther investment, liabilities, loans
    10 PrincipalExceptional financingExceptional financingDirect investment-equityOther investment, liabilities, loans
    Payments not yet due4
    11 PrincipalDirect investment-equityOther investment, liabilities, loansDirect investment-equityOther investment, liabilities, loans
    B.2. Indirect swaps
    Exchange of a fixed-payment

    liability denominated in foreign

    currency for a deposit liability

    denominated in domestic

    currency5
    Payments falling due in the current

    recording period4
    12 PrincipalExceptional financingOther investment, liabilities, loansOther investment, liabilities, currency and depositsOther investment, liabilities, loans
    Payments in arrears4
    13 InterestExceptional financingExceptional financingOther investment, liabilities, currency and depositsOther investment, liabilities, loans
    14 PrincipalExceptional financingExceptional financingOther investment, liabilities, currency and depositsOther investment, liabilities, loans
    Payments not yet due4
    15 PrincipalOther investment liabilities, currency and depositsOther investment, liabilities, loansOther investment, liabilities, currency and depositsOther investment, liabilities, loans
    Subsequent exchange of a deposit

    liability denominated in domestic

    currency for equity investment
    16 PrincipalDirect investment-equityOther investment, liabilities, currency and depositsDirect investment-equityOther investment, liabilities, currency and deposits
    C. Borrowing for balance of payments

    support6
    17 Drawing on new loansExceptional financingReserve assetsOther investment, liabilities loansReserve assets
    18 Bond issuesExceptional financingReserve assetsPortfolio investment, liabilities, debt securitiesReserve assets
    D. Debt rescheduling/refinancing
    D.1 Debt rescheduling
    Payments falling due in the current

    recording period
    19 InterestExceptional financingInvestment income, other investmentOther investment, liabilities, loansInvestment income, other investment
    20 Interest accrued previous periodExceptional financingOther investment, liabilities, loansOther investment, liabilities, loansOther investment, liabilities, loans
    21 PrincipalExceptional financingOther investment, liabilities loansOther investment, liabilities, loansOther investment, liabilities, loans
    22 Capitalization of moratorium

    interest (interest as it falls due)7
    Exceptional financingInvestment income, other investmentOther investment, liabilities, loansInvestment income, other investment
    Payments in arrears
    23 InterestExceptional financingExceptional financingOther investment, liabilities, loansOther investment, liabilities, loans
    24 PrincipalExceptional financingExceptional financingOther investment, liabilities, loansOther investment, liabilities, loans
    Payments not yet due in the

    current recording period
    25 PrincipalOther investment, liabilities, loansOther investment, liabilities, loansOther investment, liabilities, loansOther investment, liabilities, loans
    D.2. Debt refinancing—loan/bond swap
    Payments falling due in the current

    recording period8
    26 InterestExceptional financingOther investment, liabilities, loansPortfolio investment, liabilities, debt securitiesOther investment, liabilities, loans
    27 PrincipalExceptional financingOther investment, liabilities, loansPortfolio investment, liabilities, debt securitiesOther investment, liabilities, loans
    Payments in arrears8
    28 InterestExceptional financingExceptional financingPortfolio investment, liabilities, debt securitiesOther investment, liabilities, loans
    29 PrincipalExceptional financingExceptional financingPortfolio investment, liabilities, debt securitiesOther investment, liabilities, loans
    Payments not yet due
    30 PrincipalPortfolio investment, liabilities, debt securitiesOther investment, liabilities, loansPortfolio investment, liabilities, debt securitiesOther investment, liabilities, loans
    E. Debt prepayment and buyback
    Payments not yet due in the current recording period
    31 Receipt of donor fundsExceptional financingReserve assetsCapital transfersReserve assets
    32 PrincipalReserve assetsExceptional financingReserve assetsOther investment, liabilities, loans
    33 Principal (using debtor financial assets other than reserve assets)Other investment, assets, currency and depositsOther investment, liabilities, loansOther investment, assets, currency and depositsOther investment, liabilities, loans
    F. Accumulation/repayment of arrears
    F.1. Accumulation of arrears
    34 Interest accrued in the current periodExceptional financingInvestment income, other investmentOther investment, liabilities, loansInvestment income, other investment
    35 Interest accrued previous periodExceptional financingOther investment, liabilities, loansNo transactionNo transaction
    36 Principal due and not paidExceptional financingOther investment, liabilities, loansNo transactionNo transaction
    F.2. Repayment of arrears9
    37 InterestReserve assetsExceptional financingReserve assetsOther investment, liabilities, loans
    38 PrincipalReserve assetsExceptional financingReserve assetsOther investment, liabilities, loans
    G. Debt-for-development swaps10
    Payments falling due in the current

    recording period
    39 InterestExceptional financingInvestment income, other investmentOther investment, liabilities, currency and depositsInvestment income, other investment
    40 PrincipalExceptional financingOther investment, liabilities, loansOther investment, liabilities, currency and depositsOther investment, liabilities, loans
    Payments in arrears
    41 PrincipalExceptional financingExceptional financingOther investment, liabilities, currency and depositsOther investment, liabilities, loans
    Payments not yet due in the current

    recording period
    42 PrincipalOther investment, liabilities, currency and depositsOther investment, liabilities, loansOther investment, liabilities, currency and depositsOther investment, liabilities, loans
    43 Subsequent use of debt/development swap funds in the debtor economyCapital transfersOther investment, liabilities, currency and depositsCapital transfersOther investment, liabilities, currency and deposits

    For debt rescheduled or refinanced, swapped into equity or bonds, or canceled before maturity, the reduction in the liability should be attributed to the appropriate instrument in the financial account. In this table, it has been assumed that loans are the instrument.

    This 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.

    Only intergovernmental grants received to finance balance of payments need. (Grants received from IMF subsidy accounts are included since such grants are considered exceptional financing transactions.)

    These payments are recorded by using the price at which the new claim on the debtor was acquired by the nonresident investor.

    Initially the debtor country exchanges the liability denominated in a foreign currency for a liability denominated in domestic currency. The appropriate credit entry depends on the type of liability for which the liability that is denominated in foreign currency is exchanged for; in this table the liability is assumed to be a deposit.

    Borrowing (including bond issues) by authorities or other sectors on the authorities’ behalf to finance balance of payments need.

    Only moratorium interest linked to balance of payments difficulties. Capitalization of moratorium interest when past due is treated as rescheduling of payment arrears.

    These payments are recorded at the value of the new claim received.

    Cash settlement only.

    Debt-for-development swaps are described in paragraphs A2.38–A2.40.

    2. Repayment of arrears

    A1.23 In the standard presentation, the repayment of debt arrears to meet a balance of payments need is recorded as a debit entry under the appropriate debt instrument in the financial account and a corresponding credit entry under reserve assets. In the analytic presentation, repayment of arrears (through currency and deposits) is recorded below-the-line as a debit entry under repayment of arrears within exceptional financing, and a credit entry under reserve assets (Table A1.1, rows 37 and 38).

    These entries for arrears arise for two reasons: First, if arrears are repaid from reserves, a credit entry under reserves is recorded below-the-line (see Section D); not recording the “repayment of arrears” through debt forgiveness would create an asymmetry of approach. Second, the accumulation of arrears resulting from balance of payments difficulties is recorded as a credit item in the period in which they arise. The repayment recorded as a debit item ensures intertemporal consistency.

    Any interest accruing from the proceeds of the grant should be recorded by the debtor economy as a credit in the income account.

    For analytical purposes, supplementary data could be provided on the nominal value of the debt being extinguished.

    The debit entry is recorded below-the-line because the repayment of the debt instrument affects the level of reserve assets in the reporting period.

    If the original contract provided for a change in the characteristics of a financial instrument when it goes into arrears, this change should be recorded as a reclassification in the other change in volume of assets account.

    APPENDIX 2 Debt Reorganization and Related Transactions

    A. Debt Reorganization

    Reference:

    IMF and others, External Debt Statistics: Guide for Compilers and Users, Chapter 8, Debt Reorganization.

    A2.1 This appendix discusses various forms of debt reorganization and related transactions, and how they are recorded in the balance of payments and the international investment position. References are made, where applicable, to exceptional financing when reorganization may arise to finance balance of payments needs, and to debt concessionality when reorganization may involve transfers to account for such concessionality. Table A1.1 in Appendix 1, Exceptional Financing Transactions, provides a summary presentation of the recording of debt reorganization in the standard and analytic presentations of the balance of payments.

    A2.2 Debt reorganization (also referred to as debt restructuring) is defined as arrangements involving both the creditor and the debtor (and sometimes third parties) that alter the terms established for servicing an existing debt. Governments are often involved in debt reorganization, as a debtor, creditor or guarantor, but debt reorganization can also involve the private sector, such as through debt exchanges.

    A2.3 Debt reorganization usually involves relief for the debtor from the original terms and conditions of debt obligations it has entered into. This may be in response to liquidity issues, where the debtor does not have the cash to meet looming debt service payments, or sustainability issues, where the debtor is unlikely to be able to meet its debt obligations in the medium term.

    A2.4 A failure by a debtor economy to honor its debt obligations (default, unilateral moratorium, etc.) is not debt reorganization because it does not involve an arrangement between the creditor and the debtor. Such failure gives rise to arrears, which are also covered in this appendix. Similarly, a creditor can reduce the value of its debt claims on the debtor in its own books through debt write-offs—unilateral actions that arise, for instance, when the creditor regards a claim as unrecoverable, perhaps because of bankruptcy of the debtor, and so no longer carries it on its books. Again, this is not debt reorganization as defined in the Manual.

    A2.5 The four main types of debt reorganization are:

    • (a) A reduction in the amount of, or the extinguishing of, a debt obligation by the creditor via a contractual arrangement with the debtor. This is debt forgiveness.

    • (b) A change in the terms and conditions of the amount owed, which may result, or not, in a reduction in burden in present value terms.1 Depending on the nature of the transaction undertaken, the reorganization is described as debt rescheduling or refinancing (or debt exchange).

    • (c) The creditor exchanges the debt claim for something of economic value, other than another debt claim, on the same debtor. This includes debt conversion, such as debt-for-equity swaps, debt-for-real-estate swaps, debt-for-development swaps, and debt-for-nature swaps,2 and debt prepayment (or debt buybacks for cash).

    • (d) Debt assumption and debt payments on behalf of others when a third party is also involved.

    A2.6 A debt reorganization package may involve more than one of the types mentioned above; for example, most debt reorganization packages involving debt forgiveness also result in a rescheduling of the part of the debt that is not forgiven or cancelled.

    1. Debt forgiveness

    a. Definitions

    A2.7“Debt forgiveness” is defined as the voluntary cancellation of all or part of a debt obligation within a contractual arrangement between a creditor and a debtor.3 Debt forgiveness is distinguished from debt writeoff by the agreement between the parties and the intention to convey a benefit, rather than unilateral recognition by the creditor that the amount is unlikely to be collected. Debt forgiveness is unlikely to arise between commercial entities. Debt forgiven may include all or part of the principal outstanding, inclusive of any accrued interest arrears (interest that fell due in the past) and any other interest costs that have accrued. Debt forgiveness does not arise from the cancellation of future interest payments that have not yet fallen due and have not yet accrued.

    b. Accounting for debt forgiveness

    A2.8 In the balance of payments, debt forgiveness, as noted in paragraphs A1.5–A1.6, is recorded (at the time specified in the agreement that the debt forgiveness takes effect) in the standard presentation as a capital transfer receipt of the debtor economy (transfer payment of the creditor economy), with a repayment of the debtor’s liability in the financial account (a receipt in the creditor’s asset). (See Table A1.1, rows 6–11.) In the IIP, the debtor’s liability and creditor’s asset are reduced by the amount of debt that is forgiven. As to the value of the debt forgiveness, market prices are the basis of valuation for flows and stocks, except for loans where the nominal value is used.

    A2.9 In the analytic presentation, the recording, or not, of debt forgiveness in exceptional financing (below-the-line) depends on whether the debt is due for payment in the current period, in arrears, or not yet due (Table A1.1, rows 1–6). Forgiveness of obligations due in the current period is recorded below-the-line as a credit item under debt forgiveness, whereas the reduction of the obligations is shown above-the-line as a debit item. For forgiveness in arrears from previous periods, a credit entry under debt forgiveness and a debit entry under cancellation of arrears are both recorded below-the-line under exceptional financing. If the obligations not yet due are forgiven, there are no entries under exceptional financing; all entries are above-the-line.

    2. Debt rescheduling and refinancing

    A2.10 Debt rescheduling and refinancing involve a change in an existing debt contract and replacement by a new debt contract, generally with extended debt service payments. Debt rescheduling involves rearrangements on the same type of instrument, with the same principal value and the same creditor as with the old debt. Refinancing entails a different debt instrument, generally at different value, and may be with a creditor different than that from the old debt.4 For instance, a creditor may choose to apply the terms of a Paris Club agreement either through a debt rescheduling option (that is, changing the terms and conditions of its existing claims on the debtor) or through refinancing (making a new loan to the debtor that is used to repay the existing debt).

    a. Debt rescheduling

    Definition

    A2.11Debt rescheduling is a bilateral arrangement between the debtor and the creditor that constitutes a formal deferment of debt service payments and the application of new and generally extended maturities. The new terms normally include one or more of the following elements: extending repayment periods, reductions in the contracted interest rate, adding or extending grace periods for the repayment of principal, fixing the exchange rate at favorable levels for foreign currency debt, and rescheduling the payment of arrears, if any. In the specific instance of zero coupon securities, a reduction in the principal amount to be paid at redemption to an amount that still exceeds the principal amount outstanding at the time the arrangement becomes effective could be classified as either an effective change in the contractual rate of interest or a reduction in principal with the contractual rate unchanged. Such a reduction in the principal payment to be made at maturity should be recorded as debt forgiveness, or debt rescheduling if the bilateral agreement explicitly acknowledges a change in the contractual rate of interest. Under Paris Club arrangements, rescheduling can be characterized as “flow” or “stock” rescheduling. A flow rescheduling refers to a rescheduling of specified debt service falling due during a certain period and, in some cases, specified arrears outstanding at the beginning of that period.5 A stock rescheduling refers to rescheduling the outstanding stock of debt at a particular point in time.

    Accounting for debt rescheduling

    A2.12 The balance of payments treatment for debt rescheduling is that the existing contract is extinguished and a new contract created. The applicable existing debt is recorded as being repaid and a new debt instrument (or instruments) created with the new terms and conditions. In the standard presentation for the debtor, a debit entry is recorded under the appropriate instrument representing the repayment of the old debt with a credit entry under the appropriate instrument representing the creation of a new debt (Table A1.1, rows 19–25). This treatment does not apply, however, to interest arrears that are being rescheduled when the conditions in the existing debt contract remain intact. In such a case, the existing debt contract is not considered to be rescheduled, only the interest arrears. The IIP reflects the transactions extinguishing the old debt instrument and creating the new instrument.

    A2.13 The transaction is recorded at the time both parties record the change in terms in their books, and is valued at the value of the new debt (which, under a debt rescheduling, is the same value as that of the old debt). If no precise time is determined, the time at which the creditor records the change in terms in its books is decisive. If the rescheduling of obligations due beyond the current period is linked to the fulfillment of certain conditions by the time the obligations fall due (such as multiyear Paris Club rescheduling), entries are recorded in the balance of payments only in the period when the specified conditions are met.

    A2.14 In the analytic presentation, as noted in Appendix 1, Exceptional Financing Transactions, the recording of debt rescheduling transactions in exceptional financing depends on whether the debt being rescheduled is due for payment in the current period, in arrears, or not yet due. Obligations falling due in the reporting period are recorded under exceptional financing (below-the-line as credit entries under the appropriate instruments), with debit entries made above-the-line under the appropriate debt instruments in the financial account and the income account (for accrued interest) (Table A1.1, rows 19–22). For arrears, the two entries are under exceptional financing, that is, below-the-line, with credit items (under the relevant instrument) and debit items (under rescheduling of arrears) (Table A1.1, rows 23–24). For obligations not yet due, both debit and credit entries are recorded above-the-line under the appropriate instruments in the financial account (Table A1.1, row 25).

    b. Debt refinancing

    Definition

    A2.15Debt refinancing involves the replacement of an existing debt instrument or instruments, including any arrears, with a new debt instrument or instruments. It can involve the exchange of the same type of debt instrument (loan for a loan) or different types of debt instruments (loan for a bond). For instance, the public sector may convert various export credit debts into a single loan. Also, debt refinancing can be said to have taken place when a debtor exchanges existing bonds for new bonds through exchange offers given by its creditor (rather than a change in terms and conditions). So debt refinancing can occur irrespective of whether the debtor is experiencing balance of payments difficulties or not.

    Accounting for debt refinancing

    A2.16 The balance of payments treatment of debt refinancing transactions is similar to debt rescheduling to the extent that the debt being refinanced is extinguished and replaced with a new financial instrument or instruments. However, unlike in rescheduling, the old debt is extinguished at the value of the new debt instrument except for nonmarketable debt owed to official creditors.

    A2.17 If the refinancing involves direct debt exchange, such as a loan-for-bond swap, in the standard presentation, debit entries are recorded by the debtor under the appropriate debt instrument in the financial account and the income account (for accrued interest) and a credit entry under portfolio investment liabilities to show the creation of the new obligation (Table A1.1, rows 26–30). The transaction is valued at the value of the new debt with the difference between the value of the old debt and that of the new instrument recorded in the revaluation account. However, if the debt is owed to official creditors and is nonmarketable (loan), the old debt is extinguished at its original value with the difference in value with the new instrument recorded as debt forgiveness.

    A2.18 Where there is no established market price for the new bond, an appropriate proxy is used. For example, 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 interest rate on the new bond is below the prevailing interest rate, the discounted value of the bond, using the prevailing interest rate, 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. See also debt-for-equity conversion below.

    A2.19 The IIP reflects the transactions extinguishing the old debt instrument and creating the new debt instrument along with any valuation change recorded in the revaluation account. For instance, a loan-for-bond exchange undertaken will generally result in a reduction in the liabilities of the debtor (reduction in the claim of the creditor on the debtor economy) because the loan is recorded at nominal value versus the market value of the bond.

    A2.20 In the analytic presentation, debt-for-bond exchange of obligations falling due in the reporting period are recorded below-the-line as credit entries under the appropriate instruments in exceptional financing, with debit entries made above-the-line under the appropriate debt instruments in the financial account and the income account (for accrued interest) (Table A1.1, rows 26–27). For arrears refinanced, there are offsetting credit (under the relevant instrument) and debit items (under rescheduling of arrears) under exceptional financing. For obligations not yet due, both debit and credit entries are recorded above-the-line under the appropriate instruments in the financial account (Table A1.1, row 30). When arrears are cancelled as a result of a debt-for-debt exchange, the two entries are below-the-line: a debit entry under cancellation of arrears (under the relevant debt instrument in the standard presentation) and a credit item under debt forgiveness (Table A1.1, rows 28–29).

    A2.21 If the proceeds of the new debt are used to partially pay off existing debt, any remaining debt is recorded as the extinguishment of the old debt and creation of a new debt, unless it is paid off through a separate transaction.

    A2.22 If the terms of any new borrowings are concessional, the creditor could be seen as providing a transfer to the debtor. Debt concessionality is discussed below.

    3. Debt conversion and debt prepayment

    a. Definitions

    A2.23Debt conversion (swap) is an exchange of debt—typically at a discount—for a nondebt claim such as equity, or for counterpart funds that can be used to finance a particular project or policy. Typically debt conversion involves an exchange of external debt in foreign currency for a nondebt obligation in domestic currency, at a discount. Debt for equity, debt for exports, debt for nature, and debt for development swaps are all examples of debt conversion. In essence, external debt is extinguished and a nondebt liability created.

    A2.24 A debt-for-equity swap results in reduced debt liability and an increase in equity liability of the debtor economy. A third party, usually a nongovernmental organization (NGO) or a corporation, is often involved in a debt-for-equity swap, buying the claims from the foreign creditor and receiving shares in a corporation or local currency (to be used for equity investment) from the debtor economy.

    A2.25 Other types of debt swaps, such as external debt obligations for exports (debt for exports) or external debt obligations for counterpart assets that are provided by the debtor to the creditor for a specified purpose, such as wildlife protection, health, education, and environmental conservation (debt for sustainable development) are also debt conversions.

    A2.26 It is important to distinguish direct and indirect debt conversion, that is, whether the swap leads directly to the acquisition of a nondebt claim on the debtor, or indirectly via another claim on the economy, such as a deposit that is subsequently used to purchase equity.

    b. Accounting for debt conversion

    A2.27 Where debt is exchanged for another item (e.g., equity or counterpart funds for development purposes), the transaction is recorded at the time both parties record the exchange of value in their books. The general principle is for the old debt to be valued at the value of the item acquired (converted at the prevailing market exchange rate if the item is in foreign currency). Any difference between the value of the debt being extinguished and the corresponding claim or funds provided is recorded as a valuation adjustment in the revaluation account. An exception arises when official creditors are owed nonmarketable debt, and the counterpart claim (assets) has a lower value than the debt, in which case the transaction in the old debt is recorded at its full value and any difference in value between the debt and counterpart item (or assets) is recorded as debt forgiveness, a capital transfer. With debt-for-development swaps, the transactions recorded should be based on the type of debt obligation forgiven rather than the subsequent use of the funds.

    A2.28 Debt-for-equity and debt-for-development swaps are the most commonly used debt conversion arrangements.

    c. Debt-for-equity swaps

    Direct debt conversion

    A2.29 For debt exchanged directly for equity investment in the debtor economy, credit entries should be made under direct investment–equity, or portfolio investment–equity. These transactions should be recorded at the value of the equity acquired, with offsetting debit entries made under the appropriate debt instrument for the reduction in liabilities. The treatment of transactions recorded depends on whether the debt being swapped is due for payment in the current period, is in arrears, or is not yet due (Table A1.1, rows 8–11).

    Debt due for payment in the current period

    A2.30 In the standard presentation, for a debt-for-equity swap there are debit entries under the relevant instrument, such as other investment liabilities, and the income account (for accrued interest) for all payments falling due in the current period. The value of the repayment of the old debt is equal to the market value of the equity liability being swapped, with the contra-entry credit recorded in direct investment–equity, or portfolio investment–equity. If the market value of the new liability is lower than the value of the old debt, a valuation adjustment is recorded under the relevant instrument, such as loan liabilities in the revaluation account (see also paragraph A1.13).

    A2.31 In the analytic presentation, the debit entries are recorded above-the-line and the contra-entry credit is recorded below-the-line under direct investment or portfolio investment–equity.

    Debt in arrears

    A2.32 In the standard presentation, debt-for-equity swaps for arrears are recorded as a debit entry under the relevant instrument in the financial account, at the value of the equity liabilities being provided, with the contra-entry credit in direct investment–equity or portfolio investment–equity. In the analytic presentation, a debit entry is recorded in exceptional financing under cancellation of arrears, with the offsetting credit entry also recorded in exceptional financing under direct investment–equity or portfolio investment–equity.

    Debt due for payment in the future

    A2.33 In the standard presentation, debit entries arising from debt-for-equity swap operations for debt due for payment in the future and exchanged at a price below nominal value are recorded as a debit entry in the respective accounts at the value of the equity liabilities being provided with the contra-entry credit in direct investment–equity, if the direct investor (equity holder) directly holds equity that entitles it to 10 percent or more of the voting power in the direct investment enterprise; otherwise, the equity claim should be recorded under portfolio investment–equity. If the market value of the new liability is lower than the value of the old debt, a valuation adjustment is recorded under the relevant instrument, such as loan liabilities in the revaluation account (see also paragraph A1.13). In the analytic presentation, all entries are made above-the-line as in the standard presentation.

    A2.34 In all cases, in the IIP, equity liabilities (either direct or portfolio) increase and debt liabilities decrease by the value of the instrument extinguished.

    Indirect debt conversion

    A2.35 A debt-for-equity swap may also involve indirect conversion. An example is when a fixed-payment foreign currency liability (e.g., a debt security or loan) is exchanged at a discount for a domestic financial instrument, such as a domestic currency deposit. The proceeds are then reinvested by the nonresident into the equity of the debtor. These swaps are valued at market prices in the balance of payments.

    A2.36 In the standard presentation, this transaction is recorded by the debtor as an increase in liabilities (credit) under the financial instrument provided, with corresponding debit entries under the instrument (liability) being extinguished (Table A1.1, rows 12–16). Subsequently, the nonresident creditor 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, if the direct investor (equity holder) directly holds equity that entitles it to 10 percent or more of the voting power in the direct investment enterprise; otherwise, the equity claim should be recorded under portfolio investment–equity. The offsetting debit entry is made under the relevant instrument being exchanged for the equity, such as currency and deposits. In the IIP, equity liabilities (either direct or portfolio) increase and debt liabilities decrease by the value of the instrument extinguished.

    A2.37 In the analytic presentation, the treatment is the same as described for direct debt conversion except that only the initial transaction is relevant, so the credit entry is recorded under the relevant financial instrument provided, rather than equity.

    d. Debt-for-development swaps

    A2.38 A debt-for-development swap involves the exchange at a discount of an existing liability (e.g., a debt security or loan) for a claim (such as a domestic deposit) earmarked for a specific development purpose in the debtor economy. For example, an NGO purchases debt from the original creditor at a substantial discount using its own foreign currency resources, and then resells it to the debtor country government for local currency equivalent. The NGO in turn spends the money on a development project, previously agreed on with the debtor country government.

    A2.39 In the standard presentation, the debtor economy records the transaction only with the creditor (such as an NGO). The debtor records an increase in liabilities (credit) under the appropriate debt instrument provided to the creditor, with an offsetting debit entry recorded under the appropriate debt instrument being extinguished (Table A1.1, rows 39–43). In the IIP, liabilities decline by the value of the debt extinguished and increase by the value of the other claim provided that it is still outstanding at the end of the period.

    A2.40 If a debt-for-development swap is undertaken to meet a balance of payments need, only the initial transaction with the creditor is relevant for the analytic presentation. Subsequent use by the creditor of the assets acquired for development in the debtor economy is not exceptional financing—the credit items are recorded as capital transfers (Table A1.1, row 43).

    e. Debt prepayment

    Definitions

    A2.41Debt prepayments consist of a repurchase, or early payment, of debt at conditions that are agreed between the debtor and the creditor; that is, debt is extinguished in return for a cash payment agreed between the debtor and the creditor. When a discount is involved relative to the nominal value of the debt, prepayments are referred to as “buybacks.” Debt prepayment could be driven by the debtor’s need to reduce the cost of its debt portfolio by taking advantage of favorable economic performance or market conditions to repurchase debt, or for balance of payments purposes, such as a looming balance of payments constraint.

    Accounting for debt prepayment

    A2.42 In the standard presentation, debit entries relating to debt prepayment are recorded by the debtor in the appropriate instrument in the financial account when the transactions take place at the value of the debt prepaid. Credit entries are recorded in reserve assets or in currency and deposits in other investment–assets depending on the source of financing. In the IIP, the debtor’s liability declines by the amount of debt prepaid. As noted in Appendix 1, Exceptional Financing Transactions, if prepayment of debt is linked to balance of payments needs and is financed from reserve assets, both credit and debit items are recorded below-the-line in exceptional financing and reserve assets, respectively (Table A1.1, rows 31–32). Prepayments of debt using debtor’s own financial assets other than reserve assets is recorded above-the-line as in standard presentation (Table A1.1, row 33). If the debt is owed to official creditors and is non-marketable (loan), some element of debt forgiveness could arise—that is, if the prepayment occurs within an agreement between the parties with an intention to convey a benefit (see paragraph A2.7).

    A2.43 In the analytic presentation, debt prepayment transactions are recorded as exceptional financing only if they are financed from reserve assets for the balance of payments purposes of the debtor economy. In this case, debit entries are recorded below-the-line in the appropriate instrument in exceptional financing with offsetting credit entries in reserves recorded below-the-line.

    A2.44 If the prepayment was financed from external donor funds, transactions could result in a two-stage analysis if cash is provided to the debtor economy that subsequently uses the proceeds to prepay the debt.

    Stage 1

    A2.45 The debtor economy records in the standard presentation a credit entry under capital transfers in the capital account equal to the donor funds provided. An offsetting debit entry is recorded in reserves assets. In the analytic presentation, the debtor economy records a credit entry below-the-line under transfers in exceptional financing, with the offsetting debit entry recorded in reserve assets.

    Stage 2

    A2.46 When the debt prepayment occurs, the debtor economy records in the standard presentation the repayment of the debt instrument as a debit entry at the value paid, with an offsetting credit entry in reserve assets. In the analytic presentation, the debit entry is recorded under the relevant debt instrument below-the-line6 and the credit entry under reserve assets. Savings arise in future years as a result of the prepayment of the debt. The debit entry is recorded below-the-line as the transaction affects reserve assets in the reporting period.

    A2.47 In the IIP of the debtor economy, assets increase in the first stage and decline, along with debt liabilities, when the prepayment takes place.

    4. Debt assumption and debt payments on behalf of others

    a. Debt assumption

    Definition

    A2.48Debt assumption is a trilateral agreement between a creditor, a former debtor, and a new debtor under which the new debtor assumes the former debtor’s outstanding liability to the creditor and is liable for repayment of debt. Calling a guarantee is an example of debt assumption. If the original debtor defaults on its debt obligations, the creditor may invoke the contract conditions permitting the guarantee from the guarantor to be called. The guarantor unit then must either repay the debt or assume responsibility for the debt as the primary debtor and the liability of the original debtor is extinguished. Governments can be the debtor that is defaulting or the guarantor. Also, a government through agreement can offer to provide funds to pay off the debt obligation of another government owed to a third party.

    Accounting for debt assumption

    A2.49 The amount of the debt to be recorded is the full amount of the outstanding debt unless there is an agreement with the creditor to reduce the amount of debt owed. The timing of the recording is at the time the debt is removed from the original debtor’s balance sheet.

    A2.50 In the standard presentation the transaction recorded between the creditor and debtor is as described in paragraphs 8.42–8.45 and Box 8.1. The creditor records a new loan claim on the new debtor. The extinguishing of the original debt is classified as a transaction if the original debtor continues to exist, or as other volume change (with a capital transfer recorded from the new debtor to the creditor) if the original debtor no longer exists.

    A2.51 In many cases it is likely that the entity assuming the debt and the original debtor are resident in the same economy, such as the case of a government assuming the debt of a resident entity. In such instances, the sector classification of the debtor may change.

    A2.52 However, if the assuming entity was in a different economy from the original debtor was, then the nature of the transactions recorded would depend on whether the assuming economy obtained a claim on the original debtor and, if not, the relationship between the two entities. The terms of the debt assumption may include a legal obligation for the defaulting entity to pay back to the guaranteeing unit the amount of debt assumed. If so, in the standard presentation, the original debtor economy would record both credit and debit entries under the relevant debt instrument(s) in the financial account. If no claim was established, then a capital transfer (debt forgiveness) would be recorded from the assuming to the original debtor economy. However, if the original debtor was in a direct investment relationship with the entity in the assuming economy, in which instance an increase in the direct investor’s equity (or decrease if the parent is the original debtor) would be recorded in the direct investment enterprise. If the new debtor acquires a claim that only partially covers the debt acquired, the difference is classified as debt forgiveness by both the original and new debtors. If the original debtor no longer exists, an other volume change is recorded, as described in paragraph A2.50.

    A2.53 In the analytic presentation, if the new debtor and original debtor are resident in different economies, the recording of debt assumption is the same as for debt rescheduling if the new debtor acquires a claim on the original debtor. If not, then the recording of the debt assumption is the same as for debt forgiveness (except in the case of direct investment as described in the previous paragraph). When a partial claim is acquired, the recording as between debt rescheduling and debt forgiveness is prorated accordingly.

    b. Debt payments on behalf of others

    Definition

    A2.54 Rather than assume the debt, a government may decide to repay a specific borrowing or make a specific payment on behalf of another institutional unit, without the guarantee being called or the debt being taken over. In this case, the debt stays recorded solely in the balance sheet of the other institutional unit, the only legal debtor. As the existing debt remains extant, and the terms remain unaltered, this is not considered debt reorganization. Such a situation may occur where the debtor is experiencing temporary financial difficulties rather than permanent financial problems.

    Accounting for debt payments on behalf of others

    A2.55 As with debt assumption, the recording of transactions depends on whether the two entities are located in the same economy or not, and whether or not the payer receives a financial claim on the debtor in respect of the debt service payments it has made on behalf of the debtor.

    A2.56 If the paying entity and the original debtor are resident in the same economy, then no balance of payments transactions are reported between them. If they are in different economies, and a claim is established on the original debtor, the paying economy records an increase in financial assets and a decrease in reserve assets or currency and deposits, depending on the source of funding. Otherwise, as with debt assumption, a capital transfer or direct investment–equity transaction is recorded. The payment of the debt service is not recorded as a payment of interest or principal by the paying economy because the payments are not related to a liability in its balance sheet.

    A2.57 If a financial claim has not been established, and the transactions arise from a balance of payments need, in the analytic presentation the debtor country records a credit entry below-the-line in transfers (other intergovernmental grants) under exceptional financing and a debit entry above-the-line reflecting any interest and principal payments made.

    5. Special cases

    a. Debt service falling due between Paris Club agreed minute date and specified implementation date7

    A2.58 Under Paris Club debt rescheduling arrangements, creditor countries as a group usually agree in the nonbinding “Agreed Minute” that they sign, that payment terms and conditions of applicable debt falling due before the specified effective (implementation) date of the Paris Club bilateral agreement might not be paid on schedule. However, interest continues to accrue based on the existing loan terms, but payments are not made, up until the point when there is a formal bilateral agreement.

    A2.59 When such payments fall due, they are considered technical arrears (External Debt Statistics: Guide for Compilers and Users, paragraph 3.37). Given that there is a mutually signed understanding between the debtor and the creditor that the terms and conditions in the mother agreement are temporarily suspended, technical arrears are treated in the standard presentation of the debtor economy as rescheduled short-term debt and classified under other investment, other accounts receivable/payable, until the effective date of the bilateral agreement when the new terms apply.8 When the new terms apply, there may be a need to reclassify technical arrears to the appropriate instruments in the financial account.

    A2.60 In the analytic presentation, debit entries are recorded above-the-line as in the standard presentation, while corresponding credit entries are recorded below-the-line as accumulation of arrears, in exceptional financing.

    b. Debt service moratorium extended by creditors

    A2.61 Debt service moratorium involves an individual creditor permitting the debtor a formal suspension of debt service payments falling due within a given period. Debt service moratorium may be granted in the event of natural disasters, such as the moratorium granted to tsunami-affected countries in 2005, and usually involves formal exchange of letters but not necessarily a formal bilateral agreement.

    A2.62 As the intention of the action is to provide the debtor with short-term debt relief, debt service moratorium extended by creditors should be classified as debt rescheduling, provided there is some formal process that demonstrates agreement on behalf of both the debtor and creditor, such as the exchange of letters, to delay payment. In such instances, arrears are not created. In the standard presentation for the debtor, a debit entry is recorded under the appropriate instrument representing the repayment of obligations as they fall due with a credit entry under the same instrument representing the creation of a new debt. In the analytic presentation of the debtor economy, debit entries of obligations falling due in the current period are recorded above-the-line, and contra-entries are recorded as rescheduling of existing debt under other investment liabilities in exceptional financing.

    B. Transactions Related to Debt Reorganization

    1. New money facilities

    A2.63 In some debt reorganization arrangements to assist the debtor to overcome temporary balance of payments difficulties, new money facilities are agreed with the creditor to be used to repay maturing debt obligations. In the standard presentation, drawings on the new money facilities are recorded by the debtor as a credit, and offsetting debit entries are made under the appropriate instrument, such as reserve assets. As the maturing debt obligations are paid, debit entries are recorded under the debt instrument for principal amounts falling due and under income for interest accrued in the current period. In the IIP the liabilities (assets) of the debtor (creditor) are increased by the new borrowing.

    A2.64 In the analytic presentation, a credit entry for the full amount borrowed is recorded under drawings on new loans within exceptional financing, with the offsetting debit entry under reserve assets. Scheduled debt payments out of the proceeds of the new borrowings are not regarded as exceptional financing; that is, debit entries are made above-the-line and offsetting entries under reserve assets, but advance repayments of debt for balance of payments purposes from reserve assets are recorded as debit items under exceptional financing under the relevant financial instrument. If the terms of the new borrowings are concessional, the creditor is providing a transfer to the debtor. Debt con-cessionality is discussed below.

    2. Defeasance

    A2.65 Defeasance is a technique by which a debtor exactly matches debt service outflows from a set of its liabilities with financial assets with the same debt service inflows, and removes both the asset and liabilities from its balance sheet (see paragraphs 8.30–8.31). Although a debtor may wish to regard the defeased debt as being effectively extinguished, the Manual does not recognize defeasance as affecting the debt of the debtor as long as there has been no change in the legal obligations of the debtor. That is, the debt should continue to be shown on the liabilities side and the financial assets recorded on the asset side of the balance sheet, and the transactions associated with those assets and liabilities recorded in the balance of payments provided they are with nonresidents. If a separate unit is created to hold the assets and liabilities, the transactions by which the assets and liabilities are moved to the second institutional unit are recorded in the financial account, if the second unit is resident of another economy. If the two units are resident in the same economy but are classified in different sectors, a reclassification in other changes in volume account is recorded.

    3. Debt write-offs

    A2.66 A creditor can unilaterally decide to write off debt owed to it. No transactions are recorded but the creditor economy records the reduction in its financial assets through the other changes in the volume of assets account. (The corresponding liability should also be removed from the balance sheet of the debtor, through the other changes in volume account.)

    4. Debt concessionality

    A2.67 Debt concessionality has gained increasing importance in discussions relating to debt relief to the heavily indebted poor countries. However, there is no consistent definition or measure of debt concessionality in economic accounts. In debt reorganization through the Paris Club, such as the Heavily Indebted Poor Countries Initiative and similar arrangements, debt reduction in present value terms is calculated using a market-based discount rate, usually the OECD’s Commercial Interest Reference Rate (CIRR).9 The difference between the nominal value of the applicable debt and its present value is the amount of capital transfer derived from the debt reorganization arrangements.

    A2.68 Where such transfers are significant, countries are encouraged to provide these data as a supplementary10 item to the standard components. The recording should be made as a one-off transaction at the point of loan origination equal to the difference between the nominal value of the debt and its present value (using a relevant market discount rate such as the CIRR). For a new loan, this approach would require information on the market interest rate at inception and the contractual interest rate—with the market interest rate as the discount rate and the difference the value of the transfer. This approach has the advantage of considering all the possible sources of transfers in debt concessionality—maturity period, grace period, frequency of payments, interest rate, and other applicable costs—and is consistent with nominal valuation of loans. In addition, this approach is consistent with the economic equivalence between a concessional loan of say, 100 units with an embedded grant element of 35 percent, and a commercial loan of 100 units combined with a direct grant of 35 units. The transfer value is calculated at the time it happens, that is, at the inception of the debt, as the difference between its nominal value and its present value using the payment stream and the current market interest rate as the discount factor.

    A2.69 If the loan is retired before maturity and replaced by a new loan, adjustment of the previously recorded transfers is required. This means that the value of any transfers not yet received on the original loan that is replaced would need to be subtracted from the original transfer value calculated; otherwise, the amount of concessionality recorded over time would be overstated.

    A2.70 This can be done by recalculating the transfer at inception using the actual payment schedule outturn, including the retirement of the entire remaining loan at the time of rescheduling.11 This recalculated value should replace the originally calculated value in the historical supplementary series, so the historical data reflect the actual transfers received and do not mix any new concessional transfer with the value not received on the original loan, when there may have been a different set of market-related interest rates.

    Also called “time value of money” or “discounted cash flow,” present value is the value today of a future payment or stream of payments discounted at some appropriate compounded interest rate.

    Some agreements described as debt swaps are equivalent to debt forgiveness from the creditor and the debtor viewpoint. At the same time, there is a commitment from the debtor country to undertake a number of development, environment, etc., expenses. These transactions should be considered under debt forgiveness, because no value is provided to the creditor.

    This includes forgiveness of some or all of the principal amount of a credit-linked note arising from an event affecting the entity on which the embedded credit derivative was written, and forgiveness of principal that arises when a type of event contractually specified in the debt contract occurs, such as forgiveness in the event of a type of catastrophe.

    From the debtor perspective, debt refinancing may involve borrowing from a third party to repay a creditor. The definition of debt refinancing in the Manual is a narrower concept reflecting transactions between the debtor and same creditor only. The transactions associated with borrowing from a third party for balance of payments support are set out in Section D, Borrowing for Balance of Payments Support, of Appendix 1, Exceptional Financing Transactions.

    In the balance of payments, if the debt falling due during the period is rescheduled, the transaction is treated the same as the rescheduling of a debt stock.

    Advance payments for balance of payments need are recorded below-the-line (see Appendix 1, Exceptional Financing Transactions).

    The guidance in this section is based on the Paris Club arrangements because the issue described most commonly arises in that forum. But the guidance is equally applicable to other fora in which the same issue arises.

    This approach is applicable to other debt rescheduling arrangements with similar terms.

    These rates are determined on the fifteenth day of each month for applicable currencies on the basis of secondary market yields on government bonds with residual maturity of five years and, in addition, three and seven years for the Canadian dollar, the U.S. dollar, and the euro.

    The advantage of a supplementary item in the accounts as opposed to the main body is that while it allows these transfers to be measured and data disseminated, it would also allow compilers to develop their approaches over time without affecting the main accounts.

    This retirement value would include any amount that is forgiven because such forgiveness is recorded as a capital transfer in the period given.

    APPENDIX 3 Regional Arrangements: Currency Unions, Economic Unions, and Other Regional Statements

    A. Introduction

    A3.1 Since the previous edition of the Manual, a growth in regional arrangements for monetary and economic cooperation has been evident, with a particularly notable development being the creation of the euro in the broader framework of the European Union. Such regional arrangements include customs unions, which have common tariff and other trade policies with nonmember economies; economic unions, which harmonize certain economic policies to foster greater economic integration; and monetary and currency unions, which provide for a single monetary policy across an area. Concepts and recommendations noted in the chapters of the Manual for compilation of balance of payments and IIP statements also apply to these regional arrangements, but beyond these, specific statistical issues arise that are addressed in this appendix.

    A3.2 This appendix begins by addressing issues relating to currency unions (CUs), because such unions raise most of the methodological issues and there is the essential policy need for CU balance of payments and IIP statistics.1 Methodological guidance is provided for the compilation at both the CU and member-economy levels. The appendix also covers economic unions (EcUns) and customs unions. As indicated by Table A3.1, which lists various methodological issues that can arise from regional arrangements, those issues relevant for EcUn and customs unions are largely a subset of those relevant to a CU.

    A3.3 Compiling balance of payments and international investment position statistics for regional arrangements such CUs and EcUns involves the aggregation of data for two or more economies.2 In contrast, “regional statements” are compiled by an economy vis-à-vis a grouping of selected economies (geographical breakdown of statistics). Issues pertaining to this category of statement are also addressed at the end of this appendix.

    A3.4 IIP data by partner are shown according to the debtor-creditor approach. In addition, national contributions for compiling financial flows data in CU and EcUn balance of payments are allocated along the debtor-creditor approach as a way to ensure bilateral symmetry.3 This convention means that cross-border transactions in financial claims are allocated to the economy of residence of the nonresident debtor, and cross-border transactions in liabilities are allocated to the economy of residence of the nonresident creditor.

    B. Currency Unions

    A3.5 In a CU, full balance of payments and IIP statements are essential to support the policy analysis at the CU level. The single monetary policy of the CU requires the availability of information for the main variables that affect monetary and foreign exchange conditions for the union as a whole, among which balance of payments statistics are of primary importance. In that sense, the statistical requirements for a CU are the same as for an economy that issues its own currency.

    A3.6 As monetary policy is no longer conducted at an economy level, the statistical requirements might appear less necessary for economies that are members of a CU. However, because economic and fiscal policies are often still largely defined at the national level, experience has demonstrated the need for a continuation of national balance of payments and IIP statement for member economies in a CU.

    Table A3.1.Methodological Issues Relevant for Different Types of Regional Cooperation
    IssueCustoms UnionEconomic UnionCurrency Union (CU)
    1. Definition of a CU central bankn.a.n.a.X
    2. Domestic/foreign status of the common currency*n.a.n.a.X
    3. Allocation of intra-CU claims among CU’s central banksn.a.n.a.X
    4. Reserve assets*n.a.n.a.X
    5. Regional organizationsXXX
    6. Economic territoryn.a.XX
    7. Debtor/creditor versus transactor principle*XXX
    8. Geographic allocation of goodsXXX

    These three items also raise statistical issues in “dollarized economies.”.

    X = relevant issue.n.a. = not applicable issue.

    A3.7 The specific statistical issues that need to be addressed are of three types:

    • Definitional issues that are central to any discussion of CU balance of payments and IIP statement.

    • Application of core balance of payments concepts to the context of a CU.

    • Methodological issues arising from the operational and technical aspects of a CU.

    1. Definitional issues

    a. Definition of a currency union

    A3.8 The adoption of a single monetary policy by more than one economy can be facilitated through a range of different types of monetary arrangements. A situation in which there is the presence of a single monetary policy among economies, established by an intergovernmental legal agreement, is defined in the Manual as a monetary union.4 A monetary union that replaces national currencies with a common currency to form a currency union raises specific methodological issues for the compilation of a balance of payments and IIP. These issues include treatment of the central monetary authority, the arrangements for reserves management, and the definition of a domestic currency.

    A3.9For statistical purposes, a currency union is defined as a union to which two or more economies belong and that has a regional central decision-making body, commonly a currency union central bank (CUCB), endowed with the legal authority to conduct a single monetary policy and issue the single currency of the union. A CU is established by means of an intergovernmental legal agreement (e.g., a treaty). To belong to a CU, the economy must be a member of the central decision-making body, participate in its regular monetary policy decision-making process, and be subject to its monetary policy decisions. Participation in the monetary policy decision-making process includes representation and voting rights, possibly on a rotating basis, in the central decision-making body.

    A3.10 Monetary arrangements reached by any CU economy (on behalf of and in line with guidelines set up by the CUCB) with an economy outside the CU, such as overseas dependent territories, to regulate the use of the common currency do not qualify the other economies to CU membership under this definition. Similarly, the unilateral adoption of another currency by third-party economies (e.g., dollarization, euroization) is not considered sufficient to regard the economy, or economies, to be a member, or members, of a currency union for statistical purposes. Where different economies establish a common monetary area (CMA) that allows free movement of finance and a common exchange control regime with the rest of the world, but different national currencies remain legal tender in their respective economies, even if one currency is a reference currency against which the other currencies are pegged, the arrangement does not meet the above criteria to be classified as a CU. The same applies for a CMA established among members by coordinating the peg with a third economy.

    b. The Currency Union Central Bank

    A3.11 The regional central decision-making body in a CU referred to above is usually the CUCB. A CUCB is a regional financial institution that acts as the common central bank for the member economies of the CU. The CUCB is an institutional unit in its own right, owning assets and liabilities on own account, and is nonresident of any CU member economy but resident in the CU.

    c. Regional organizations

    A3.12 More generally, regional organizations are a type of international organization. They consist of those institutions whose members are governments or monetary authorities of economies that are located in a specific region of the world. Regional organizations, which include CUCBs, are created for many purposes including supporting, guiding, and even governing aspects of the economic relationships or integration processes among the region’s economies. Regional organizations are established by means of an intergovernmental legal arrangement (e.g., a treaty). They can be financial (e.g., regional development banks) or nonfinancial (e.g., relating to the administration of an economic union) organizations.

    d. Centralized and decentralized CU

    A3.13 At the time of drafting this Manual, two kinds of CU are identified. In one model, the CU has a CUCB owned by the governments of the member economies with the common currency issued by the CUCB and central bank operations in each economy carried out by branches or agencies of the CUCB. This model, referred to as a “centralized” model, is of the type observed in Africa and the Caribbean and was in existence at the time of the publication of the previous edition of the Manual.

    A3.14 In the other model, the CU comprises a CUCB and CU national central banks (CUNCBs) of the member economies with the CUCB being owned by the CUNCBs. The monetary policy decisions are taken by the decision-making body of the CUCB, which also coordinates the implementation of the decisions, a primary responsibility of the CUNCBs. This model, referred to as a “decentralized” model, is the type developed by the euro area in the 1990s.

    A3.15 In some instances, as described ahead, the specific guidance for reporting differs between the two models because of the differing institutional arrangements.

    e. Definition of a domestic currency in a CU

    A3.16 A domestic currency is defined in paragraph 3.95. The currency issued in a CU is the domestic currency of the CU. It should always be considered a domestic currency from the viewpoint of each member economy, even though this currency can be issued by a nonresident institution (either another CUNCB or the CUCB). One consequence is that, in a CU, from a national perspective, holdings of domestic currency can be a claim on a nonresident.5

    f. Application of core balance of payments concepts

    Residence

    Residence in a currency union

    A3.17 The economic territory of a CU consists of the economic territory of the CU economies that comprise the CU, plus the CUCB. Any other regional organizations that comprise the same or a subset of the same economies are included in the CU. Within this territory, the same principles of residence apply as described in paragraphs 4.113–4.144.

    A3.18 So, being a resident of an economy of a CU necessarily implies being a resident of the CU, along with the CUCB. Other regional organizations that are within the CU territory are also resident, except those whose membership of economies is not the same as, nor a subset of, those in the CU. Such regional organizations should be regarded as nonresident of the CU.

    • Residence status of multiterritory enterprise located in a CU (or EcUn)

    A3.19 Union-wide incorporation for multiterritory enterprises might create problems in determining the residence of units and the allocation of activities across member economies in which the company has operations, and so present difficulties for national statistics. In some instances, the location of incorporation or registration may not be easily allocated to one specific economy, if the jurisdiction that allows the creation and regulates the entity is at the union level. However, the attribution of residence of multiterritory enterprises also arises in other circumstances, and so the treatment described in paragraphs 4.41–4.44 should be applied to multiterritory enterprises located in a CU (or EcUn).

    Institutional sector allocation

    A3.20 The institutional sector (and, where relevant, subsector) classification of regional organizations in the CU or EcUn balance of payments and IIP that are nonresident of member economies but resident of the CU or EcUn should be decided on a case-by-case basis. However, in the CU international accounts, the CUCB should always be attributed to the central bank sector and, for example, a regional investment bank could be classified as a financial corporation.

    Geographical allocation of stocks and flows

    A3.21 The compilation of the balance of payments and IIP statement of a CU or EcUn has implications for the collection of data at the national level in that the issue of geographical allocation of stocks and flows, not essential for national data, becomes fundamental for the compilation of a CU balance of payments and IIP. Compiling the balance of payments and IIP of a CU from the simple aggregation of national data would not be appropriate.

    A3.22 There are several reasons for this. The compilation of a CU balance of payments and IIP by the simple addition of gross national data would unduly inflate the gross flows and stocks of the CU because these would also include transactions and positions between CU members (“intra” transactions). The addition of only the net national transactions or positions of the CU members would solve this problem, but would provide only net aggregates, because only net balances could be shown, without separating out debits from credits in the current account and assets from liabilities in the financial account. In addition, it is very likely that, in practice, intra transactions would not cancel out entirely because of asymmetries in bilateral figures, which would result in erroneous aggregate data.

    A3.23 Therefore, the compilation of the balance of payments and IIP of the CU is typically undertaken by aggregating the national contributions for compiling the transactions and positions of the CU with nonresidents of the CU, the so-called extra-CU data. Given the aggregation of data from different economies, it is essential that the CU member economies consistently follow the internationally agreed standards for the classification of transactions and assets and liabilities, and provide adequate metadata describing their methodology.

    A3.24 Data on intra transactions and positions can also be essential. An example is with portfolio investment, where liabilities vis-à-vis nonresidents of the CU may need to be calculated as the difference between total national securities liabilities to nonresidents and the transactions and positions in these securities by residents in the other CU economies. The reason for this is that national balance of payments and IIP collection systems may not be able to identify whether nonresident purchasers and owners of domestic securities are resident of other economies of the CU, or not.6 In such instances, asymmetries in intra data would affect the quality of balance of payments and IIP data of the CU.

    A3.25 For direct investment, intra-CU transactions between a parent company and a branch or subsidiary located within different economies of the CU would be classified as domestic transactions of the CU. Given the different treatment of entities in a direct investment relationship in the external and domestic accounts, close cooperation among compilers may be required; for example, reinvested earnings among entities in different CU member economies are recorded as cross-border transactions in national balance of payments, but are not recorded as transactions in CU national accounts.

    • Geographic allocation of transactions in goods (imports and exports)

    A3.26 In balance of payments methodology, the change of ownership is the principle determining the coverage and time of recording of international transactions. The consequence of applying the change-of-ownership concept to merchandise trade is that goods exports will be allocated to the region of residence of the new owner and imports to the region of residence of the former owner. However, international standards for international merchandise trade statistics, as well as customs returns in most economies, are based instead on physical movements of goods across national or customs frontiers, and the recording of these movements does not necessarily coincide with changes in ownership.

    A3.27 For the recording of goods in customs data, three concepts are usually used: the economy of origin, the economy of final destination, and the economy of consignment (see paragraph 4.150). The concepts of “economy of origin” (imports) and “economy of last destination” (exports) are generally acceptable approximations to the change of ownership principle. However, in the context of a CU or EcUn, where customs declarations are in many cases completed in a third economy (economy of consignment) that does not itself obtain ownership of the goods, double recording of “extra” trade flows is likely: first at the port of entry into the CU or EcUn, second at the economy of final destination. In these circumstances, a combination of the three concepts is necessary to arrive at a proper recording of both extra- and intra-union trade. Box A3.1 provides a numerical example.

    Box A3.1.Recording of Trade Transactions in Currency and Economic Unions

    To compile trade data, gross transactions of the member economies with partner economies outside the CU or EcUn area are aggregated. This approach allows for a CU or EcUn’s balance of payments statement to be compiled on a gross (credits and debits) basis. This is evidenced in the example below, where economy A is not a member of the union, and economies B and C are members of the union. Economy A (economy of origin) exports goods to economy C (economy of last known destination), and B is the economy of consignment.

    1. Use of economy of origin and economy of last known destination:

    Partner economy attribution
    Reporting economyExtra-union Economy AIntra-union
    Economy BEconomy C
    Economy A recordsexport: 10
    Economy B recordsimport: 10export: 10
    Economy C recordsimport: 10
    Unionimport: 20export: 10

    In this example, the compilation of trade data for the union (economies B and C) leads to an overestimation of imports (double counting of imports from A) and also to an unbalanced intra-trade (export of B to C, not recorded as an import by C). However, if the union is without internal customs borders and the goods are cleared on the external border of the union and released into free circulation, then only the customs data of Economy B would record the transaction (imports from A but not exports to C). Subsequent dispatches and arrivals need to be collected through enterprise surveys.

    2. Use of economy of consignment:

    Partner economy attribution
    Reporting economyExtra-union Economy AIntra-union
    Economy BEconomy C
    Economy A recordsexport: 10
    Economy B recordsImport: 10export: 10
    Economy C recordsimport: 10
    UnionImport: 10import: 10export: 10

    If, instead, the concept of economy of consignment is used, this results in an appropriate recording of extra-union trade, but not a proper recording of intra-union trade which is artificially inflated. In addition, in balance of payments of member economies, the geographic allocation of flows is inaccurate.

    3. Combination of the two methods:

    In this case, economies record goods transactions of the economy of origin and the economy of last destination as imports/exports. Additionally, goods transactions with intermediary economies are recorded as arrivals/dispatches. Arrivals and dispatches can be disregarded when compiling the extra-union transactions of the union.

    Partner economy attribution
    Reporting economyExtra-union Economy AIntra-union
    Economy BEconomy C
    Economy A recordsdispatch: 10export: 10
    Economy B recordsarrival: 10dispatch:10
    Economy C recordsimport: 10arrival: 10
    Unionimport: 10

    Therefore, only a combination of the two methods will achieve a proper recording of trade flows.

    A3.28 From a recording perspective, in CUs and EcUns that still have internal customs border, reliance on customs data, with economy of consignment data as supplementary, is feasible. In CUs and EcUns without national customs borders (the most likely situation), data on economy of origin, the economy of last known destination, and the economy of consignment are required from reporters.

    Definition of reserve assets

    A3.29 Reserve assets shown in the balance of payments and IIP of the CU should include only those assets that (a) represent claims on nonresidents of the CU and (b) meet the criteria described in Chapter 6. Also, the definition of the reserve assets at the CU level and at the member economy level should be the same; in other words, with respect to national data, reserve assets should include only those assets that qualify as reserve assets at the CU level.7

    A3.30 Similarly, liabilities classified as reserve-related liabilities in the national data should include only those liabilities that qualify as reserve-related liabilities at the CU level.

    2. Issues related to the operational aspects of a currency union

    A3.31 Issues arise from the operational aspects of the functioning of a CU that relate mostly to the attribution of transactions and positions among member economies and the CUCB, and do not affect the CU balance of payments and IIP statements.

    a. Treatment of national agencies in a centralized currency union

    A3.32 In a centralized CU, in each member economy the monetary authority functions are deemed to be carried out by a national (resident) monetary authority. Typically, the CUCB maintains national offices in each member economy.8 This institutional unit, called “the national agency,” acts as the central bank for that economy and must be treated for statistical purposes as an institutional unit that is separate from the headquarters of the CUCB.

    A3.33 Transactions among resident units of the same member economy settled through accounts at the CUCB are not to be recorded in the national balance of payments but attributed to the national agency as domestic transactions and positions.

    A3.34 Transactions with nonresidents settled through the CUCB are to be recorded as transactions of the national agency in the national balance of payments according to the nature of the transaction, with the corresponding entry in the relevant financing item attributed by the CUCB, such as reserve assets (to illustrate this, see numerical example at the end of this appendix). As changes in reserve assets of a CUCB in a centralized system for the most part reflect member economies underlying external transactions, these transactions and positions in reserve assets should continue to be shown in the balance of payments and IIP of member economies.

    A3.35 Transactions of residents with the CUCB, where the CUCB is acting on its own account, should be recorded in the national balance of payments according to the nature of the transaction. For example, debt securities issued by the CUCB and subscribed by residents of an economy of the CU are recorded as portfolio investment in the national balance of payments.

    A3.36 Transactions and positions of the CUCB with nonresidents of the CU, where the CUCB is acting on its own account, such as interest on the part of reserve assets that are not allocated to any member economy or bonds issued by the CUCB and subscribed by nonresidents of the CU, should not be recorded in any national balance of payments of member economies but are included in the balance of payments of the CU.

    A3.37 Gross assets and liabilities of member economies at the end of the period should reflect the position at the beginning of the period together with any transactions and other flows recorded during the period between residents and nonresidents (including the CUCB). Usually, the member economies will have a net claim on the CUCB, which represents its share of the reserve assets of the CUCB. However, if an economy has a net liability position, transactions in liabilities, other investment, loans, central bank, short-term (and in the memo item “reserve-related liabilities”), rather than reserve assets, should be recorded because the position has the nature of an overdraft.

    A3.38 The above approach to recording these transactions and positions reflects current practice in centralized CUs where a monetary survey is established in each member economy. In compiling CU data, compilers will need to ensure that assets and liabilities of the CUCB are not double counted.

    A3.39 Any assets held by the CUCB on behalf of member economies, such as gold, reserve position at the IMF and SDRs, and more generally foreign assets that are assigned to member economies in the accounts of the CUCB, are to be shown in the balance of payments and IIP of the member economy. Any liabilities attributable to the economy, such as use of IMF credit, are to be shown in the balance of payments of the member economy.

    b. Treatment of national agencies and reserve assets in a decentralized currency union

    A3.40 The methodology recommended for a centralized CU is de facto applied in the decentralized system where, in each economy, monetary activities with residents of the CU are carried out by national central banks having their own assets and liabilities.

    A3.41 Where reserve assets are held by the CUNCBs (i.e., the assets are actually recorded on their balance sheets), the institutional setting may in certain circumstances result in some restrictions on the effective control over these assets by the CUNCBs. That is, CUNCBs may be able to transact in some of the reserve assets only with the agreement of the CUCB, such as to ensure appropriate coordination of reserve activity among CUNCBs. Provided there has been no transfer of ownership to the CUCB and the foreign assets owned by the CUNCBs can be mobilized by the CU to meet balance of payments needs, that is, are reserve assets of the CU, the CUNCB of the member economy should classify them as reserve assets in their national balance of payments and IIP, even though the CUNCB may not have complete control of their use because of operational constraint at the CU level.

    c. Transactions and positions in banknotes

    A3.42 For CU balance of payments and IIP statistics, transactions and positions in banknotes should be treated according to the same principles as for national data, with nonresident purchases recorded as an increase in external liabilities (credit) and the corresponding entry, such as travel, recorded as appropriate. From a national perspective, holdings of the CU banknotes issued by a CUNCB in another member economy are external assets at the same time, even though the currency is classified as a domestic currency.

    A3.43 If the issuer of the banknotes can be identified, such as in the African and the Caribbean currency unions at the time of writing, the methodology described in paragraph A3.42 above can be applied in the national balance of payments and IIP data. However, when the issuer of the banknotes cannot be identified, such as presently in Europe where the banknotes are collectively issued by the system without any indication of the economy of origin, this methodology cannot be strictly applied among the CU members, and approximations in national data are needed.

    d. Other intra–currency union claims and liabilities

    Initial subscription of the CUCB’s capital

    A3.44 Initial subscriptions to a CUCB’s capital are to be recorded in the balance of payments and IIP of member economies as assets, other investment, other equity. All the member economies and the CUCB of a CU must classify this transaction and position the same.

    Initial transfer of reserve assets

    A3.45 Claims arising from a transfer of reserve assets to the CUCB are to be classified as assets, other investment, under either other equity or currency and deposits, depending on the nature of the claim. If a CU member does not fully meet its obligations to transfer reserve assets to the CUCB, the CUCB reports a claim on the member economy. Such claims on the member economy should be classified in its balance of payments and IIP as liabilities, other investment, other accounts payable–other, central bank (or general government), short-term.

    Intra-CUNCBs and CUCB balances

    A3.46 Transactions and positions corresponding to claims and liabilities among CUNCBs and the CUCB (including those arising from settlement and clearing arrangements) are to be recorded for the central bank under other investment, currency and deposits or loans (depending on the nature of the claim) in the balance of payments and IIP of member economies. If changes in these intra-CU claims and liabilities do not arise from transactions, relevant entries are to be made under the “other adjustment” column of the IIP. Remuneration of these claims and liabilities is to be recorded in the balance of payments of CU member economies as income on a gross basis under investment income, other investment.

    Allocation of seigniorage

    A3.47 Seigniorage is monetary income accruing from the issuance of currency. Reallocations of monetary income among member economies and the CUCB where no underlying asset and liability positions are recognized are to be recorded as a current transfer.

    Distribution of profits

    A3.48 Distribution of profits of the CUCB should be classified as income on the financial asset to which member economies’ subscriptions are attributed.

    C. Economic Unions

    A3.49 For the purpose of macroeconomic coordination and cooperation, EcUns formulate specific data requirements including for balance of payments statistics, which help assess aspects such as the degree of integration of the EcUn internal market and share of trade with economies outside the EcUn.

    A3.50 At the EcUn level, the current account, the capital account, and the direct investment account are relevant for monitoring economic performance of the EcUn. However, as different currencies continue to coexist, and the respective monetary authorities set their monetary policy objectives in terms of developments of monetary variables, interest rates, and exchange rates, the portfolio and other investment categories are less meaningful at the EcUn level. For instance, reserve assets of a union other than a CU are the sum of the total of the national reserves (without consolidation) and this total has no specific meaning at the union level.

    1. Definition issues

    a. Definition of an economic union

    A3.51 For statistical purposes, an EcUn is a union to which two or more economies belong. EcUns are established by means of an intergovernmental legal agreement among sovereign countries or jurisdictions with the intention of fostering greater economic integration. In an economic union some of the legal and economic characteristics associated with a national economic territory are shared among the different countries or jurisdictions. These elements include (a) the free movement of goods and services within the EcUn and a common tax regime for imports from non-EcUn economies (free trade zone); (b) the free movement of finance within the EcUn; and (c) the free movement of (individual and legal) persons within the EcUn.9 Also in an EcUn, specific regional organizations are created to support the functioning of the EcUn under points (a) to (c). Some form of cooperation and coordination in fiscal and monetary policy usually exists within an EcUn.

    b. Residence in an economic union

    A3.52 The economic territory of an economic union consists of the economic territory of the member countries or jurisdictions, and the regional institutions that comprise the same or a subset of the same economies and are set up to manage the functioning of the EcUn.

    A3.53 So, being a resident of an economy of an EcUn necessarily implies being a resident of the EcUn, and regional organizations that are within the definition of the EcUn territory are also resident. However, regional organizations whose membership of economies is not the same as, nor a subset of, those in the EcUn should be regarded as nonresident of the EcUn.

    2. Recording issues

    A3.54 Because the compilation of EcUn balance of payments statistics relies on national contributions, as with the data for currency unions, it is essential that the EcUn member economies consistently follow internationally agreed standards for the classification of transactions and assets and liabilities, and provide adequate metadata describing their methodology. The discussion in paragraphs A3.27–A3.28 on the geographic allocation of transactions in goods also applies to EcUns.

    D. Customs Arrangements

    A3.55 Regional integration can take the form of customs arrangements between several economies. In general, these customs arrangements, based on a common customs tariff vis-à-vis nonmember economies, do not raise specific balance of payments issues. However, when customs unions generate cross-border flows, such as through a revenue-sharing formula, the recording of transactions and positions in the international accounts is affected by the institutional and administrative arrangements of the customs union.

    A3.56 In customs unions such as the Southern African Customs Union, there may be a cooperative approach among members to levying, collecting, and distributing customs duties. How and when these functions are undertaken is important for determining the appropriate recording approach. One or all of these functions may be assigned to one economy specifically, to all the member economies collectively, or to a designated international agency created by the members. Most important, economies in a customs union are encouraged to agree on common, appropriate, statistical recording for the benefit of regional consistency and comparability.

    A3.57 The following paragraphs set out some of the possible types of arrangments.

    1. A designated agency levies, collects, and distributes the proceeds from the duties

    A3.58 In this scenario, the designated agency has the right to levy and collect the customs duties, and distribute the proceeds. If it is recognized as an institutional unit, in the international accounts the customs duties are classified as its own tax revenue (primary income), and recorded at the time the underlying economic event occurs that gives rise to the customs duties, along with an increase in financial assets (such as cash received). The importing economy reports the accrual of taxes (given that in the balance of payments import taxes are payable by the importer) and a reduction in financial assets or increase in liabilities. If the payment of customs duties occurs after the underlying economic event, the designated agency records an accounts receivable claim (debit) on the importer in the importing economy, recorded in the financial account. The importing economy records an accounts payable liability (credit).

    A3.59 If the designated agency is to distribute the revenue pool to member economies on the basis of an underlying economic event (import of goods), it records a current transfer (debit) (member economies record a current transfer (credit)) and accounts payable (credit) (member economies, accounts receivable) at the time the underlying economic event occurs, the size of which depends on the nature of the revenue-sharing agreement. However, if the distributions are made to an agreed and negotiated formula, the current transfer should be recorded at the time the member economy acquires an unconditional claim on the designated agency.10 At the time of distribution, the designated agency extinguishes the accounts payable (member economies extinguish the accounts receivable), with a corresponding entry of a reduction in foreign assets (member economies record increase in foreign assets).

    A3.60 The institutional unit could be an international agency in which all the transactions described in the previous paragraphs are between the international agency and the member economies, or be a resident of one member economy, in which case all the transactions described in the previous paragraphs are between that economy and all the other member economies.

    2. A designated agency levies duties but member economies collect duties

    A3.61 In a variant, if member economies act as collecting agents on behalf of the designated agency for the customs duties from importers in their own economy, the collecting member economy records an accounts payable liability in the financial account (credit) to the designated agency, which records an accounts receivable claim as the customs duties accrue. The contra-entry will be reflected as an increase in taxes (primary income) payable by the importing economy and receivable by the designated agency. When the member economy makes the payment to the designated agency, the member economy will record a reduction in cash, with a contra-entry in the financial account to eliminate the accounts payable liability.

    A3.62 If the collecting economy collects customs revenue due from importers outside their own economy—that is, it collects customs duties from importers in other economies in the customs union—it records accounts payable to the designated agency as well as an increase in financial assets reflecting the cash received; the importing economy records taxes payable to the designated agency unit and a reduction in financial assets (increase in foreign liabilities) to the collecting economy, reflecting, say, the cash paid; and the designated agency records taxes (primary income) from the importing economy and account receivable from the collecting economy.

    A3.63 Distributions of revenue by the designated agency are treated as described in paragraph A3.59.

    3. Member economies have collective rights to levy and collect the duties

    A3.64 If member economies have collective rights to levy the customs duties under the agreement, the revenue attributed to each member economy is either in proportion to the respective underlying economic activity that gives rise to the customs duties, or not. Each member economy records customs duties due on their imports on an accrual basis, regardless of how the revenue is to be shared or where the customs duties are collected.

    A3.65 Should the customs agreement provide for any member economy to receive a larger share of the customs pool than is evidenced by the underlying economic activities, a current transfer element exists between member economies. The current transfer is recorded at the time unconditional claims are established, with a corresponding entry in accounts receivable/payable.

    A3.66 It could be that the ports of entry for the customs union are situated in one or a small group of member economies. If so, there could be a discrepancy between the revenue collected by a member state and that member’s share of the customs pool. In these circumstances, an accounts receivable (importing economy) and accounts payable (collecting economy)11 are recorded at the time that such a claim can be established, with the corresponding entry in a reduction in financial assets of the importing economy and an increase in financial assets for the economy that collects more customs revenue than that member’s share of the customs pool. The discrepancies between the customs revenue collected by each of the customs union members and the total of each member’s share of the customs pool share should sum to zero across the customs union, as the customs revenue collected by the customs union equals the revenue to be shared out among member economies.

    4. Member economies have collective rights to levy the duty, but only one member collects the duties

    A3.67 If one of the member economies collects all the customs revenue, the recording is as described in the previous paragraphs. Only the collecting economy will record accounts payable, as all other economies will have claims on the collecting economy for their share of the customs revenue.

    A3.68 In all the above circumstances, where there are economic arrangements involving a small group of economies, to avoid bilateral asymmetries, it is recommended that all the economies involved agree and follow the same recording procedures.

    E. Other Regional Statements

    A3.69 Similar statements can be compiled on a regional basis to show the CU’s or EcUn’s external transactions with, or position vis-à-vis, another selected group of economies or a particular economy. These are known in the Manual as data by partner economy and are covered in paragraphs 4.146–4.164.

    1. Recording principles

    a. General

    A3.70 Concepts and recommendations noted in the chapters of the Manual for compilation of balance of payments and IIP statements also apply to regional statements, but specific references to residents of the relevant foreign economy or group of economies should be substituted for the general references to nonresidents or the rest of the world. This substitution should be made for all transactions and positions.

    b. Current and capital accounts

    A3.71 In the current account, as noted in previous paragraphs, trade in goods—reflecting the change of ownership principle associated with coverage of this item—generally would show exports allocated to the region of residence of the new owner and imports allocated to the region of residence of the former owner. For trade in services, allocation would be to the region where the provider or acquirer of the service is resident and, for income, the region on which the resident has the associated financial claim or liability. For transfers (current and capital), allocation would be to the region of the donor or recipient, as appropriate.

    c. Financial account and positions

    A3.72 In the financial account and position data, consistent with paragraph A3.4, allocation should be on the basis of the debtor-creditor principle.12

    2. Specific recording issues

    a. Multilateral settlements

    A3.73 Although a balance of payments statement vis-à-vis the rest of the world, whether for an economy or for a CU or EcUn, should in concept balance, any statement vis-à-vis a subset of nonresidents generally does not. For instance, a resident in the compiling economy may make payment to or accept payment from a nonresident (resident of economy A) in the form of a claim on another nonresident (resident of economy B). This situation occurs when a currency is used in international transactions by other economies for making settlements. The discrepancies resulting from the allocation of transactions in real resources to the region of the nonresident owner or 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 entry is provided under the item multilateral settlements to restore an accounting balance by serving as an offset to the discrepancies 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.

    A3.74 The data needed to compile statistics 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.

    b. Selection of regions

    A3.75 Guidelines on residence in 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, because the residence of any entity is attributed to a specific economic territory. For transactions and positions vis-à-vis CUs and EcUn, the territories are as defined above.

    A3.76 Because most international organizations are not included in the economic territory of a economy or region and so are not considered resident in that economy, a separate region for international organizations would be appropriate for allocation purposes. The regional breakdown that will be relevant for a particular economy or group of economies depends primarily on how the statement is to be used. The Manual does not contain a standard list of economies or regions for which the reporting economy or group should compile separate statements.

    Numerical Example: International Transactions and Positions in the National Data for a Member Economy of a Centralized Currency Union

    1. Opening period

    Let us assume that A and B are the only members of the CU and that the opening position is as follows:

    CUCB Balance Sheet
    AssetsLiabilities
    Foreign assets (reserve assets)500Banknotes1,600
    Claims on CU residents1,500Deposits of CU banks400
    Total2,000Total2,000

    The creation of a notional monetary authority in each economy entails the attribution of domestic assets (credit to governments and banks) and liabilities (banknotes) to each economy as follows:

    National Agency Balance Sheet Economy A
    AssetsLiabilities
    Net claim on CUCB (reserve assets)300Banknotes1,000
    Domestic assets (residents of A)950Bank deposits (residents of A)250
    Total1,250Total1,250
    National Agency Balance Sheet Economy B
    AssetsLiabilities
    Net claim on CUCB (reserve assets)200Banknotes600
    Domestic assets (residents of B)550Bank deposits (residents of B)150
    Total750Total750

    The CUCB has foreign assets of 500, which in this instance are all reserve assets, the total reserves for the union. In turn, the net claim13 of the national monetary authority on the CUCB represents the foreign assets (again, all reserve assets in this instance) of the economy: A and B have reserve assets of 300 and 200, respectively.

    In this example, it is assumed that the CUCB has no assets and liabilities on “own account,” that is, no assets or liabilities other than those that reflect positions with the national economies.

    During the periods 1, 2, and 3, the following operations take place:

    2. Period I

    Economy A imports 100 of goods from Economy Y (not a member of the CU), which are paid in foreign exchange (U.S. dollars).

    Typically, the resident of A will acquire the foreign currencies he needs from the CUCB, through his domestic bank. The transactions are as follows:

    • The bank account at the importer’s resident commercial bank is debited (100) and the importer acquires foreign currency (100).

    • The commercial bank acquires foreign currency from the CUCB (100) and the commercial bank’s account at the CUCB is debited (from 250 to 150). For statistical purposes, it will be assumed that the national agency in economy A holds the account of the commercial bank, and that in turn the national agency acquires the foreign currency from the CUCB.

    • The CUCB draws down its reserve assets (from 500 to 400), and the account of the national agency is debited in the books of the CUCB.

    • Net claims of economy A on the CUCB decline because of the debiting of the national agency’s account. This decline in net claims reflects transactions in reserve assets (from 300 to 200).

    So under the proposed treatment, imports increase with the corresponding entry in reserve assets. The balance of payments transactions and the balance sheet of economy A would be as follows:

    Economy A Balance of Payments
    CreditDebit
    Current Account
    Goods100
    Financial Account
    Reserve assets100
    National Agency Balance Sheet Economy A
    AssetsLiabilities
    Net claim on CUCB (reserve assets)200Banknotes1,000
    Domestic assets (residents of A)950Bank deposits (residents of A)150
    Total1,150Total1,150

    3. Period 2

    Economy A exports the same goods to B for an amount of 120 domestic currency.

    The transaction is settled in domestic currency through the banking system. The transactions are as follows:

    • The resident importer’s bank in B settles in domestic currency with the exporter’s bank through its accounts at the CUCB. So B’s commercial bank account at the CUCB is debited (from 150 to 30), while A’s commercial bank account is credited (from 150 to 270). As in period 1, for statistical purposes, it is assumed that the accounts of the commercial banks are held in their respective national agencies.

    • Net claims of economy A on the CUCB increase (from 200 to 320) as a result of the crediting of the national agency’s account and net claims of B decline (from 200 to 80) as a result of the debiting of the national agency’s account.

    • The transaction is neutral for the CUCB as a whole, but does affect the intra-CU composition of net claims on the CUCB, which in this instance is reflected in changes in reserve assets.

    In the proposed treatment of the balance of payments of A and B, the entries would be as follows:

    Balance of

    Payments

    Economy A
    Balance of

    Payments

    Economy B
    CreditDebitCreditDebit
    Current Account
    Goods120120
    Financial Account
    Reserve assets120120
    National Agency Balance Sheet Economy A
    AssetsLiabilities
    Net claim on CUCB (reserve assets)320Banknotes1,000
    Domestic assets (residents of A)950Bank deposits (residents of A)270
    Total1,270Total1,270
    National Agency Balance Sheet Economy B
    AssetsLiabilities
    Net claim on CUCB (reserve assets)80Banknotes600
    Domestic assets (residents of B)550Bank deposits (residents of B)30
    Total630Total630

    4. Period 3

    Economy B exports the same goods to economy Z (not a member of the CU) for the amount of 150.

    The transaction is settled in foreign currency (U.S. dollars).

    • Then the resident of B sells the foreign exchange receipts to his resident commercial bank in B and his account is credited (150).

    • The commercial bank sells foreign currency to the CUCB (150) and the commercial bank’s account at the CUCB is credited (from 30 to 180). As in periods 1 and 2, for statistical purposes, it is assumed that the national agency holds the account of the commercial bank.

    • The CUCB increases its reserve assets (from 400 to 550), and the account of the national agency is credited in the books of the CUCB.

    • Net claims of economy B on the CUCB increase as a result of the crediting of the national agency’s account.

    So, under the proposed treatment, exports increase with the corresponding entry in reserve assets. The balance of payments transactions and the balance sheet of economy B would be as follows:

    Economy B Balance of Payments
    CreditDebit
    Current Account
    Goods150
    Financial Account
    Reserve assets150
    National Agency Balance Sheet Economy B
    AssetsLiabilities
    Net claim on CUCB (reserve assets)230Banknotes600
    Domestic assets (residents of B)550Bank deposits (residents of B)180
    Total780Total780

    5. Conclusion

    At the end of period 3, the balance of payments of A and B shows the following entries:

    Economy AEconomy B
    CreditDebitCreditDebit
    Current Account120100150120
    Financial Account
    Reserve assets2030

    These transactions result in an increase of the reserve assets of the CUCB of 50, and its balance sheet has changed as follows:

    CUCB Balance Sheet
    AssetsLiabilities
    Foreign assets (reserve assets)550Banknotes1,600
    Claims on CU residents1,500Deposits of CU banks450
    Total2,050Total2,050

    As can be seen in this numeric example, the change in reserve assets of the CUCB (+50) from the opening period to the end of period 3 reflects only transactions with nonresidents of the CU: import of goods of 100 from economy Y and export of goods of 150 to economy Z.

    National Agency Balance Sheet Economy A
    AssetsLiabilities
    Net claim on CUCB (reserve assets)320Banknotes1000
    Domestic assets (residents of A)950Bank deposits (residents of A)270
    Total1,270Total1,270
    National Agency Balance Sheet Economy B
    AssetsLiabilities
    Net claim on CUCB (reserve assets)230Banknotes600
    Domestic assets (residents of B)550Bank deposits (residents of B)180
    Total780Total780

    References to specific statistical issues that apply to unilateral adoption of a foreign currency (such as dollarization) are also included in this section.

    In this context, “regional” is not used to mean a region within an economy.

    As opposed to the transactor principle. Under the transactor principle, cross-border transactions in claims are allocated to the economy of residence of the nonresident party to the transaction (the transactor). Information on the location of counterparties can be of analytical interest, such as the markets in which or with which residents transact.

    In compiling data for a monetary union that is not a currency union, account would need to be taken of the specific institutional arrangements to determine which principles set out in this appendix need to be applied.

    In the case of a “dollarized economy,” the banknotes and coins of legal tender should be considered foreign currency as stated in paragraph 3.96.

    For securities, the issuer may not know the identity or residence of the creditor. Such information can be obtained only from the intermediary or the creditor. Because of the importance of this information, economies are increasingly developing reporting systems to capture data on a debtor-creditor basis, often through cooperative efforts, including the IMF’s Coordinated Portfolio Investment Survey and Coordinated Direct Investment Survey.

    In the case of a dollarized economy, reserve assets shown in the balance of payments and IIP should meet the criteria described in Chapter 6, Functional Categories.

    In rare occurrences where this is not the case, for statistical purposes an institutional unit is to be created to record the central bank transactions and positions with the residents of the economy described in this section.

    As noted in Chapter 4, an economy, and by extension, an economic union, can include physical or legal (special) zones to which, to some extent, separate laws are applied.

    Sometimes, the revenue-sharing distributions are based on preliminary estimates and require final adjustments to the distributed revenue at a later stage. Such adjustments to the estimates of the distributed revenue should be recorded in the periods in which they are made. So if the revenue to be received by an economy is increased, a current transfer credit and accounts receivable debit (or cash if paid when the adjustment is made) for the amount of the increase is recorded in that period; if revenue to be received is reduced, a current transfer debit and a negative accounts receivable (or cash if repaid when the adjustment is made) are recorded in that period.

    Net recording of accounts payable or receivable might be appropriate when a member economy both is to receive more (less) of the customs pool than is evidenced by the underlying economic activities, and collects more (less) of the revenue than its share of the revenue pool.

    As noted above, information on the basis of the transactor principle can also be of analytical interest.

    Net is meant in terms of the difference between the assets and liabilities.

    APPENDIX 4 Statistics on the Activities of Multinational Enterprises

    A. Introduction

    References:

    Eurostat, Recommendations Manual on the Production of Foreign AffiliaTes Statistics.

    Organization for Economic Cooperation and Development (OECD), OECD Benchmark Definition of Foreign Direct Investment (fourth edition), Chapter 8, FDI and Globalisation.

    OECD, OECD Handbook on Economic Globalisation Indicators, Chapter 3, The Economic Activity of Multinational Enterprises.

    United Nations, Manual on Statistics of International Trade in Services, Chapter IV, Foreign Affiliates Statistics and the International Supply of Services.

    A4.1 In addition to the statistics on direct investment (DI) described in this Manual, information on foreign-controlled enterprises is provided through statistics on the Activities of Multinational Enterprises (AMNE statistics) and the closely related Foreign AffiliaTes Statistics (FATS). AMNE statistics cover a range of variables on these direct investment enterprises, described below. This wider dataset is compiled separately from balance of payments and international investment position statistics (although the data may be collected in the framework of DI compilation), as the data relate to the overall holdings and activities of direct investment enterprises rather than just positions and transactions by them with related enterprises. That is, the objective of AMNE statistics is to provide an additional perspective on the impact of direct investment that is complementary to data on international flows and positions. This appendix is designed to give an overview of the nature and compilation of AMNE statistics for the information of balance of payments compilers and users who may be considering this extended range of information.

    A4.2 AMNE statistics may be produced for both foreign-controlled enterprises in the compiling economy (a subset of inward foreign direct investment; so called “inward AMNE”) and foreign affiliates controlled by the compiling economy (a subset of outward foreign direct investment; so called “outward AMNE”). In addition, outward AMNE also may cover the activities of resident direct investors.

    A4.3 AMNE statistics can be important for the analysis of the performance of domestically and foreign-controlled enterprises, both in absolute terms and relative to the larger domestic and foreign universes of enterprises. Direct investment enterprises may be involved in activities such as research and development that benefit the domestic economy but may not be recorded as balance of payments transactions. Also, data on transactions in goods and services (with both residents and nonresidents) can provide an additional perspective to balance of payments data, as transactions by direct investment enterprises with unrelated persons could be significant.

    A4.4 When the General Agreement on Trade in Services (GATS) was negotiated, four modes of supplying services were identified.1 One of these is mode 3, the supply of services through commercial presence, i.e., direct investment. AMNE statistics for enterprises that produce services provide information that allows for the negotiation and monitoring of GATS agreements and other trade agreements. However, AMNE statistics are not limited to suppliers of services, and also cover manufacturing, mining, and other activities.

    A4.5 Detailed discussion and recommendations for measuring AMNE and for FATS is found in the Manual on Statistics of International Trade in Services (Chapter IV, Foreign Affiliates Trade in Services Statistics),2 in the OECD Handbook on Economic Globalisation Indicators, and in the fourth edition of the OECD Benchmark Definition of Foreign Direct Investment, Chapter 8, FDI and Globalization. A summary is provided here.

    B. Coverage

    1. Universe or population

    A4.6 AMNE statistics cover those direct investment enterprises in which the direct investor (or a group of investors in combination) directly or indirectly holds or controls a majority of the voting power (i.e., subsidiaries). This differs from the scope of direct investment enterprises due to the exclusion of associates. These statistics follow the definition of direct investment discussed in this Manual (paragraphs 6.8–6.24)3 in that coverage is defined as those enterprises with majority foreign ownership of the voting power by a single investor or a group of investors acting together; only those enterprises with foreign control are covered.

    A4.7 Countries that are able to do so may wish to provide supplemental statistics covering cases in which foreign control may be deemed to be present, even though no single foreign direct investor holds a majority stake.

    2. Economic variables for AMNE statistics

    A4.8 Basic variables of substantial interest may include: sales (turnover) and/or output; employment; value added; exports and imports of goods and services; and number of enterprises.

    A4.9 Other variables that might be collected to supplement these data include: assets (both financial and nonfinancial); compensation of employees; net worth; net operating surplus; gross fixed capital formation; taxes on income; research and development expenditures; total purchases of goods and services; and intra-group exports and imports.

    A4.10 The definitions of these variables are given in the 2008 SNA and in the documents referenced above. It is also useful to have data for the total population or for the domestically-controlled enterprises on the same basis as AMNE statistics on inward DI, so performance can be compared with foreign-controlled enterprises.

    C. Statistical Units

    A4.11 In principle, most AMNE statistics could be collected at the enterprise group or enterprise level, or the level of individual business locations or establishments. Some indicators, such as total assets, are more naturally collected from enterprise groups or enterprises than from establishments. DI statistics are usually collected from enterprise groups or enterprises, so collection of AMNE statistics at this same level facilitates linkages between the two types of data. However, because enterprise groups and enterprises are more likely than establishments to have activities in multiple industries, data that are classified on the basis of primary activity can be more difficult to interpret for enterprise groups and enterprises than for establishments. There are thus advantages and disadvantages associated with every basis of collection, and no recommendation is made as to the appropriate statistical collection unit. AMNE statistics often will be developed in the context of existing statistical systems, in which the statistical units are already defined, and in these cases there may be little choice in the units used.

    D. Time of Recording and Valuation

    A4.12 Time of recording and valuation are consistent with the Manual. Flow variables, such as output or value added, should cover the whole of the reference period (usually a year), and should be measured on an accruals basis. Stock variables, such as assets and net worth, should be as at the end of the reference period. All transactions and position variables in principle should be measured at market value.

    E. Attribution of AMNE Variables

    1. Geographic

    A4.13 For statistics on foreign-controlled enterprises in the compiling economy (inward AMNE statistics), the geographical attribution should be by the economy of the ultimate controlling investor. However, to facilitate links with DI data, compilers are encouraged also to provide some data in which attribution is based on the economy of the immediate investor (that is, the first foreign parent). Statistics for foreign enterprises controlled by investors resident in the compiling economy (outward AMNE statistics) should be attributed based on the location of the enterprises whose activities are being described.

    2. By activity and by product

    A4.14 Ideally, all AMNE variables should be attributed on the basis of the industrial activities of the establishment or enterprise, according to the United Nations International Standard Industrial Classification of All Economic Activities (ISIC).

    A4.15 In addition, particular variables such as sales or output, exports, and imports may be attributed by the types of products produced and sold. Data on a product basis would identify the specific types of goods and services delivered through foreign-controlled enterprises and could most readily be compared with data on goods and services delivered through trade between residents and nonresidents, and to domestic production. However, some variables, such as value added and employment, do not readily lend themselves to a product classification.

    A4.16 As a longer-term goal, compilers are encouraged to work toward disaggregating by product some or all of the variables that lend themselves to this basis of attribution (such as sales (turnover) or output, exports, and imports). Product-based statistics are free of problems of interpretation related to secondary activities and are consistent with the basis of classification used for trade in goods and services in the balance of payments.

    F. Compilation Issues

    A4.17 There are two basic approaches, not necessarily mutually exclusive, to developing AMNE statistics. The first is to conduct surveys that directly request information on the operations of the covered enterprises (appropriate for both inward and outward AMNE statistics). The second identifies the subset of existing domestic enterprise data that is accounted for by foreign-owned firms (for inward AMNE statistics only). DI registers may be used in either case to identify the units to be covered (as well as the economy of attribution, in the case of inward AMNE statistics).

    A4.18 For both inward and outward AMNE statistics, questions about key AMNE variables might be added to existing surveys of direct investment transactions and positions. However, because DI surveys may be conducted more frequently than AMNE statistics are required (for example, quarterly rather than annually) and require a quick turnaround, and also because AMNE statistics are needed for only the controlled portion of the DI universe, separate surveys may be a more appropriate way to proceed.

    A4.19 For inward AMNE statistics, it should be possible to link the DI statistics to the existing domestic economic statistics (for example, as collected for national accounts purposes) through the use of information on ownership structure to identify those resident enterprises that are foreign-controlled, as well as identifying the residence of the owner. AMNE statistics would be obtained as an aggregation of statistical variables across the foreign-controlled statistical population.

    A4.20 Additional questions may have to be added to DI surveys if information on the ultimate controlling parent is to be obtained.

    For a discussion on GATS and modes of supply, refer to the Manual on Statistics of International Trade in Services (Chapter V Modes of Supply).

    MSITS focuses on foreign affiliates producing services, but notes that most of its recommendations (all other than those related to industry/product groupings) for compiling these statistics are equally applicable to goods and services.

    And the OECD Benchmark Definition of Foreign Direct Investment (fourth edition) (BD4).

    APPENDIX 5 Remittances

    A. Economic Concept of Remittances and Why They Are Important

    A5.1 Remittances represent household income from foreign economies arising mainly from the temporary or permanent movement of people to those economies.1 Remittances include cash and noncash items that flow through formal channels, such as via electronic wire, or through informal channels, such as money or goods carried across borders. They largely consist of funds and noncash items sent or given by individuals who have migrated to a new economy and become residents there, and the net compensation of border, seasonal, or other short-term workers who are employed in an economy in which they are not resident.

    A5.2 For many economies, remittances represent a sizable and stable source of funds that sometimes exceed official aid or financial inflows from foreign direct investment. Remittances may have a significant impact on poverty reduction and can finance economic growth in receiving economies.

    A5.3 The Manual identifies standard components and provides supplementary items to allow compilation of remittance aggregates. No single data item in the balance of payments framework comprehensively captures transactions in remittances. This appendix explains the different items needed to calculate remittance aggregates and the relationships between the different aggregates.

    A5.4 Remittances are mainly derived from two items in the balance of payments framework: income earned by workers in economies where they are not resident (or from nonresident employers) and transfers from residents of one economy to residents of another. The definitions of those items, as well as other relevant definitions and concepts, are set out below. The standard components related to remittances are discussed in Section B, and supplementary items are covered in Section C. Section D identifies related data series that are often raised in the context of remittances but are not included in the definitions as such. Section E discusses the application of balance of payments concepts on remittances, and Section F considers data by partner economy. Table A5.1 shows components required for compiling remittance items and their source. Table A5.2 shows the relationship between the different items.

    B. Standard Components in the Balance of Payments Framework Related to Remittances

    Reference:

    IMF, 2009, International Transactions in Remittances: Guide for Compilers and Users.

    A5.5 The two items in the balance of payments framework that substantially relate to remittances are “compensation of employees” and “personal transfers.” Both of these standard components are recorded in the current account.

    1. Compensation of employees

    A5.6 Compensation of employees refers to the income of border, seasonal, and other short-term workers who are employed in an economy where they are not resident and of residents employed by nonresident entities.2 Compensation of employees represents “remuneration in return for the labor input to the production process contributed by an individual in an employer-employee relationship with the enterprise.” Compensation of employees is recorded gross, before taxes and other expenses incurred in the economy where the work is performed. Paragraphs 11.10–11.23 provide more details. (However, in the derivation of personal remittances, a net measure of compensation of employees is derived, as discussed in paragraph A5.12.)

    Table A5.1.Components Required for Compiling Remittance Items and Their Source
    ItemSource and description
    1. Compensation of employeesPrimary income account, standard component
    2. Personal transfersSecondary income account, standard component
    3. Travel and transport related to employment of border, seasonal, and other short-term workersGoods and services account, supplementary item
    4. Taxes and social contributions related to employment of border, seasonal, and other short-term workersSecondary income account, supplementary item
    5. Compensation of employees less expenses related to border, seasonal, and other short-term workersPrimary income account (for compensation of employees), standard component
    Goods and services account (for travel and transport expenses) and secondary income account (for taxes and social contributions), supplementary items
    6. Capital transfers between householdsCapital account, supplementary item
    7. Social benefitsSecondary income account, supplementary item
    8. Current transfers to NPISHsSecondary income account, supplementary item
    9. Capital transfers to NPISHsCapital account, supplementary item
    Important relationships are:“Net” compensation of employees (#5): #1 minus the sum of #3 and #4Personal remittances: #2 plus #5 plus #6Total remittances: #2 plus #5 plus #6 plus #7Total remittances plus transfers to NPISHs: #2 plus #5 plus #6 plus #7 plus #8 plus #9.

    2. Personal transfers

    A5.7Personal transfers consist of all current transfers in cash or in kind made or received by resident households to or from nonresident households. Personal transfers thus include all current transfers between resident and nonresident individuals (paragraph 12.21). Therefore, personal transfers are a subset of current transfers. They cover all current transfers that are sent by individuals to individuals.3

    A5.8 “Personal transfers” replaces an item called “workers’ remittances” in the standard presentation. According to BPM5, workers’ remittances are current transfers by migrants who are employed in new economies and considered residents there. To ensure consistency of time series, workers’ remittances are continued as a supplementary item. Unlike this previous item, personal transfers are defined independently of the source of income of the sending household, the relationship between the households, and the purpose for which the transfer is made. This simplifies the definition and brings it in line with compilation practices applied in many economies (which did not take account of factors such as source of income and purpose). So, although it is recognized that personal transfers will often originate from migrants sending resources to support their relatives in their economy of origin, personal transfers as defined in this Manual are not limited to such activity.

    C. Supplementary Items Related to Remittances

    A5.9 There are several supplementary data items in the international accounts including personal remittances, total remittances, and total remittances and transfers to nonprofit institutions serving households (NPISHs). They are cumulative measures, as illustrated in Table A5.2. As supplementary items, their compilation and dissemination is encouraged but voluntary, depending on the data needs of the compiling economy.

    Table A5.2.Tabular Presentation of the Definitions of Remittances
    Total Remittances and Transfers to NPISHs: a+b+c+d+e+f
    Total Remittances: a+b+c+def
    Personal Remittances: a+b+cd
    abc
    Personal transfers (part of current transfers)Compensation of employees less taxes, social contributions, transport, and travelCapital transfers between householdsSocial benefitsCurrent transfers to NPISHsCapital transfers to NPISHs
    Note: Personal transfers is a standard item; other items are supplementary.

    1. Personal remittances

    A5.10 Personal remittances are defined as current and capital transfers in cash or in kind between resident households and nonresident households, plus compensation of employees, less taxes and social contributions paid by nonresident workers in the economy of employment, less transport and travel expenditures related to working abroad (paragraph 12.27). In short, this item includes all household-to-household transfers and the net earnings of nonresident workers.

    A5.11 Household-to-household transfers are included within current or capital transfers, as appropriate, in the balance of payments accounts. Compilers in both economies are required to be aware of the sector of the transacting party on both sides. Personal transfers are a standard item under current transfers, while capital transfers between households are a supplementary item in the capital account.

    A5.12 The gross earnings of nonresident workers are recorded under “compensation of employees,” a standard component. To derive the relevant component for the calculation of personal remittances, compensation is adjusted by deducting taxes, social contributions, and transport and travel of border, seasonal, and other short-term workers outside their economy of residence. The three items that are deducted are all supplementary items in the balance of payments framework. Social contributions are defined as “the actual or imputed contributions made by households to social insurance schemes to make provision for social benefits to be paid” (paragraph 12.32). Compensation of employees is considered part of personal remittances because it refers to the earnings of geographically mobile workers and benefits households in a territory other than that where the work is performed. Data users are not always concerned with the length of stay of a migrant worker (which defines residence), but instead with all earnings of migrant workers that benefit their economies of origin, regardless of their residence status in the host economy.

    A5.13 It should be noted that “personal remittances” also include transfers originating from individuals who are not migrant workers. On the other hand, the earnings of individuals from the provision of services to another economy are not included. Paragraph 11.13 provides the definition of an employer-employee relationship which clarifies the difference between “compensation of employees” and payments for services.

    2. Total remittances

    A5.14 Total remittances are the sum of personal remittances and social benefits. Social benefits include “benefits payable under social security funds and pension funds. They may be in cash or in kind” (paragraph 12.40). Total remittances include income from individuals working abroad for short periods, from individuals residing abroad and sending transfers, and social benefits from abroad. Social benefits is a supplementary item in the balance of payments framework within secondary income. Total remittances are a supplementary item in the balance of payments statement.

    3. Total remittances and transfers to NPISHs

    A5.15 This item includes total remittances and both current and capital transfers to NPISHs from any sector of the sending economy. It therefore includes donations, in cash or kind, from government and enterprise sectors to charitable organizations in another economy. Therefore it has a very wide definition that is not closely linked to migration. In fact, much private and official aid as well as cross-border sponsorship of educational and cultural activities (including scholarships) will be included in this item. Current transfers received by NPISHs and to NPISHs are supplementary items under secondary income, whereas capital transfers received by NPISHs and to NPISHs are supplementary items under the capital account.4

    A5.16 The identification of NPISHs is not without problems. Whereas NPISHs are part of the wider household sector, nonprofit institutions serving other sectors are not. Although compilers will be able to appropriately identify the NPISHs resident in their economy, they will find it more problematic to identify NPISHs in partner economies. This makes the compilation of debit transactions of “total remittances and transfers to NPISHs” particularly challenging because the definition is partially based on identifying the sector of the transacting party in the partner economy. “Total remittances and transfers to NPISHs” is a supplementary item in the balance of payments statement.

    D. Related Data Series

    1. Investment by migrants

    A5.17 Migrants frequently invest in their economy of origin, whether they intend to return or have left per-manently.5 Sometimes the attachment to the economy of origin, and the willingness to invest there, carries over to subsequent generations of the migrants. Such investments can take numerous forms, but financial investments (notably bank deposits and portfolio investment) and investments in real estate are probably most common. Small enterprises, located in the economy of origin and sometimes managed by relatives, can also benefit from investments by migrants. These transactions are considered cross-border investments and are therefore included in the financial account. Although these investment flows are of analytical interest in the context of the economic effects of migration, they are not remittances in the balance of payments framework.

    A5.18 However, in some cases, investment transactions by migrants may be vehicles for the provision of remittances. When a migrant deposits funds in an account in the economy of origin, and relatives have access to these funds, this can be a personal transfer. For joint accounts a transfer can be recorded when the funds move across borders rather than when they are withdrawn (see paragraph 4.145). When a migrant purchases real estate and relatives occupy it without paying market rents, or when a migrant sets up an enterprise and relatives are employed and paid above-market incomes by this enterprise, personal transfers could be imputed. In the individual case, the value of the transfers would be calculated as the difference between actual transactions and market equivalent values. In practice, it is difficult to identify such transfers and calculate their value. If larger patterns are known to compilers—if, for example, there are large numbers of migrants buying real estate for use by their relatives in the home economy—estimates can be made on the basis of aggregate transactions data and benchmarks.

    2. Travel

    A5.19 Travel refers to the acquisition of goods and services in an economy by individuals who are visiting but not resident in that economy. Acquisitions of goods and services by border, seasonal, and other short-term workers in their economy of employment are also included in travel (paragraph 10.89). But travel excludes the acquisition of valuables, consumer durables, and other consumer purchases that are included in general merchandise (paragraph 10.90). The compilation of the supplementary definitions of remittances requires that the travel expenses of border, seasonal, and other short-term workers are subtracted from compensation of employees. In practice, it may be difficult to separate travel related to employment from all other travel.

    E. Concepts

    1. Residence

    A5.20 The balance of payments and national accounts frameworks rest on the identification of residents and nonresidents respective to each reporting economy. Because the concepts of personal transfers and remittances are based on the concept of residence rather than migration status, the concept of migration is not defined in the balance of payments. This is consistent with the use of residence criteria elsewhere in the balance of payments and national accounts frameworks.

    A5.21 The residence of households is determined according to the center of predominant economic interest of its members. The general guideline for applying this principle—being present for one year or more in a territory or intending to do so—is sufficient to qualify as being a resident of that economy (paragraph 4.117). Short trips to other economies—for recreation or work—do not lead to a change of residence, but going abroad with the intention of staying one year or longer does. “If a member of an existing household ceases to reside in the territory where this household is resident, the individual ceases to be a member of that household” (paragraph 4.118). Migrants going abroad to work thus become residents of the host economy (assuming they plan to stay for a year or longer), but they can join their original household on return. In addition, there are guidelines for the residence of specific cases of students, medical patients, and ships’ crews as well as diplomats, military personnel, and civil servants employed abroad in government enclaves. Regardless of the length of stay in a host economy, these groups are considered residents of the originating economy (see paragraphs 4.120–4.123).

    A5.22 Residence is important for remittance data because transactions are recorded differently depending on the residence status of the individual in his or her host economy. Border, seasonal, and other short-term workers are not resident in the economy where they work and their gross income is recorded as “compensation of employees.” There are no entries in the balance of payments for the wages of migrant workers who stay for at least a year and thus are residents of the same economy as their employer (assuming that their employer is a resident entity). However, when they send remittances to a household in another economy, these are recorded as “personal transfers.”

    A5.23 In many cases, it is assumed that the entities employing workers are resident in the economy where the work is performed. However, nonresident employers can have a substantial impact on remittance data. Nonresident employers include embassies and other diplomatic missions, international organizations, and numerous enterprises (see paragraphs 4.131–4.144). When resident workers work for nonresident employers, their wages and other benefits are recorded as “compensation of employees.”

    A5.24 In addition to current and capital transfers, some other resource flows may be of analytical interest. While migrant workers reside in a host economy, their remittances will be recorded as current or capital transfers. These include gifts in cash and kind to their household of origin. When returning home to reside, many migrants bring goods or own assets that will, on return, be owned by their household of origin. However, assets that migrants bring with them on return are excluded from balance of payments transactions, and so are not transfers. Rather, because the residence of the owner changes but not the ownership, the change in assets (such as bank balances and real estate ownership) between economies is recorded as a reclassification change, not a transaction.

    A5.25 Although the distinction between a transaction and a reclassification of residence is important for the structure of the system, the effect on the asset position of households and economies is much the same whether the resources come through remittances or through migrants returning home. Data users who are interested in understanding all contributions that migrant workers may make to their households and economies of origin should note this potential misalignment of their data needs and balance of payments definitions, and should seek to make appropriate additional estimations.

    2. Valuation

    A5.26 All valuations in the balance of payments framework are based on market values (paragraph 3.68).

    A5.27 Compensation of employees comprises wages and salaries in cash, wages and salaries in kind, and employers’ social contributions. Also included are all forms of bonuses and allowances (paragraphs 11.18–11.19). All transactions in kind should be valued at current market prices, that is, the current exchange value.

    A5.28 Transfers in kind should be valued at the market value of the goods or services provided to the recipient (see paragraphs 3.71–3.72). The valuation of cash transfers is clear while transfers of other financial assets should be recorded at market value.

    3. Timing

    A5.29 Compensation of employees is recorded on an accrual basis (paragraph 11.16). Transfers are also recorded on an accrual basis (discussed in paragraph 3.50). In the case of voluntary transfers, accrual and settlement are often identical (paragraph 3.52 provides details on the time of recording of transfers). However, this is not the case with involuntary transfers (such as taxes or alimony) and they should in principle be recorded when accrued, although this can be difficult in practice. Remittances are mostly voluntary transfers.

    F. Data by Partner Economy

    A5.30 Reporting of remittance flows to and from major partner economies in balance of payments data may be provided on a supplementary basis, especially for major “corridors.”

    The balance of payments accounts definitions of remittances are somewhat broader than those resulting from movement of persons, because they are not based on the concepts of migration, employment, or family relationships.

    Nonresident employers include embassies and international institutions as well as nonresident companies (paragraphs 4.131–4.134). In some economies, income obtained from nonresident employers is significant.

    Families may provide financial support to relatives who are located but not resident in another economy, such as families supporting relatives who are students or medical patients abroad. Such transactions involve residents of the same economy and are therefore not included in personal transfers. The spending of the relative abroad will be included in travel.

    Of the new supplementary remittance aggregates in the international accounts, some data users consider “total remittances and transfers to NPISHs” to most closely match the economic concept of remittances (see Section A). This measure is broader than the other remittance aggregates, because it includes current and capital transfers to NPISHs from any sector of the sending economy (households, corporations, governments, and nonprofit institutions). Thus, unlike the other supplementary remittance aggregates, it includes funds and noncash items that flow indirectly to households, through nonprofit institutions.

    In this appendix, the term “migrant” refers to a person who emigrates from an economy of origin and becomes a resident in another economy.

    APPENDIX 6a Topical Summary—Direct Investment

    A. Purpose of Topical Summaries

    A6a.1 Appendixes 6a–6c bring together topics that cut across different chapters. They seek to give an overview of these topics, in contrast to the main part of the Manual, which is organized according to accounts rather than topics. These appendices are designed in a “signpost” style—that is, they give only a brief introduction and give references as to where more information is available in the chapters, rather than duplicate that information.

    B. Overview of Direct Investment

    Reference:

    OECD Benchmark Definition of Foreign Direct Investment, fourth edition.

    A6a.2 Direct investment arises when an investor resident in one economy makes an investment that gives control or a significant degree of influence on the management of an enterprise that is resident in another economy. Direct investment refers to the flows and positions that arise between parties in a direct investment relationship.

    A6a.3 In operational terms, a direct investment relationship is defined as arising when an entity has equity that gives it voting power of 10 percent or more in the enterprise (paragraph 6.12). The definition also spells out how control or a significant degree of influence may be achieved by immediate ownership or indirect ownership, by a chain of ownership of enterprises that in turn own other enterprises (paragraph 6.12).

    A6a.4 Direct investment relationships and associated concepts are defined in paragraphs 6.8–6.24. More details are available in the Framework for Direct Investment relationships in the OECD Benchmark Definition of Foreign Direct Investment. Some important terms are defined briefly in Box A6a.1.

    A6a.5 Whereas a direct investment relationship is defined in terms of voting power, most flows and positions between the entities, including loans and trade credit, are classified as direct investment (paragraphs 6.25–6.36). The only financial flows and positions excluded are debt between selected affiliated financial corporations and financial derivatives (paragraphs 6.28–6.29). Debt included in direct investment is called “intercompany lending” (paragraph 6.26). “Funds in transit” or “pass-through funds” refer to funds that pass through an enterprise in one economy to other affiliates, with the funds not staying in that economy. Unless classified as debt between affiliated financial intermediaries, such debt is included in direct investment data but may be identified separately (paragraphs 6.33–6.34).

    A6a.6 The typical direction of direct investment is from the direct investor to its direct investment enterprise. However, there may also be flows in the reverse direction, and between fellow enterprises, as discussed in paragraphs 6.39–6.41. Whereas the primary presentation of data in this Manual is according to whether the item relates to an asset or liability, an alternative presentation called the directional principle, based on the direction of the direct investment relationship, can be derived from the components and is of analytical interest—see paragraphs 6.42–6.45 and Box 6.4.

    A6a.7 Issues associated with direct investment positions are discussed in paragraphs 7.14–7.25. Valuation of equity not listed on a market is discussed in paragraphs 7.15–7.19. Entities that borrow on behalf of their affiliates are discussed in paragraphs 7.20–7.22.

    A6a.8 Issues associated with financial account transactions in direct investment are discussed in Chapter 8. Reinvestment of earnings is the corresponding entry to reinvested earnings in the primary income account, and is discussed in paragraphs 8.15–8.16. The possibility of imputed direct investment flows arising from goods, services, or other items supplied above or below value or with no payment is discussed in paragraph 8.17. Corporate inversion and other restructuring are discussed in paragraphs 8.19–8.22.

    Box A6a.1.Direct Investment Terms

    Direct investment: is a category of cross-border investment associated with a resident in one economy having control or a significant degree of influence on the management of an enterprise that is resident in another economy. As well as the equity that gives rise to control or influence, direct investment also includes associated debt (except debt between affiliated financial intermediaries, specified in paragraph 6.28) and other debt and equity between enterprises that have the same direct investor.

    Direct investment relationship: A direct investment arises when an investor resident in one economy makes an investment that gives control or a significant degree of influence on the management of an enterprise that is resident in another economy (paragraph 6.9). Direct investment covers positions and transactions in equity and selected debt instruments between entities in a direct investment relationship.

    Direct investor: An entity or group of related entities that is able to exercise control or a significant degree of influence over another entity that is resident of a different economy (paragraph 6.11).

    Direct investment enterprise: An entity subject to control or a significant degree of influence by a direct investor is called an direct investment enterprise (paragraph 6.11). A direct investment enterprise is either a subsidiary or an associate (paragraph 6.15).

    Control and influence: Control is determined to exist if the direct investor owns more than 50 per cent of the voting power in the direct investment enterprise. Such a direct investment enterprise is a subsidiary. A significant degree of influence is determined to exist if the direct investor owns from 10 to 50 percent of the voting power in the direct investment enterprise. Such a direct investment enterprise is an associate. The control or influence may be immediate (through ownership of voting power) or indirect (through ownership of enterprises that in turn have voting power). More detail on the identification of control and influence is given in paragraphs 6.11–6.14.

    Fellow enterprise: An enterprise is a fellow enterprise of another if the two enterprises have the same immediate or indirect direct investor, but neither is an immediate or indirect direct investor in the other (paragraph 6.17).

    Affiliate: Entities in an immediate or indirect direct investment relationship with each other, or that have the same immediate or indirect direct investor are all affiliates of each other. That is, affiliates of an enterprise consist of its immediate or indirect direct investor(s), its immediate or indirect direct investment enterprise(s), and its fellow enterprise(s).

    Reverse investment: Reverse investment arises when a direct investment enterprise owns some, but less than 10 percent of the voting power in, or has lent funds to, its immediate or indirect direct investor (paragraph 6.40).

    A6a.9 Issues associated with income on direct investment are discussed in Chapter 11. Reinvested earnings are discussed in paragraphs 11.33–11.36, 11.40–11.47, and 11.96–11.102.

    A6a.10 In addition, the general accounting principles, issues of units and residence, and classification of instruments are also applicable to direct investment. They are dealt with in Chapters 3, 4, and 5 respectively. The case of transfer pricing between affiliated enterprises is discussed in paragraphs 3.77–3.78.

    A6a.11 The identification of institutional units in the case of branches; notional resident units for ownership of land, other natural resources, or buildings; multiterritory enterprises; joint ventures; quasicoprorations identified prior to incorporation; trusts; and special purpose entities are dealt with in paragraphs 4.26–4.52 and pertain particularly to direct investment.

    A6a.12 Standard components and selected supplementary items are shown in Appendix 9. Because of interest in different types of direct investment, additional breakdowns could be provided on a supplementary basis for components of particular relevance to an economy. Examples include partner data, mergers and acquisitions, funds in transit, industry data, and private equity. Industry classification is discussed in paragraph 6.50. Identification of mergers and acquisitions is discussed in paragraph 8.18.

    A6a.13 Direct investment data may be classified by partner economy, as discussed in paragraphs 4.156–4.157. The partner may be on the basis of the immediate investor or the ultimate investor or host economy.

    A6a.14 Whereas balance of payments and international investment position data show the international flows and positions, another aspect of the impact of direct investment is on domestic variables, such as employment, sales, value added, and gross fixed capital formation. These statistics are called Activities of Multinational Enterprises and are discussed in Appendix 4.

    APPENDIX 6b Topical Summary—Financial Leases

    Reference:

    2008 SNA, Chapter 17, Cross-Cutting and Other Special Issues.

    A6b.1A financial lease is a contract under which the lessor as legal owner of an asset conveys substantially all the risks and rewards of ownership of the asset to the lessee. The economic nature of the arrangement is that the lessor is providing a loan to allow the lessee to acquire the risk and rewards of ownership, but the lessor retains legal title as collateral for the loan. Therefore, a financial lease is an example of where economic ownership differs from legal ownership. The arrangement is treated as a transaction in the relevant asset financed by a loan, which is repaid in full or in most part by payments by the lessee. Financial leases are also called finance leases or capital leases. For further details of the definition, see paragraphs 5.56–5.57.

    A6b.2 Financial leases are distinguished from operating leases (see paragraphs 10.153–10.157), in which neither legal nor economic ownership changes, and the rentals are recorded as services. In terms of underlying economic processes, although both operating and financial leases have similar forms, the essence of a financial lease is seen as being a loan, whereas the operating lease is seen as providing a service. That is, the operating lease provider has a stock of assets, which it wants to provide to other entities, and provides varying degrees of backup support. In contrast, the financial lease provider is usually a financier and operates a lot like a lender except that the lessor has the additional collateral of legal ownership of the assets. Accounting standards also recognize this distinction.

    A6b.3 As a result of this treatment, a cross-border financial lease will give rise to the following entries in different accounts:

    • A loan liability of the lessee and a loan asset of the lessor are recorded to the total value of the asset acquired. The outstanding amount is shown in the IIP (see paragraph 7.57);

    • The creation of the loan and the subsequent repayments of the loan (including, at maturity, the return of the asset to the lessor or its purchase by the lessee) are recorded under loan transactions in the financial account;

    • The asset subject to the lease is regarded as being purchased by the lessee, so there is a change of economic ownership of the asset (usually goods) from the lessor to lessee. If cross-border and involving a produced asset, this change of ownership is shown in the goods and services account (see paragraph 10.17(f)). If the produced asset is returned to the lessor at the maturity of the contract, there is a change of economic ownership from the lessee to lessor, which is also recorded in the goods and services account;

    • Explicit fees and FISIM are incurred on the loan if the lender is a financial corporation and these amounts are included in “financial services” (see paragraphs 10.118–10.136); and

    • Interest is accrued on the loan (see paragraph 11.73).

    Box A6b.1.Numerical Example of Financial Lease

    A piece of imported equipment worth 1,000 is provided under a financial lease from a nonresident financial corporation. The lease begins on January 1, an annual payment of 140 is made on December 31 each year for 10 years, at which time the lessee has the option to purchase the equipment at an agreed price. The contract is based on an interest rate of 7 percent per annum, while the reference rate of interest is 5 percent per annum.

    For the economy of the lessee, the following entries are made in the first two and final years:

    Year 1CreditDebit
    Current Account:
    Goods1,000
    Services—Financial services (FISIM)20
    Primary Income—Investment income50
    Financial Account:
    Other investment—Loans1,00070
    Other investment—Currency and deposits140

    Accrued interest is 70, of which 20 is FISIM and 50 is pure interest. The value of the loan debt is 930 at the end of year 1 (1000 + 20 + 50 – 140)

    Year 2CreditDebit
    Current Account:
    Services—Financial services (FISIM)18.6
    Primary Income—Investment income46.5
    Financial Account:
    Other investment—Loans74.9
    Other investment—Currency and deposits140

    Accrued interest is 65.1, of which 18.6 is FISIM and 46.5 is pure interest. The value of the loan debt is 855.1 at the end of year 2 (930 + 18.6 + 46.5 – 140)

    Year 10CreditDebit
    Current Account:
    Goods32.8
    Services—Financial services (FISIM)3.2
    Primary Income—Investment income8.1
    Financial Account:
    Other investment-Loans161.55
    Other investment-Currency and deposits140

    Accrued interest is 11.3, of which 3.2 is FISIM and 8.1 is pure interest. The residual value of the good purchased is 32.8, which is recorded as a goods transaction if the good is returned to the lessor (as in the example) rather than the lessee purchasing it.

    APPENDIX 6c Topical Summary—Insurance, Pension Schemes, and Standardized Guarantees

    A. General Issues

    Reference:

    2008 SNA, Chapter 17, Cross-Cutting and Other Special Issues.

    A6c.1 Insurance provides individual institutional units exposed to certain risks with financial protection against the consequences of the occurrence of specified events. In addition, insurers often act as financial intermediaries who invest funds collected from policyholders in financial or other assets to meet future claims.1

    A6c.2 Pension schemes are established for the purpose of providing benefits for retirement or for invalidity of specific groups of employees. Pension schemes may be operated by a separately constituted fund or by a fund that is part of the employer, or be unfunded. Pension funds are similar to insurance in that they act as intermediaries for investing the funds for their beneficiaries and redistribute some risks.

    A6c.3 Insurance and pension fund operation have common features, but can be distinguished in that life insurance and pension funds include a large saving component, whereas the objective of nonlife insurance (including term life insurance) is largely undertaken to pool risk.

    A6c.4 The transactions undertaken by insurers include charging premiums, paying claims, and investing funds. Similarly, pension funds’ transactions include receiving contributions, paying benefits, and investing funds. To analyze the underlying economic nature of these operations, it is necessary to rearrange these processes to derive the service, investment income, transfer, and investment elements. Users may also be interested in supplementary data on insurance transactions before the adjustments discussed in this section, particularly data on premiums and claims. (Box A6c.1 provides a numerical example to show the calculation of the derived items for service, investment income, transfers, and investment.)

    A6c.5 Aspects of insurance are dealt with in several chapters:

    • Insurance corporations and pension funds are defined as institutional subsectors in paragraphs 4.88–4.89;

    • Insurance reserves, pension entitlements, and provisions for standardized guarantees are defined as financial instruments in paragraphs 5.62–5.68 and as part of the other investment functional category in paragraph 6.61;

    • The measurement of insurance reserves in the IIP is discussed in paragraphs 7.63–7.68;

    • Financial account entries are discussed in paragraphs 8.46–8.49;

    • Other changes in volume associated with insurance reserves and provisions are discussed in paragraph 9.24;

    • Insurance and pension services are discussed in paragraphs 10.109–10.117;

    • The investment income accruing to policyholders and contributors is discussed in paragraphs 11.77–11.84; and

    • The transfers associated with these schemes are discussed in paragraphs 12.41–12.46 and 13.24.

    A6c.6 Cross-border insurance is particularly common in specialized areas such as reinsurance and high-value items such as insurance of ships and aircraft. For some small economies, the small size of their risk pool means that a wider range of items tends to be insured with nonresidents. With international mobility of population, life insurance and pensions can also occur cross-border on a significant scale.

    Box A6c.1.Numerical Example of Calculations for Nonlife Insurance

    1. Basic information

    This example covers policies of resident insurers with nonresident policyholders; the same principles apply for nonresident insurers with resident policyholders, although the availability of data is less in practice, so that ratios may be needed for some items, as discussed in Box 10.4.

    • Gross premiums receivable from abroad = 135

      • Gross premiums received from abroad = 150

      • Reserves relating to prepayments—beginning of period = 40

      • Reserves relating to prepayments—end of period = 55

      • Net increase in reserves relating to prepayments = 15

    • Investment income attributable to nonresident policyholders = 8

    • Claims payable abroad = 160

      • Claims paid to abroad = 155

      • Reserves relating to claims incurred—beginning of period = 10

      • Reserves relating to claims incurred—end of period = 15

      • Net increase in reserves for claims incurred but not paid = 5

    • Adjustment for volatility in claims payable = –40

      • (i.e., expected long-term level of claims would be 120, that is 160 – 40)

    2. Derived items

    • Goods and services account:

      • Insurance service (credits)

      • = gross premiums receivable plus premium supplements less expected claims (i.e., expected claims is derived as actual claims payable plus adjustment for volatility

      • = 135 + 8 – 120

      • = 23

    • (Note: not taking into account the volatility would lead to a negative value of services: –17.)

    • Primary income account:

      • Investment income attributable to policyholders (debits) = 8

    • Secondary income account:

      • Net premiums receivable (credits)

      • = gross premiums receivable less service = 135 + 8 – 23 = 120

    • Claims payable (debits) = 160

    • Financial account:

    • Insurance reserves (increase in liabilities to policyholders) = 20 (= 15 + 5)

    • Currency and deposits (increase in assets of resident insurers) = –5 (= 150 – 155)

    • IIP—Liabilities

    • Insurance reserves (prepayments and claims incurred)—beginning of period = 50 (= 40 + 10)

    • Insurance reserves (prepayments and claims incurred)—end of period = 70 (= 55 + 15)

    B. Nonlife Insurance

    Reference:

    2008 SNA, Chapter 17, Cross-Cutting and Other Special Issues, Part 1.

    1. Types of nonlife insurance

    A6c.7 Types of nonlife insurance include accident and health; term life; marine, aviation, and other transport; fire and other property damage; pecuniary loss; general liability; and credit insurance.

    A6c.8Direct insurance is between an insurance company and the public. Reinsurance is insurance where both parties to the policy are providers of insurance services. That is, reinsurance allows insurance risk to be transferred from one insurer to another. Many insurers act as both direct insurers and reinsurers. There may be chains of transferring risk, from insurer to reinsurer to secondary reinsurer and so on. Reinsurance companies and their policyholders are often residents of different economies because of the specialized functions of reinsurance and the objective to spread risk. A direct insurer may pass on an entire set of risks (i.e., the direct insurer is like a retailer), a proportion of risks, or the risk of claims being more than a specified amount (e.g., arising from a catastrophic loss) to a reinsurer. Because it is often used as protection against exposure to large losses, reinsurance is particularly likely to be subject to lumpy transactions.

    A6c.9 The principles for measurement of reinsurance and direct insurance services are the same. They are shown as separate items on a supplementary basis, as can other components such as auxiliary services and standardized guarantees.

    A6c.10 Freight insurance is a form of nonlife insurance that raises particular issues for valuation of goods. Like freight transport, as discussed in paragraph 10.78, the identification of who pays the insurance and whether it is included in the price of the good is determined by the FOB valuation concept, as discussed in paragraph 10.116.

    A6c.11 Nonlife insurance is distinguished from life insurance in that it pays benefits only if an insured event occurs. That is, nonlife insurance is designed primarily for pooling risk, rather than as an investment. For that reason, nonlife insurance claims and net premiums are recorded as transfers, while the equivalents for life insurance are recorded in the financial account. In contrast to life insurance, term life insurance benefits are payable only on the death or incapacity of the insured, and so term life insurance is included in nonlife insurance.

    2. Role of reserves in insurance

    A6c.12 Insurance policies are paid in advance, while claims are paid only after the insured events happen, sometimes much later. Insurance technical reserves represent the amounts identified by insurance companies to account for these prepayments of premiums and claims incurred but not yet paid. That is, reserves can be seen as the application of usual accrual accounting principles. Reserves for claims reported but not yet resolved, and estimates of claims incurred but not yet reported, are correctly included, as they relate to insurable events that have already occurred.

    A6c.13 Insurance corporations in some economies may also set aside other reserves, such as amounts to cover fluctuations in claims between periods (e.g., the increase in claims in the event of a natural disaster). However, if there is no entitlement by any counterparty to these reserves, they cannot be recognized as an asset of the policyholders.

    A6c.14 Insurance companies hold assets to meet the liabilities to policyholders represented by the reserves. The management of these financial and nonfinancial assets is an integral part of the business of insurance. The income generated by these investments has a considerable influence on the level of premiums that insurance enterprises need to charge (indeed, in some cases, they have allowed claims to exceed gross premiums earned). Consequently, the income earned on the investment of the reserves is treated as being receivable by the policyholders who are then treated as paying it back to the insurance enterprises as premium supplements.

    3. Value of insurance service output

    A6c.15 Premiums and investment income represent the inflow of resources to the insurance company, whereas the claims due are the resources allocated to the policyholders. The margin between these inflows and outflows is the amount available to the insurance company to cover its costs and provide an operating surplus. This margin represents the value of insurance services provided.

    A6c.16 The value of output of nonlife insurance services can be expressed with the following formula:

    • Gross premiums earned;

    • + Premium supplements;

    • – Claims payable;

    • – Adjustment for claims volatility, if necessary.2

    a. Gross premiums earned

    A6c.17 “Gross premiums earned” refers to those parts of the premiums payable in the current or previous periods that cover the risks incurred during the accounting period. Premiums earned are on an accrual basis, so differ from premiums received because insurance policies are usually paid in advance. In the case of a reinsurer accepting risks on proportional reinsurance contracts, gross premiums earned are recorded after deducting the reinsurance commissions payable to the direct insurer. Similarly, other gross premiums should be calculated by deducting any rebates payable to the policyholder.

    A6c.18 Insurance premiums are normally paid in advance, so a measure on an accrual basis differs from premiums paid by the deduction of prepayments for insurance cover in future periods and adds back cover for the current period that was prepaid in previous periods.

    b. Premium supplements

    A6c.19 Investment income earned on the assets invested to meet insurance companies’ provision liabilities is attributable to insurance policyholders. The income is recorded in the primary income account as discussed in paragraphs 11.77–11.84 and A6c.26. The same value is then treated as being paid back to the insurance companies as premium supplements. Premium supplements are added to premiums in the calculation of the value of insurance services, as shown in Box A6c.1.

    c. Claims payable

    A6c.20 Claims payable are claims for events that occurred within the accounting period. Claims payable include claims paid within the accounting period plus changes in the reserves against outstanding claims. That is, claims on an accrual basis are recognized as due when an event takes place that gives rise to a valid claim, whether or not paid, settled, or reported during that period.

    d. Adjustments for claims volatility

    A6c.21 Adjustments for claims volatility should be included in the calculation for lines of insurance subject to fluctuations. For example, major catastrophes such as earthquakes and hurricanes may be expected to occur, on average, once in each several years. If only claims incurred during a single accounting period are used in the formula, the resulting values of insurance services could be erratic, and even negative in catastrophic periods, and so are an inadequate measure of the production and pricing of insurance. In such cases, an adjustment to claims due should be made, to reflect a longer-term view of claims behavior, in line with insurance decision making. In periods when large values of claims are incurred, the adjustment would be negative (thus causing an increased value of the service), while in other periods, the adjustment would be positive (thus reducing the value of the service). However, for some types of insurance, there is limited volatility and no adjustment is necessary.

    A6c.22 The adjustments for claims volatility show the difference between actual claims in a particular period and a normally expected level of claims. The expected level of claims may be calculated according to one of the following methods:

    • (a) The expectations approach is based on an estimate of expected claims, using smoothed past figures of gross claims incurred or smoothed past ratios of gross claims incurred over premiums, applied to current premiums. It replicates the ex ante model used by insurers to price their premiums on the basis of their expectations. When accepting risk and setting premiums, insurers consider their expectation of loss;

    • (b) The accounting approach is based on changes in insurers’ equalization reserves and changes in own funds to account for the volatility of claims. In contrast to the expectation approach, the accounting approach uses ex post data, that is, observed claims incurred. It is to be noted that if changes in own funds are introduced in one given period to dampen the volatility of a claim in case of catastrophe, the rebuilding of own funds after this period will also intervene (with an inverse sign) in the formula for the next periods. Practices for calculation of equalization reserves vary, so they may not be sufficient to cover all volatility in claims; or

    • (c) The sum of costs plus “normal” profit approach consists in obtaining a measure of output as the sum of costs plus an estimate of “normal” profit. The estimate of “normal” profit generally implies the use of smoothed past actual profits. Thus this approach is, in practice, similar to the expectation approach. “Normal” profit is indeed equal to premiums + adjusted premium supplements – adjusted claims – costs.

    e. Reinsurance

    A6c.23 As explained in paragraph A6c.8, reinsurance allows insurance risk to be transferred from one insurer to another. The transactions between the direct insurer and the reinsurer are recorded as an entirely separate set of transactions and no consolidation takes place between the transactions of the direct insurer as issuer of policies to its clients on the one hand and the holder of a policy with the reinsurer on the other. The output of reinsurance is measured in a way similar to that for direct nonlife insurance. However, there are some payments peculiar to reinsurance. These are commissions payable to the direct insurer under proportionate reinsurance and profit sharing in excess of loss reinsurance. Once these are taken into account the output of reinsurance can be calculated as:

    • Total actual premiums earned less commissions payable;

    • + Premium supplements;

    • – Adjusted claims incurred and profit sharing.

    4. Exports and imports of insurance services

    A6c.24 The formula for total production of insurance services stated in paragraph A6c.16 includes elements that may only be able to be observed by insurers in aggregate. For exported and imported insurance services, which represent the output provided to a subset of policyholders, additional methods are required to allocate totals.

    A6c.25 Usually, ratios will be able to be used to make estimates. The case of imports is particularly difficult, as the insurance companies are not residents in the economy of compilation and so data collection is constrained. In each case, the objective is to find a result consistent with the overall method, after taking into account which information is available in the circumstances. Possible methods are discussed in paragraph 10.114 and Box 10.4.

    5. Investment income attributable to insurance policyholders (primary income account)

    A6c.26 Investment income earned on the assets invested to meet insurance companies’ provision liabilities is attributable to insurance policyholders. The income is recorded in the primary income account as discussed in paragraphs 11.77–11.84. The same value is then treated as being paid back to the insurance companies as premium supplements in the calculation of the value of insurance services, as shown in paragraph A6c.19 and Box A6c.1 (and consequently increases the value of net premiums, which is gross premiums less the value of insurance services).

    6. Net insurance premiums (secondary income account)

    A6c.27 Net insurance premiums are gross premiums earned less the service charge. (Gross premiums were discussed in paragraph A6c.17 in the context of deriving the service charge.) Net insurance premiums are shown as current transfers. They are discussed in paragraphs 12.41–12.42.

    7. Claims receivable or payable (secondary income account)

    A6c.28 Claims incurred during the period are generally shown as current transfers. They are discussed in paragraphs 12.44–12.46 and in paragraph A6c.20 in the context of deriving the service charge. In exceptional cases, they may be classified as capital transfers, as discussed in paragraph 13.24. The stock of claims outstanding is recognized as a financial asset or liability and is shown in the IIP (see paragraphs 5.64 and 7.63–7.68).

    C. Life Insurance and Annuities

    Reference:

    2008 SNA, Chapter 17, Cross-Cutting and Other Special Issues, Part 1.D.

    A6c.29 Life insurance is distinguished from nonlife insurance in paragraph A6c.11. Life insurance involves a stream of payments by the policyholder in return for a lump sum at the end of the policy. Annuities are the reverse, where a stream of payments is made by the insurer in return for a lump sum at the beginning of the policy. Both direct insurance and reinsurance also exist for life insurance and annuities.

    A6c.30 The principles for the measurement of life and nonlife insurance are similar. However, in the case of life insurance, the net premiums and payments of benefits are recorded in the financial account, rather than the secondary income account. This treatment follows from the role of life insurance as paying benefits even without an insured event occurring, and therefore operating mainly as a way for policyholders to build assets; in contrast, nonlife insurance operates to redistribute costs among policyholders by transfers. Because life insurance is based on managing large values of assets, the premium supplements can be relatively large.

    A6c.31 The value of output of life insurance and annuity services can be expressed with the following formula:

    • Gross premiums earned;

    • + Premium supplements;

    • – Benefits due;

    • – Increases (+ decreases) in life insurance reserves (actuarial reserves and reserves for with-profits insurance).

    The formula is basically the same as for nonlife insurance, except that the payments to policyholders are called benefits instead of claims, and reserves are added to account for the accrual of future benefits. Also, changes in reserves are taken into account.

    A6c.32 The item for actuarial reserves in the formula for life insurance reflects the amounts that are payable at the end of the policy, rather than claims in the current period. They are shown as accruing to particular policyholders because they consist of allocations to the actuarial reserves and reserves for with-profits insurance policies to build up the sums guaranteed under these policies. Changes in the actuarial reserves and reserves for with-profits insurance include the provision made for bonuses payable in future.

    A6c.33 It is common with life insurance policies for amounts to be explicitly attributed by the insurance corporation to the policyholders in each year. These sums are often described as bonuses. The sums involved are not actually paid to the policy holders but the liabilities of the insurance corporation toward the policyholders increase by this amount. This amount is shown as investment income attributed to the policyholders. The fact that some of it may derive from holding gains does not change this designation; as far as the policyholders are concerned it is the return for making the financial asset available to the insurance corporation. In addition, all the income from the investment of nonlife reserves and any excess of income from the investment of life reserves over any amounts explicitly attributed to the policyholders are shown as investment income attributed to policyholders, regardless of the source of the income.

    A6c.34 In the case of annuities, the same principles apply, but the calculation is different because of the opposite cash flow, and is elaborated in 2008 SNA, Chapter 17, Cross-Cutting and Other Special Issues.

    A6c.35 In the current account, in addition to services, life insurance gives rise to investment income attributable to policyholders, as discussed in paragraph 11.81, of equivalent value to premium supplements. For life insurance, net premiums and benefits are shown as increases and reductions in insurance reserves in the financial account. (In contrast, for nonlife insurance, net premiums and claims are shown as transfers.)

    A6c.36 Life insurance technical reserves are defined as a financial instrument in paragraph 5.65. They are classified as other investment in the functional classification; see paragraph 6.61. More details are provided on recording them in the IIP in paragraphs 7.63–7.64, the financial account in paragraph 8.48, and other changes in volumes in paragraph 9.24.

    D. Pension Schemes

    Reference:

    2008 SNA, Chapter 17, Cross-Cutting and Other Special Issues, Part 2.J.

    A6c.37 Pension schemes include those operated with an autonomous fund as well as funds that are not separate units and unfunded pension schemes. Pensions may be provided by social security schemes, employer-related schemes other than social security, and social assistance schemes.

    A6c.38 Social contributions to social security schemes are discussed in paragraphs 12.32–12.33. Social benefits under social security and social assistance schemes are dealt with in paragraph 12.40. These schemes operate through transfers and do not have financial account entries because an obligation to pay is not recognized. For further information on social security and social assistance schemes, and for employer-related schemes through social security schemes, see 2008 SNA, Chapter 17. The remainder of this section deals with employer-related schemes other than social security.

    A6c.39 Pension funds are defined as an institutional subsector in paragraphs 4.89–4.90. Pension entitlements are defined as a financial instrument in paragraphs 5.66–5.67. These entitlements may be liabilities of pension funds or unfunded schemes. They are classified as other investment in the functional classification; see paragraph 6.61. The valuation of pension entitlements in the IIP is discussed in paragraph 7.65. Financial account entries are discussed in paragraphs 8.48–8.49. Changes to pension entitlements as a result of changes in model assumptions are shown as other changes in volume, whereas changes negotiated between the parties are transfers, as discussed in paragraph 9.24. Insurance and pension services are discussed in paragraphs 10.109–10.117.

    A6c.40 There may be explicit or implicit service charges for pension schemes. If the charges are implicit, they are measured in a similar way to those for life insurance and annuities, namely:

    • Gross contributions;

    • + Contribution supplements;

    • – Benefits payable;

    • – Adjustment for change in pension entitlements.

    A6c.41 Investment income is attributable to beneficiaries of pension schemes and is repaid to the pension fund as contribution supplements, as discussed in paragraph 11.82. The investment income payable

    • (a) for defined contribution schemes is equal to the investment income on the funds plus any net operating surplus earned by renting land or buildings owned by the fund; and

    • (b) for defined benefit schemes, is equal to the increase in benefits payable because the date when the entitlements become payable is closer. The amount of the increase is not affected by whether the pension scheme actually has earned sufficient income to meet its obligations.

    The adjustment for change in pension entitlements is discussed in paragraph 12.38.

    A6c.42 Social contributions to pension schemes are discussed in paragraphs 12.32–12.37. Social benefits are the amounts payable to the beneficiaries and are discussed in paragraph 12.40. In the SNA, social contributions are viewed as both transfers and an investment in the scheme; similarly, social benefits are viewed as both transfers and a withdrawal of investment from the scheme. These different views require an entry for change in pension entitlements, discussed in paragraphs 12.38–12.39.

    E. Standardized Guarantees

    Reference:

    2008 SNA, Chapter 17, Cross-Cutting and Other Special Issues, Part 3.

    A6c.43 Standardized guarantees are issued in large numbers along similar lines. Examples include export credit guarantees and student loan guarantees. Standardized guarantees are contrasted with other guarantees in paragraph 5.68. The guarantors are usually general government units or financial corporations. Because the guarantor provides large numbers of guarantees, it is possible to estimate the risk of default. A guarantor operating on a commercial basis will charge fees, meet claims, and earn investment income in a way parallel to nonlife insurance, and the value of services, income, and provisions are calculated in the same way as described for nonlife insurance in Section B of this appendix.

    A6c.44 Provisions for calls under standardized guarantees are defined as a financial instrument and contrasted with one-off guarantees and financial derivatives in paragraph 5.68. They are classified as other investment in the functional classification; see paragraph 6.61. Changes to provisions for calls under standardized guarantee schemes not resulting from transactions are shown as other changes in volume and are discussed in paragraph 9.24.

    In the context of insurance, a claim is the obligation of an insurance company to pay the policyholder under the terms of the policy because an insured event has occurred. “Claim” is also used in this Manual to mean financial asset.

    Alternatively, the formula can be expressed as:

    Gross premiums earned;

    • + Premium supplements;

    • – Expected claims;

    where expected claims are based on longer term measures of claims, taking out the effects of volatility.

    • The formula can also be expressed in terms of payments:

      • Gross premiums paid;

      • + Premium supplements;

      • – Claims paid;

      • – Net increase in technical reserves (including reserves for claims volatility);

    where the technical reserves account for prepayments of premiums and delays in paying out claims as well taking out the effects of volatility.

    See Box A6c.1 for a numerical example of these calculations.

    APPENDIX 7 Relationship of the SNA Accounts for the Rest of the World to the International Accounts

    Introduction

    References:

    2008 SNA, Chapter 26, The Rest of the World Accounts (external transactions accounts).

    IMF and others, External Debt Statistics: Guide for Compilers and Users, Appendix IV, Relationship Between the National Accounts and the International Investment Position (IIP).

    A7.1 International accounts 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 IIP are compiled first and subsequently incorporated in relevant external account components of the SNA rest of the world account. There is complete concordance between the SNA and this Manual with respect to the delineation of resident units, valuation, time of recording, conversion procedures, and coverage of goods, services, income, capital transfers, and foreign financial assets and liabilities.

    Accounting System

    A7.2 The SNA uses an underlying accounting system similar to that used for the balance of payments. However, the entries for both parties to a transaction (such as a resident and a nonresident) are included in the SNA, rather than just one party (the resident) as in the balance of payments. As a result, each transaction gives rise to four entries in the SNA, that is, two entries for each party.

    A7.3 Credits in the balance of payments are called resources in the SNA, and debits are called uses. The SNA rest of the world accounts are presented from the point of view of the nonresident units, whereas the balance of payments presents the same transactions from the point of view of resident units. As an illustration, imports of an economy are shown as resources in the SNA, that is, an outflow from the rest of the world and an inflow or use for the resident units.

    Classification

    A7.4 In general, the classification system is the same in the SNA and the Manual. The coverage and terminology of major aggregates have been fully harmonized. There is a major presentational difference in that the international accounts use functional categories as the primary level of classification for investment income, the financial account, and the IIP, whereas the SNA uses instruments and sectors. The functional categories are not applicable to domestic relationships. However, the instrument and institutional sector detail in the international accounts allows the data to be converted or compared with SNA data. In addition, differences in classification or level of detail exist between the rest of the world accounts and international accounts. These reflect differences in analytical requirements and the necessity of using, in the SNA, a uniform classification scheme for all sectors of the economy. Because of the use of consistent terminology, links can be seen between international accounts items and the corresponding SNA items. In addition, to assist in comparisons or linking, the listing of standard components in Appendix 9 includes SNA codes. (Because of the use of functional categories as the primary classification in the international accounts, a letter has been added to the SNA codes for investment income, financial account, and IIP items to denote the functional category.)

    Linkages between Accounts

    A7.5 The terminology of the SNA rest of the world accounts and the international accounts is the same, except for some minor differences (e.g., the SNA uses the external account of goods and services for the goods and services account, and external assets and liabilities for the IIP).

    A7.6 The SNA coverage of exports and imports of goods and exports and imports of services is identical to balance of payments coverage of corresponding items. In balance of payments statistics, exports and imports of services are disaggregated in more detail to provide data for analysis and policy decisions—particularly for negotiations in international trade in services within the framework of international agreements. The services identified in the balance of payments are consistent with those of the Central Product Classification (CPC)—except for the transactor-based items for travel, construction, and government goods and services n.i.e.

    Table A7.1.Correspondence between SNA and International Accounts Items(Financial Account and IIP)
    2008 SNA Classification of Financial InstrumentsSNA CodeBPM6 Classification of Financial Instruments
    Monetary gold and special drawing rightsF1
    Monetary goldF11Monetary gold (RA)
    Special drawing rightsF12Special drawing rights (assets-RA; liabilities-OI)
    Currency and depositsF2Currency and deposits (DI, OI, RA)
    CurrencyF21
    Transferable depositsF22
    Interbank positionsF221Interbank positions (OI)
    Other transferable depositsF229
    Other depositsF29
    Debt securitiesF3Debt securities (DI, PI, RA)
    Short-termF31Short-term (DI, PI, RA)
    Long-termF32Long-term (DI, PI, RA)
    LoansF4Loans (DI, OI, RA)
    Short-termF41Short-term (DI, OI, RA)
    Long-termF42Long-term (DI, OI, RA)
    Equity and investment fund sharesF5Equity and investment fund shares (DI, PI, OI, RA)
    D43Reinvestment of earnings (DI, PI, OI, RA)
    EquityF51Equity (DI, PI, OI, RA)
    Reinvestment of earnings (DI, PI, OI)
    Investment fund shares/unitsF52Investment fund shares/units (DI, PI, OI, RA)
    Reinvestment of earnings (DI, PI, OI)
    Money market fund shares/unitsF521Money market fund shares/units (DI, PI, OI, RA)
    Other investment fund shares/unitsF529Other investment fund shares/units (DI, PI, OI, RA)
    Insurance, pension, and standardized guarantee schemesF6Insurance, pension, and standardized guarantee schemes (DI, OI)
    Nonlife insurance reservesF61Nonlife insurance reserves (DI, OI)
    Life insurance and annuity entitlementsF62Life insurance and annuity entitlements (DI, OI)
    Pension entitlementsF63Pension entitlements (OI)
    Claims of pension funds on pension managersF64Claims of pension funds on pension managers (DI, OI)
    Entitlements to nonpension benefitsF65Entitlements to nonpension benefits (OI)
    Provisions for calls under standardized guaranteesF66Provisions for calls under standardized guarantees (DI, OI)
    Financial derivatives and employee stock optionsF7Financial derivatives and employee stock options (FD, RA)
    Financial derivativesF71Financial derivatives (FD, RA)
    Employee stock optionsF72Employee stock options (FD)
    Other accounts receivable/payableF8Other accounts receivable/payable (DI, OI)
    Trade credits and advancesF81Trade credits and advances (DI, OI)
    Other accounts receivable/payable - otherF89Other accounts receivable/payable–other (DI, OI)
    Note: DI—direct investment; PI—portfolio investment; FD—financial derivatives (other than reserves) and employee stock options; OI—other investment; RA—reserve assets. Supplementary items are in italics. SNA codes are for financial account items; codes for balance sheets/IIP have an initial A, but are otherwise the same (e.g., financial account entries for currency and deposits are F2, while the corresponding asset and liability positions are AF2). In addition, reinvestment of earnings is not applicable in the IIP.

    A7.7 Compensation of employees, property income, and current transfers are defined identically, although the functional category is used for disaggregation of investment income in the international accounts. The major elements of the capital account of the external accumulation accounts are identical with the capital account of the balance of payments. The balancing item net lending/net borrowing in account is identical to the balance of payments item.

    A7.8 The coverage of the SNA financial account is identical with that of the financial account in the balance of payments, although the level of detail is different. Similarly, the coverage of the SNA external assets and liabilities account is identical with that of the IIP. However, in the SNA, financial assets are classified primarily by type of instrument. In the balance of payments, financial items are classified primarily by functional category: direct investment, portfolio investment, financial derivatives (other than reserves) and employee stock options, other investment, and reserve assets. The financial instruments classification used in the SNA and its relationship with the functional categories and their instrument components used in the international accounts are set out in Table A7.1.

    A7.9 In addition to categories identifying types of financial instruments, the balance of payments contains an abbreviated sector breakdown (central bank, other deposit-taking corporations, general government, other financial corporations, 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.

    APPENDIX 8

    Changes from BPM5

    A detailed list of individual changes made in this edition of the Manual is provided below. The comparison is with BPM5, as amended by The Recommended Treatment of Selected Direct Investment Transactions (1999), Financial Derivatives, a Supplement to the Fifth Edition (1993) of the Balance of Payments Manual (2002), and IMF Committee on Balance of Payments Statistics Annual Report (2001). The main themes behind the changes in BPM6 are discussed in paragraphs 1.32–1.35.

    Chapter 1. Introduction

    The title of the Manual is changed to Balance of Payments and International Investment Position Manual (paragraph 1.1).

    Procedures are introduced for updating the Manual (paragraphs 1.37–1.41).

    A research agenda for future work is identified (paragraph 1.43).

    Chapter 2. Overview of the Framework

    The definition of balance of payments statistics is limited to transactions between residents and nonresidents (paragraph 2.2; however, practical dimensions are discussed in paragraphs 3.7–3.8 and 4.152–4.154; BPM5 paragraphs 13–14).

    The Data Quality Assessment Framework, metadata, and dissemination issues are introduced (paragraphs 2.37–2.39).

    Time series issues are discussed explicitly (paragraphs 2.40–2.41).

    Explicit recognition is given to the use of satellite accounts and other supplemental presentations (paragraphs 2.42–2.43).

    Chapter 3. Accounting Principles

    Transactions in external assets between two resident institutional units and transactions in external liabilities between two nonresidents are not recorded in the balance of payments as transactions. However, it is clarified that these transactions can affect sectoral positions; these changes are reflected through reclassification (paragraphs 3.7–3.8; BPM5 paragraphs 485–487).

    Imputed transactions are clarified and specified (paragraph 3.18).

    Changes in financial assets and liabilities due to change in residence of individuals are treated as other changes in the volume of assets (reclassifications) rather than as transactions (paragraph 3.21; BPM5 paragraphs 352–353).

    Bookkeeping conventions (vertical double-entry bookkeeping, horizontal double-entry bookkeeping, and quadruple-entry bookkeeping) are explained in the context of international accounts (paragraphs 3.26–3.29; BPM5 paragraphs 16–19).

    The financial account uses the headings “net acquisition of financial assets” and “net incurrence of liabilities” instead of “debits” and “credits” (paragraph 3.31).

    The term “economic ownership” is introduced (paragraph 3.41; BPM5 paragraph 114).

    The time of recording of dividends is defined as when the stocks or shares go ex-dividend (paragraph 3.48, also paragraph 11.31; BPM5 paragraph 121).

    According to the accrual basis, repayments of debts are recorded when they are extinguished (when they are paid, or rescheduled, or forgiven by the creditor) rather than when due (paragraphs 3.54–3.57; BPM5 paragraph 123).

    The time of recording of flows arising from activation of one-off guarantees is clarified (paragraph 3.58).

    Definitions of domestic and foreign currencies are provided (paragraphs 3.95–3.97).

    Currency union issues related to definition of domestic and foreign currency are discussed (paragraph 3.95 and Appendix 3).

    Currency conversion is clarified for exchanges; continuous transactions; other flows, including revaluations; and positions (paragraphs 3.104–3.105; BPM5 paragraphs 132–133).

    Terms “currency of denomination” and “currency of settlement” are introduced and their use explained (paragraphs 3.98–3.103).

    Income flows arising from reverse investment where the direct investment enterprise owns less than 10 percent of the voting power of its direct investor are also to be recorded on a gross basis (paragraph 3.113, also paragraph 11.97; BPM5 paragraph 276).

    All capital account transactions are to be recorded on a gross basis (paragraph 3.113; BPM5 paragraph 312).

    Currency union issues related to consolidated regional international accounts are discussed (paragraph 3.121).

    Symmetry of reporting and derived measures are dealt with explicitly (paragraphs 3.122–3.129).

    Chapter 4. Economic Territory, Units, Institutional Sectors, and Residence

    The definition of economic territory no longer has the requirement that persons, goods, and capital circulate freely (paragraph 4.4; BPM5 paragraph 59).

    Currency and economic unions are considered as economic territories (paragraph 4.4 and Appendix 3).

    Special zones should not be omitted but separate data may be prepared for zones and the remainder of the economy (paragraph 4.8).

    Treatments for changes of sovereignty (paragraph 4.9) and joint administration zones (paragraph 4.10) are provided.

    A discussion of units provides a basis for links with micro statistics and other macroeconomic statistics (paragraphs 4.13–4.56).

    The requirements for recognizing a branch as a separate unit are amended (paragraph 4.27; BPM5 paragraphs 75 and 80).

    There is no imputed institutional unit for the employment of staff of nonresident enterprises or technical assistance personnel resident in the recipient economy. Therefore, technical assistance personnel should be treated as employed by the institutional unit that actually employs them, which may be the donor, a contractor, or the recipient; see paragraph 4.30 for general principles, also Box 10.6. (Previously, units may have been imputed; see BPM5 paragraph 69.)

    The treatment of notional units for land is elaborated and its application extended to leases for long periods (paragraphs 4.34–4.40; BPM5 paragraph 65).

    Possible treatments of multiterritory enterprises are stated (paragraphs 4.41–4.44; BPM5 paragraph 82).

    The nature and treatment of special purpose entities and other similar structures are discussed (paragraphs 4.50–4.52, 4.87, 4.93, and 4.134–4.135; BPM5 paragraph 79).

    The local enterprise group is identified and the implications of the use of different types of units are noted (paragraphs 4.54–4.56).

    The SNA institutional sector classification is adopted, with a condensed version adopted for the standard components (paragraph 4.59, Tables 4.1 and 4.2; BPM5 paragraphs 512–517).

    The sector classification is amended to be consistent with the SNA in the cases of the central bank and deposit-taking corporations except the central bank, although the continued use of monetary authorities is endorsed in some cases (paragraphs 4.67–4.72; BPM5 paragraphs 514–516).

    The classification of the financial sector is linked to the treatment of debt between affiliated financial intermediaries (paragraphs 4.63–4.90 and 6.28; BPM5 paragraph 372).

    The sector classification of holding companies is elaborated (paragraphs 4.84–4.85).

    The definition of residence is expressed as “center of predominant economic interest,” although this is not a change in substance. The residence concept is applied to institutional units, rather than production, ships, and so forth (paragraph 4.113; BPM5 paragraphs 62, 78, 80–81).

    Residence criteria are specified for various mobile individuals who do not spend or intend to spend a year in one place (paragraphs 4.126–4.127; BPM5 paragraph 72).

    The residence of entities with little or no physical presence is to be determined from the jurisdiction of incorporation or registration (paragraphs 4.134–4.135; BPM5 paragraph 79).

    Additional guidance is provided on partner data (paragraphs 4.146–4.164; BPM5 paragraphs 478–498).

    Corporate migration is discussed (paragraphs 4.166–4.167).

    Chapter 5. Classifications of Financial Assets and Liabilities

    The possibility of supplementary data on contingent assets and liabilities is raised (paragraph 5.10).

    The detailed classification of financial assets and liabilities is harmonized with the SNA and MFSM 2000 in terms of detail and terminology (Table 5.3; in the BPM5 standard components, instruments are combined and different names for them are used in different places). These classifications are linked to broad groups—equity, debt, and other (paragraph 5.17).

    Equity may be split into listed shares, unlisted shares, and other equity (paragraph 5.24).

    Investment fund shares and money market fund shares are separately identified (paragraphs 5.28–5.30).

    SDR allocations represent a liability of the recipient (paragraph 5.35, also paragraphs 6.61(g) and 7.70, and applied to income in paragraphs 11.106 and 11.110; BPM5 paragraph 440).

    Interbank positions are shown as an additional financial instrument category on a supplementary basis (paragraph 5.42).

    “Bonds and notes” and “money market instruments” are replaced as terms by long-term and short-term debt securities, respectively (paragraphs 5.44 and 5.103; BPM5 paragraphs 390–391).

    The conditions for traded loans to be reclassified as securities are clarified (paragraph 5.45).

    The treatment of loans involved in repos and gold swaps is elaborated (paragraphs 5.52–5.55; BPM5 paragraph 418).

    Pension entitlements are recognized as a financial instrument. The accrued obligations of unfunded pension schemes are also recognized as economic assets and liabilities (paragraph 5.66).

    Provisions for calls under standardized guarantees are identified and treated similarly to insurance technical reserves (paragraph 5.68).

    “Trade credit and advances” replaces the term “trade credits” (paragraph 5.70; BPM5 paragraph 414).

    Monetary gold is defined in terms of gold bullion (which includes allocated gold accounts) and unallocated gold accounts (paragraph 5.74; BPM5 paragraph 438).

    The classification of unallocated and allocated gold accounts is clarified (paragraphs 5.76–5.77).

    The content of Financial Derivatives, a Supplement to the Fifth Edition (1993) of the Balance of Payments Manual (2002) is incorporated (paragraphs 5.80–5.95).

    Margin payments where these are liabilities of deposit-taking corporations are classified as deposits or in other accounts receivable/payable (paragraph 5.94(a)).

    Supplementary additional breakdowns of financial derivatives are introduced (paragraph 5.95).

    Employee stock options are recognized as an instrument (paragraphs 5.96–5.98).

    Arrears are identified as a supplementary category of the original asset or liability, rather than in repayment of the original liability and the creation of a new short-term loan (paragraphs 5.99–5.102; BPM5 paragraph 458).

    Details of currency composition and remaining maturity are included for selected position data in memorandum and supplementary tables (paragraph 5.104, also Appendix 9 tables; BPM5 paragraph 338).

    A classification by type of interest is included (paragraphs 5.109–5.114).

    Chapter 6. Functional Categories

    The Framework for Direct Investment Relationships is adopted for identifying direct investment relationships (paragraphs 6.8–6.18).

    Ownership of ordinary shares is removed from the operational definition of direct investment and replaced by ownership of equity that gives rise to voting power (paragraphs 6.12 and 6.19; BPM5 paragraph 362).

    The coverage of direct investment relationships due to indirect voting power and fellow enterprises is elaborated (paragraph 6.14; BPM5 paragraph 362).

    Insurance technical reserves are potentially included in direct investment (paragraph 6.27).

    The exclusion of debt positions between affiliated financial corporations is specified as being for deposit-taking corporations, investment funds, and other financial intermediaries except insurance companies and pension funds. Permanent debt between affiliated financial intermediaries is treated in the same way as nonpermanent debt (paragraph 6.28; BPM5 paragraph 372).

    The concept of pass-through funds is introduced (paragraphs 6.33–6.34).

    Direct investment is broken down into three categories—investment by a direct investor in its direct investment enterprise, reverse investment, and investment between fellow enterprises; the final category is added in this edition (paragraph 6.37; BPM5 paragraphs 368 and 371).

    The main presentation uses direct investment assets and direct investment liabilities (so that, for example, the netting of reverse investment is not built in). However, data on the basis of the directional principle are explained (paragraphs 6.42–6.45 and Box 6.4; BPM5 paragraph 375). The treatment of fellow enterprises in data on a directional basis is explained, with both a preferred and practical alternative suggested (paragraph 6.43). Data on a directional principle basis and the details needed to compile these data are shown as supplementary items in Appendix 9.

    The functional category “financial derivatives” is renamed. “(Other than reserves)” is added to distinguish it from the instrument classification financial derivatives and employee stock options, which has different coverage. Employee stock options are also included (paragraph 6.58).

    The content of the Financial Derivatives, a Supplement to the Fifth Edition (1993) of the Balance of Payments Manual (2002) is incorporated (paragraphs 6.58–6.60).

    SDR allocation liabilities are included in other investment as a separate item; previously, no liabilities were recognized (paragraph 6.61(g), also paragraphs 5.35 and 7.70; BPM5 paragraph 440).

    Other equity not included in direct investment is included in other investment as a separate item (paragraph 6.62; BPM5 paragraph 422).

    In the definition of reserve assets, “and/or other purposes” replaced by “and for other related purposes” (paragraph 6.64; BPM5 paragraph 424).

    The concept of ready availability is clarified (paragraphs 6.69–6.70; BPM5 paragraph 431).

    The meaning of foreign currency for reserve assets is elaborated (paragraphs 6.71–6.75; BPM5 paragraph 442). Convertibility (including treatment of currencies of neighboring countries) is clarified (paragraphs 6.72–6.73).

    The treatments of allocated and unallocated gold accounts in reserve assets, and changes in the coverage of monetary gold, are elaborated (paragraphs 6.78–6.80).

    The treatments of gold lending (paragraph 6.81; BPM5 paragraph 434), repos (paragraph 6.88), special-purpose government funds (paragraphs 6.93–6.98), pooled assets (paragraphs 6.99–6.101), central bank swap arrangements (paragraphs 6.102–6.104), and pledged assets (paragraphs 6.107–6.109) in reserve assets are elaborated.

    Frozen assets are discussed (paragraph 6.110).

    The treatment of net creditor positions in regional payment agreements is modified (paragraph 6.112).

    Working balances of government agencies are not included in reserve assets (paragraph 6.112; BPM5 paragraph 433).

    Reserve-related liabilities are introduced as a classification (paragraphs 6.115–6.116).

    Liabilities constituting foreign authorities’ reserves are not shown as separate items (BPM5 paragraph 447).

    Chapter 7. International Investment Position

    There is emphasis that the classification, netting, and ordering in the IIP should be consistent with the equivalent items for the financial account, primary income, and other changes so as to facilitate reconciliation and calculation of rates of return (paragraph 7.13; also paragraph 8.5).

    The main presentation uses direct investment assets and direct investment liabilities (so that reverse investment is not netted in totals) (Table 7.1; BPM5 paragraph 375).

    Direct investment is valued at the best indicator of market prices. (BPM5 adopted market valuation in principle, while noting that book values “generally are utilized” in practice.) For equity that is not regularly

    traded, proxy methods are identified for when book values are inadequate and the limitations in the analytical usefulness of historic cost data are emphasized (paragraphs 7.15–7.18; BPM5 paragraph 467).

    A treatment for short positions is provided (paragraph 7.28).

    Traded loans are valued at nominal value in the IIP, like other loans; in BPM5, they were recorded at transaction value by the creditor (paragraph 7.40; BPM5 paragraph 471).

    Memorandum and supplementary items for the effect of impaired loan assets are introduced, showing fair values of loans, the values of nonperforming loans, and loan loss provisions (paragraphs 7.45–7.54).

    The treatment of overnight deposits (or sweep accounts) is discussed (paragraph 7.62).

    Insurance reserves and pension entitlements are recognized as assets and liabilities (paragraphs 7.63–7.68).

    SDR allocations are recognized as liabilities (paragraph 7.70, also paragraphs 5.35 and 6.61(g); BPM5 paragraph 440).

    Reserve-related liabilities are introduced as a memorandum item (paragraph 7.71).

    Significant off-balance-sheet commitments should be recorded (paragraph 7.74).

    Guidance on transactions and positions with the IMF is provided (Annex 7.1).

    Chapter 8. Financial Account

    The column headings are changed to net acquisitions of financial assets and net incurrence of liabilities (instead of credits and debits, respectively) consistent with their contents. Consequently, negative signs are not used for an increase in assets and positive signs are not used for a reduction in assets (paragraph 8.1, Table 8.1, also paragraph 3.31).

    Financial account entries no longer use the word “capital,” bringing consistency with the more restrictive meaning used in the capital account (Table 8.1).

    The balancing item for the financial account is called “net lending/net borrowing” (paragraph 8.3).

    The terminology for the financial account entry is changed to “reinvestment of earnings” (to distinguish it from reinvested earnings, which continues to be used for the corresponding income item) (paragraph 8.15).

    Mergers and acquisitions are discussed (paragraph 8.18).

    The treatment for corporate inversion and other corporate restructuring is stated (paragraphs 8.19–8.22).

    Superdividends are treated as a withdrawal of equity (paragraph 8.23; BPM5 paragraph 290).

    Special rules are introduced for entities owned or controlled by general government when that entity is resident in another territory and is used for fiscal purposes (paragraphs 8.24–8.26).

    Reinvestment of earnings in investment funds is recorded in the financial account (paragraph 8.28 and also paragraphs 11.37–11.39 for the corresponding income entry; BPM5 paragraphs 277–278).

    The treatment of debt defeasance is stated (paragraphs 8.30–8.31).

    The treatment of share buybacks is stated (paragraph 8.32).

    A treatment of one-off guarantees and debt assumption is included (paragraphs 8.42–8.45).

    The allocation of SDRs is shown as a financial account flow in other investment (paragraph 8.50; BPM5 paragraph 440).

    For liabilities in arrears, repayment and creation of new liability are not imputed (paragraph 8.58; BPM5 paragraph 458).

    Imputed financial account entries for trade credit required by the imputed flows for goods for processing are eliminated (as an implication of removing the previous imputation of change of ownership; new treatments shown in paragraphs 10.41–10.49; BPM5 paragraph 205).

    Chapter 9. Other Changes in Financial Assets and Liabilities Account

    The other changes in financial assets and liabilities account is highlighted and explained (paragraphs 9.1–9.35).

    A convention for distinction between write-offs and debt forgiveness in commercial situations is introduced (paragraph 9.10; BPM5 paragraph 348).

    Financial assets and liabilities of entities changing residence are included as other changes in volume (previously included as capital transfers) (paragraphs 9.21–9.23; BPM5 paragraphs 354–355).

    The distinction between exchange rate and other revaluations is elaborated (paragraphs 9.26–9.28; BPM5 paragraph 466).

    Chapter 10. Goods and Services Account

    Exceptions to the change of ownership principle are eliminated (paragraphs 10.13, 10.22(b), 10.22(f), 10.24, 10.41–10.44; BPM5 paragraphs 119–120).

    Goods procured in ports by carriers are included under general merchandise rather than as a separate item under goods (paragraph 10.17(d); BPM5 paragraphs 156 and 201).

    Goods for own use or to give away acquired by travelers that are in excess of customs thresholds are included in general merchandise, rather than travel (paragraphs 10.20 and 10.90; BPM5 paragraph 242).

    Migrants’ personal effects are not included in general merchandise or anywhere else in the international accounts (paragraph 10.22(b); BPM5 paragraph 353).

    The time of recording of transactions in high-value capital goods such as ships, heavy machinery, buildings, and other structures that take several months or years to complete is discussed (paragraph 10.28).

    Re-exports are defined and introduced as a supplementary item (paragraphs 10.37–10.39).

    Merchanting of goods is classified under goods, with both gross and net values shown, with net amounts included in the goods aggregates. Changes in inventories of goods under merchanting are no longer included under imports of general merchandise (paragraphs 10.41–10.49; BPM5 paragraph 262).

    A reconciliation table is introduced to show the relationship between international merchandise trade statistics and goods on a balance of payments basis (paragraphs 10.55–10.56, Table 10.2).

    Manufacturing services on physical inputs owned by others are shown as a service in all cases. Previously, when the goods were supplied from the owner and returned to the owner, the value of the service was included in the value of goods. Previously, when the goods were not supplied by the owner or not returned to the owner, they were shown under miscellaneous business, professional, and technical services (paragraphs 10.62–10.71; BPM5 paragraphs 198–199).

    Maintenance and repair services n.i.e. are renamed in line with the CPC and included under services, rather than goods, and the inclusion of maintenance of transport equipment is clarified (paragraphs 10.72–10.73; BPM5 paragraphs 200 and 240).

    Transport services are renamed (previously “transportation services”) in line with the CPC (paragraph 10.74; BPM5 paragraph 230).

    Postal and courier services are included in transport (paragraphs 10.82–10.85; BPM5 paragraph 253).

    Treatments of alternative time-share arrangements are stated (paragraph 10.100 and Table 10.3).

    The classification of acquisition of goods and services by nonresident construction enterprises in the economy in which they are working is changed to show separately construction abroad and construction in the compiling economy on a supplementary basis. Goods and services acquired locally are included under this heading, previously under other business services. The inclusion of buildings (excluding the land component) is clarified as being under construction. As a result of these changes, the title of the item is construction, rather than construction services (paragraphs 10.101–10.108, BPM5 paragraph 254).

    The estimate of insurance claims used to derive the value of insurance services is changed to adjust for claim volatility. Premium supplements are taken into account in deriving insurance services. Reinsurance and direct insurance are treated consistently (paragraph 10.111; BPM5 paragraph 257).

    Financial dealers’ margins are discussed under services (previously only mentioned in the discussion of the financial account) (paragraphs 10.122–10.123; BPM5 paragraph 106).

    Services of asset-holding entities to their owners, where asset management costs are taken out of income, are recognized (paragraphs 10.124–10.125).

    FISIM and other implicit financial services have been included in services, with a method for calculation based on the reference rate (paragraphs 10.126–10.136; footnote to BPM5 paragraph 258).

    “Charges for the use of intellectual property n.i.e.” replaces the term “royalties and license fees.” Also, its content and borderlines with computing and audiovisual services have been clarified (paragraphs 10.137–10.140 and Table 10.4; BPM5 paragraph 260).

    A grouping of telecommunications, computer, and information services is introduced, involving a number of items that had previously been separated (paragraph 10.141; BPM5 paragraphs 253 and 259).

    The borderline between goods and services is elaborated for computer software (paragraph 10.143 and Table 10.4; BPM5 paragraphs 259–260).

    The results of research and development (such as patents, copyrights, and industrial processes) are treated as produced assets included in research and development services (previously treated as nonproduced assets and shown in the capital account) (paragraph 10.148; BPM5 paragraph 358).

    Environmental services such as carbon offsets and sequestration, waste treatment, and handling of scrap are discussed (paragraph 10.152, also 10.22(h)).

    Merchanting of services is described and its treatment explained (paragraph 10.160).

    Audiovisual services are delineated from goods, and the relationship between different kinds of licenses for intellectual property is explained (paragraphs 10.162–10.166 and Table 10.4; BPM5 paragraph 265).

    The treatment of gambling services is described (paragraph 10.171, also 12.25).

    The coverage of government goods and services n.i.e. is clarified (paragraphs 10.173–10.181; BPM5 paragraph 266).

    A discussion of the treatment of government licenses, permits, and so forth is provided (paragraphs 10.180–10.181; BPM5 paragraph 300).

    Additional guidance on the treatment of technical assistance is provided (Box 10.6).

    Chapter 11. Primary Income Account

    The term “primary income” is introduced. Consistency between international accounts and national accounts is ensured. The meaning and relationship of primary income, property income, and investment income are clarified (paragraphs 11.1–11.3; BPM5 paragraph 267).

    A detailed breakdown of investment income is introduced to link with functional and instrument classifications of financial instruments. Income on other investment and income on reserve assets are shown separately. Rent and taxes and subsidies on products and production are included explicitly as primary income items (Tables 11.1, 11.2, and 11.3; BPM5 paragraph 281).

    The employer-employee relationship is clarified to distinguish between compensation of employees and payments for services (paragraphs 11.11–11.13).

    “Distributed income from quasi-corporations” as a term subsumes distributed branch profits (paragraph 11.26; BPM5 paragraph 277).

    Superdividends are defined and their treatment as withdrawals of equity extended (paragraph 11.27; limited to liquidating dividends in BPM5 paragraph 290).

    Dividends are recorded at the time the shares go ex dividend (paragraph 11.31, also paragraph 3.48; BPM5 paragraph 282).

    “Reinvested earnings” is used as a term for all direct investment enterprises, and thus includes undistributed branch profits (paragraph 11.35; BPM5 paragraph 277).

    Investment income attributable to the owners of investment fund shares also includes reinvested earnings (paragraphs 11.37–11.39; BPM5 paragraphs 277–278).

    If branches do not distribute profits, the retained earnings of the branch are considered to be reinvested earnings. In BPM5, if distributed branch profits were not identified, all branch profits were treated as being distributed, not reinvested earnings (paragraph 11.42; BPM5 paragraph 278).

    When a chain of direct investment relationships exists, it is clarified that reinvested earnings should be recorded between the direct investor and directly owned direct investment enterprises only (paragraph 11.47).

    Debt instruments with both the amount to be paid at maturity and periodic payments indexed to a foreign currency are classified and treated as if they are denominated in foreign currency (paragraph 11.50(a)–(b); BPM5 paragraph 397).

    The treatment of index-linked debt instruments is clarified and modified (paragraphs 11.50(c) and 11.59–11.65; BPM5 paragraph 397).

    Fees on securities lending and gold loans are clarified and treated as interest (paragraphs 11.67–11.68).

    Interest income is adjusted to remove the FISIM component, that is, “pure interest.” “Actual interest” is continued as a memorandum item (paragraphs 11.74–11.75; footnote to BPM5 paragraph 258).

    Rent is identified as a component of primary income (paragraph 11.85; previously part of other investment income).

    Taxes and subsidies on products and production are classed as primary income, not current transfers (paragraphs 11.91–11.92; BPM5 paragraph 299).

    Treatments of income on reverse investment and investment between fellow enterprises are included. Income arising from reverse investment is to be recorded on a gross, rather than net, basis. Possible breakdowns by type of direct investment relationship and associated investment income flows are distinguished (paragraphs 11.97–11.100; BPM5 paragraph 276).

    The treatment of transfer pricing is clarified (paragraphs 11.101–11.102; BPM5 paragraph 97).

    Income on reserve assets is identified separately (previously other investment) (paragraph 11.109; BPM5 paragraph 281).

    Consistent with the corresponding positions, interest on SDR allocations and holdings are shown on a gross basis (paragraph 11.110).

    Chapter 12. Secondary Income Account

    The term “secondary income” is introduced (paragraph 12.1; BPM5 paragraph 291).

    More detailed classification of types of current transfers are introduced on a supplementary basis (paragraphs 12.20–12.58).

    Refunds of taxes to taxpayers are treated as negative taxes, that is, the amount of taxes is reduced by tax refunds instead of positive transfers by government (paragraph 12.28; BPM5 paragraph 299).

    The delineation between taxes and services is clarified. Business licenses to fish, hunt, and so forth are no longer automatically treated as taxes, but as services, rent, taxes, or acquisition of a license asset, depending on what is supplied in return (paragraph 12.30, also 10.180–10.181; BPM5 paragraph 300).

    The treatment of social contributions and benefits is specified (paragraphs 12.32–12.40).

    The treatment of pension contributions and benefits is aligned with the SNA and the adjustment for change in pension entitlements is introduced (paragraph 12.39; BPM5 paragraph 299).

    The treatment of insurance claims and net premiums and of standardized guarantees is specified (paragraphs 12.41–12.46; BPM5 paragraph 257).

    Clarification is made on technical assistance as a part of investment projects to be classified as capital transfers (paragraph 12.50).

    Concessional debt is discussed and introduced as a supplementary item. In BPM5, a transfer could be identified on government loans bearing lower interest rates than those consistent with grace and repayment periods, although the implementation of this principle was not elaborated (paragraph 12.51; BPM5 paragraph 104).

    The term “personal transfers,” which is broader than workers’ remittances, is introduced (paragraph 12.21; BPM5 paragraph 302).

    The concepts of (1) personal remittances, (2) total remittances, and (3) total remittances and transfers to NPISHs are introduced (paragraph 12.27).

    The treatment of gambling transfers is described (paragraph 12.26).

    Chapter 13. Capital Account

    Debits and credits for acquisitions and disposals of nonproduced nonfinancial assets are to be recorded separately, not netted (paragraph 13.7, also paragraph 3.113; BPM5 paragraph 312).

    The terminology for nonproduced assets is expanded, to include “natural resources,” “contracts, leases, and licenses,” and “marketing assets and goodwill” (paragraphs 13.8–13.18; BPM5 paragraph 358).

    Internet domain names are identified as possible economic assets (paragraph 13.18).

    Insurance claims may be treated as capital transfers in the case of catastrophes (paragraph 13.24; BPM5 paragraph 257).

    The personal effects, financial assets, and liabilities of persons changing residence are no longer covered by a capital transfer (paragraph 13.30, also 9.21–9.22 and 10.22(b); BPM5 paragraphs 352–353).

    Inheritance is treated as a capital transfer instead of a current transfer (paragraph 13.31; BPM5 paragraph 303).

    Patents and copyrights are no longer treated as nonproduced assets, so no longer appear in the capital account. (Patents and copyrights are classified as produced assets and appear under particular services, such as research and development services; see Table 10.4.) (BPM5 paragraph 358).

    Chapter 14. Selected Issues in Balance of Payments and International Investment Position Analysis

    The “analytic” presentation (paragraphs 14.16–14.17), monetary presentation (paragraphs 14.20–14.22), implications of a current account surplus (paragraphs 14.48–14.56), and balance sheet approach (paragraphs 14.57–14.66) are incorporated (BPM5 Appendix V).

    APPENDIX 9

    Standard Components and Selected Other Items

    BPM6 codes are shown before the name of item. Codes used in the 2008 SNA are shown, where applicable, in brackets after the item: B—balancing items, P—products, D—distributive transactions, F—financial transactions, AF—financial positions, NP—transactions in nonproduced assets, and X—supplementary items. For details, see 2008 SNA, Annex 1, Classification and Coding Structure of Accounting Entries. Suffixes are added to SNA codes for the international accounts functional categories: D—direct investment, P—portfolio investment, F—financial derivatives (other than reserves) and employee stock options, O—other investment; and R—reserve assets.

    Supplementary items are shown in italics. Headings and aggregates are shown in bold type. For definitions of standard components, memorandusm items, and supplementary items, see paragraph 1.15.

    A. Balance of Payments

    Balance of paymentsCreditsDebits
    1. Current account
    Current account balance (+ surplus; – deficit) (B12)
    1.A Goods and services (P6/P7)
    Balance on goods and services (+ surplus; – deficit) (B11)
    1.A.a Goods (P61/P71)
    Balance on trade in goods (+ surplus; – deficit)
    1.A.a.1 General merchandise on a BOP basis
    Of which: 1.A.a.1.1 Re-exportsn.a.
    1.A.a.2 Net exports of goods under merchantingn.a.
    1.A.a.2.1 Goods acquired under merchanting (negative credits)n.a.
    1.A.a.2.2 Goods sold under merchantingn.a.
    1.A.a.3 Nonmonetary gold
    1.A.b Services (P72/P82)
    Balance on trade in services (+ surplus; – deficit)
    1.A.b.1 Manufacturing services on physical inputs owned by others
    1.A.b.1.1 Goods for processing in reporting economy—Goods returned (CR.),
    Goods received (DR.) (see paragraph 10.67)
    1.A.b.1.2 Goods for processing abroad—Goods sent (CR.), Goods
    returned (DR.) (see paragraph 10.67)
    1.A.b.2 Maintenance and repair services n.i.e.
    1.A.b.3 Transport1
    1.A.b.3.1 Sea transport
    1.A.b.3.1.1 Passenger
    Of which: 1.A.b.3.1.1.1 Payable by border, seasonal and other short-term workers
    1.A.b.3.1.2 Freight
    1.A.b.3.1.3 Other
    1.A.b.3. 2 Air transport
    1.A.b.3.2.1 Passenger
    Of which: 1.A.b.3.2.1.1 Payable by border, seasonal and other short-term workers
    1.A.b.3.2.2 Freight
    1.A.b.3.2.3 Other
    1.A.b.3.3 Other modes of transport
    1.A.b.3.3.1 Passenger
    Of which: 1.A.b.3.3.1.1 Payable by border, seasonal, and other short-term workers
    1.A.b.3.3.2 Freight
    1.A.b.3.3.3 Other
    1.A.b.3.4 Postal and courier services
    For all modes of transport2
    1.A.b.3.0.1 Passenger
    Of which: 1.A.b.3.0.1.1 Payable by border, seasonal, and other short-term workers
    1.A.b.3.0.2 Freight
    1.A.b.3.0.3 Other
    1.A.b.4 Travel
    1.A.b.4.1 Business
    1.A.b.4.1.1 Acquisition of goods and services by border, seasonal, and other short-term workers
    1.A.b.4.1.2 Other
    1.A.b.4.2 Personal
    1.A.b.4.2.1 Health-related
    1.A.b.4.2.2 Education-related
    1.A.b.4.2.3 Other
    For both business and personal travel
    1.A.b.4.0.1 Goods
    1.A.b.4.0.2 Local transport services
    1.A.b.4.0.3 Accommodation services
    1.A.b.4.0.4 Food-serving services
    1.A.b.4.0.5 Other services
    Of which: 1.A.b.4.0.5.1 Health services
    1.A.b.4.0.5.2 Education services
    1.A.b.5 Construction
    1.A.b.5.1 Construction abroad10
    1.A.b.5.2 Construction in the reporting economy10
    1.A.b.6 Insurance and pension services1
    1.A.b.6.1 Direct insurance
    1.A.b.6.2 Reinsurance
    1.A.b.6.3 Auxiliary insurance services
    1.A.b.6.4 Pension and standardized guarantee services
    1.A.b.7 Financial services
    1.A.b.7.1 Explicitly charged and other financial services
    1.A.b.7.2 Financial intermediation services indirectly measured (FISIM)
    1.A.b.8 Charges for the use of intellectual property n.i.e.1
    1.A.b.9 Telecommunications, computer, and information services1
    1.A.b.9.1 Telecommunications services
    1.A.b.9.2 Computer services
    1.A.b.9.3 Information services
    1.A.b.10 Other business services1
    1.A.b.10.1 Research and development services
    1.A.b.10.2 Professional and management consulting services
    1.A.b.10.3 Technical, trade-related, and other business services
    1.A.b.11 Personal, cultural, and recreational services1
    1.A.b.11.1 Audiovisual and related services
    1.A.b.11.2 Other personal, cultural, and recreational services
    1.A.b.12 Government goods and services n.i.e.1
    1.A.b.0.1 Tourism-related services in travel and passenger transport
    1.B Primary income
    Balance on primary income (+ surplus; – deficit)
    1.B.1 Compensation of employees (DI)
    1.B.2 Investment income
    1.B.2.1 Direct investment
    1.B.2.1.1 Income on equity and investment fund shares
    1.B.2.1.1.1 Dividends and withdrawals from income of quasi-corporations (D42D)
    1.B.2.1.1.1.1 Direct investor in direct investment enterprises
    1.B.2.1.1.1.2 Direct investment enterprises in direct investor
    (reverse investment)
    1.B.2.1.1.1.3 Between fellow enterprises
    1.B.2.1.1.1.3.1 if ultimate controlling parent is resident
    1.B.2.1.1.1.3.2 if ultimate controlling parent is nonresident
    1.B.2.1.1.1.3.3 if ultimate controlling parent is unknown
    1.B.2.1.1.2 Reinvested earnings (D43D)
    Investment income attributable to policyholders in insurance, pension
    schemes, and standardized guarantees, and to investment fund
    shareholders (D44D)
    Of which: Investment income attributable to investment fund
    shareholders (D443D)
    1.B.2.1.2 Interest (D4ID)
    1.B.2.1.2.1 Direct investor in direct investment enterprises
    1.B.2.1.2.2 Direct investment enterprises in direct investor (reverse investment)
    1.B.2.1.2.3 Between fellow enterprises
    1.B.2.1.2.3.1 if ultimate controlling parent is resident
    1.B.2.1.2.3.2 if ultimate controlling parent is nonresident
    1.B.2.1.2.3.3 if ultimate controlling parent is unknown
    1.B.2.1.2M Memorandum: Interest before FISIM
    1.B.2.2 Portfolio investment
    1.B.2.2.1 Investment income on equity and investment fund shares
    1.B.2.2.1.1 Dividends on equity excluding investment fund shares (D42P)
    1.B.2.2.1.2 Investment income attributable to investment fund shareholders
    (D443P)
    1.B.2.2.1.2.1 Dividends
    1.B.2.2.1.2.2 Reinvested earnings
    1.B.2.2.2 Interest (D41P)
    1.B.2.2.2.1 Short-term
    1.B.2.2.2.2 Long-term
    1.B.2.3 Other investment
    1.B.2.3.1 Withdrawals from income of quasi-corporations (D42O)
    1.B.2.3.2 Interest (D4IO)
    1.B.2.3.2M Memorandum: Interest before FISIM
    1.B.2.3.3 Investment income attributable to policyholders in insurance, pension schemes, and standardized guarantee schemes
    1.B.2.4 Reserve assets3
    1.B.2.4.1 Income on equity and investment fund shares (D42R)3
    1.B.2.4.2 Interest (D4IR)3
    1.B.2.4.2M Memorandum: Interest before FISIM3
    1.B.3 Other primary income
    1.B.3.1 Taxes on production and on imports (D2)
    1.B.3.2 Subsidies (D3)
    1.B.3.3 Rent (D45)
    Balance on goods, services, and primary income (+ surplus; – deficit)
    1.C Secondary income
    Balance on secondary income (+ surplus; – deficit)
    1.C.1 General government
    1.C.1.1 Current taxes on income, wealth, etc. (D5)n.a.
    Of which:1.C.1.1.1 payable by border, seasonal, and other short-term workersn.a.
    1.C.1.2 Social contributions (D61)n.a.
    Of which: 1.C.1.2.1 payable by border, seasonal, and other short-term workersn.a.
    1.C.1.3 Social benefits (D62+D63)n.a.
    1.C.1.4 Current international cooperation (D74)
    1.C.1.5 Miscellaneous current transfers of general government (D75)
    Of which: 1.C.1.5.1 Current transfers to NPISHs
    1.C.2 Financial corporations, nonfinancial corporations, households, and NPISHs
    1.C.2.1 Personal transfers (Current transfers between resident and nonresident households)
    Of which: 1.C.2.1.1 Workers’ remittances
    1.C.2.2 Other current transfers
    1.C.2.0.1 Current taxes on income, wealth, etc. (D5)n.a.
    1.C.2.0.2 Social contributions (D61)
    1.C.2.0.3 Social benefits (D62+D63)
    1.C.2.0.4 Net nonlife insurance premiums (D71)
    1.C.2.0.5 Nonlife insurance claims (D72)
    1.C.2.0.6 Current international cooperation (D74)
    1.C.2.0.7 Miscellaneous current transfers (D75)
    Of which:1.C.2.0.7.1 Current transfers to NPISHs
    1.C.3 Adjustment for change in pension entitlements (D8)
    2 Capital account
    Capital account balance (+ surplus; – deficit)
    2.1 Gross acquisitions (DR.)/disposals (CR.) of nonproduced nonfinancial assets (N2)
    2.2 Capital transfers (D9)
    2.2.1 General government
    2.2.1.1 Debt forgiveness
    2.2.1.2 Other capital transfers
    Of which:2.2.1.2.1 Capital taxes (D9I)
    2.2.2 Financial corporations, nonfinancial corporations, households, and NPISHs
    2.2.2.1 Debt forgiveness
    2.2.2.2 Other capital transfers
    Of which: 2.2.2.2.1 Capital taxes (D9I)n.a.
    Of which: 2.2.2.0.1 Between households
    Of which:
    for each item in capital transfers:
    Transfers to NPISHs
    Net lending (+) / net borrowing (-) (balance from current and capital accounts) (B9)
    Balance of paymentsNet acquisition of financial assetsNet incurrence of liabilities
    3 Financial account
    Net lending (+) / net borrowing (-) (from financial account) (B9)
    3.1 Direct investment (FD)
    3.1.1 Equity and investment fund shares (F5D)
    3.1.1.1 Equity other than reinvestment of earnings
    3.1.1.1.1 Direct investor in direct investment enterprises
    3.1.1.1.2 Direct investment enterprises in direct investor (reverse investment)
    3.1.1.1.3 Between fellow enterprises
    3.1.1.1.3.1 if ultimate controlling parent is resident
    3.1.1.1.3.2 if ultimate controlling parent is nonresident
    3.1.1.1.3.3 if ultimate controlling parent is unknown
    3.1.1.2 Reinvestment of earnings
    Of which: 3.1.1.0.1 Investment fund shares/units (F52D)
    Of which: 3.1.1.0.1.1 Money market fund shares/units (F52ID)
    3.1.2 Debt instruments
    3.1.2.1 Direct investor in direct investment enterprises
    3.1.2.2 Direct investment enterprises in direct investor (reverse investment)
    3.1.2.3 Between fellow enterprises
    3.1.2.3.1 if ultimate controlling parent is resident
    3.1.2.3.2 if ultimate controlling parent is nonresident
    3.1.2.3.3 if ultimate controlling parent is unknown
    Of which: 3.1.2.0 Debt securities (F3D):
    3.1.2.0.1 Direct investor in direct investment enterprises
    3.1.2.0.2 Direct investment enterprises in direct investor (reverse investment)
    3.1.2.0.3 Between fellow enterprises
    3.1.2.0.3.1 if ultimate controlling parent is resident
    3.1.2.0.3.2 if ultimate controlling parent is nonresident
    3.1.2.0.3.3 if ultimate controlling parent is unknown
    3.2 Portfolio investment (FP)
    3.2.1 Equity and investment fund shares (F5P)
    3.2.1.1 Central bankn.a.
    3.2.1.1.9 Monetary authorities (where relevant)n.a.
    3.2.1.2 Deposit-taking corporations, except the central bank
    3.2.1.3 General governmentn.a.
    3.2.1.4 Other sectors
    3.2.1.4.1 Other financial corporations
    3.2.1.4.2 Nonfinancial corporations, households, and NPISHs
    3.2.1.0.1 Equity securities other than investment fund shares (F51P)
    3.2.1.0.1.1 Listed (F511P)
    3.2.1.0.1.2 Unlisted (F512P)
    3.2.1.0.2 Investment fund shares/units (F52P)
    Of which: 3.2.1.0.2.1 Reinvestment of earnings
    Of which: 3.2.1.0.2.0.1 Money market fund shares/units (F521P)
    3.2.2 Debt securities (F3P)
    3.2.2.1 Central bank
    3.2.2.1.1 Short-term
    3.2.2.1.2 Long-term
    3.2.2.1.9 Monetary authorities (where relevant)
    3.2.1.1.9.1 Short-term
    3.2.1.1.9.2 Long-term
    3.2.2.2 Deposit-taking corporations, except the central bank
    3.2.2.2.1 Short-term
    3.2.2.2.2 Long-term
    3.2.2.3 General government
    3.2.2.3.1 Short-term
    3.2.2.3.2 Long-term
    3.2.2.4 Other sectors
    3.2.2.4.0.1 Short-term
    3.2.2.4.0.2 Long-term
    3.2.2.4.1 Other financial corporations
    3.2.2.4.1.1 Short-term
    3.2.2.4.1.2 Long-term
    3.2.2.4.2 Nonfinancial corporations, households, and NPISHs
    3.2.2.4.2.1 Short-term
    3.2.2.4.2.2 Long-term
    3.3 Financial derivatives (other than reserves) and employee stock options (F7F)555
    3.3.1 Central bank55
    3.3.1.9 Monetary authorities (where relevant)55
    3.3.2 Deposit-taking corporations, except the central bank55
    3.3.3 General government55
    3.3.4 Other sectors55
    3.3.4.1 Other financial corporations55
    3.3.4.2 Nonfinancial corporations, households, and NPISHs55
    3.3.0.1 Financial derivatives (other than reserves) (F71F)55
    3.3.0.1.1 Options (F711F)55
    3.3.0.1.2 Forward-type contracts (F712F)55
    3.3.0.2. Employee stock options (F72)55
    3.4 Other investment (FO)
    3.4.1 Other equity (F519O)
    3.4.2 Currency and deposits (F2O)
    3.4.2.1 Central bank
    3.4.2.1.1 Short-term
    3.4.2.1.2 Long-term
    3.4.2.1.9 Monetary authorities (where relevant)
    3.4.2.1.9.1 Short-term
    3.4.2.1.9.2 Long-term
    3.4.2.2 Deposit-taking corporations, except the central bank
    3.4.2.2.0.1 Of which: Interbank positions
    3.4.2.2.1 Short-term
    3.4.2.2.2 Long-term
    3.4.2.3 General government
    3.4.2.3.1 Short-term
    3.4.2.3.2 Long-term
    3.4.2.4 Other sectors
    3.4.2.4.0.1 Short-term
    3.4.2.4.0.2 Long-term
    3.4.2.4.1 Other financial corporations
    3.4.2.4.1.1 Short-term
    3.4.2.4.1.2 Long-term
    3.4.2.4.2 Nonfinancial corporations, households, and NPISHsn.a.
    3.4.2.4.2.1 Short-termn.a.
    3.4.2.4.2.2 Long-termn.a.
    3.4.3 Loans (F4O)
    3.4.3.1 Central bank
    3.4.3.1.1 Credit and loans with the IMF (other than reserves)
    3.4.3.1.2 Other short-term
    3.4.3.1.3 Other long-term
    3.4.3.1.9 Monetary authorities (where relevant)
    3.4.3.1.9.1 Credit and loans with the IMF (other than reserves)
    3.4.3.1.9.2 Other short-term
    3.4.3.1.9.3 Other long-term
    3.4.3.2 Deposit-taking corporations, except the central bank
    3.4.3.2.1 Short-term
    3.4.3.2.2 Long-term
    3.4.3.3 General government
    3.4.3.3.1 Credit and loans with the IMF (other than reserves)
    3.4.3.3.2 Other short-term
    3.4.3.3.3 Other long-term
    3.4.3.4 Other sectors
    3.4.3.4.0.1 Short-term
    3.4.3.4.0.2 Long-term
    3.4.3.4.1 Other financial corporations
    3.4.2.4.1.1 Short-term
    3.4.2.4.1.2 Long-term
    3.4.3.4.2 Nonfinancial corporations, households, and NPISHs
    3.4.3.4.2.1 Short-term
    3.4.3.4.2.2 Long-term
    3.4.4 Insurance, pension, and standardized guarantee schemes (F6O)
    3.4.4.1 Central bank
    3.4.4.1.9 Monetary authorities (where relevant)
    3.4.4.2 Deposit-taking corporations, except the central bank
    3.4.4.3 General government
    3.4.4.4 Other sectors
    3.4.4.4.1 Other financial corporations
    3.4.4.4.2 Nonfinancial corporations, households, and NPISHs
    3.4.4.0.1 Nonlife insurance technical reserves (F6IO)
    3.4.4.0.2 Life insurance and annuity entitlements (F62O)
    3.4.4.0.3 Pension entitlements (F63O)
    3.4.4.0.4 Claims of pension funds on pension managers (F64O)
    3.4.4.0.5 Entitlements to nonpension benefits (F65O)
    3.4.4.0.6 Provisions for calls under standardized guarantees (F66O)
    3.4.5 Trade credit and advances (F8IO)
    3.4.5.1 Central bank
    3.4.5.1.1 Short-term
    3.4.5.1.2 Long-term
    3.4.5.1.9 Monetary authorities (where relevant)
    3.4.5.1.9.1 Short-term
    3.4.5.1.9.2 Long-term
    3.4.5.2 General government
    3.4.5.2.1 Short-term
    3.4.5.2.2 Long-term
    3.4.5.3 Deposit-taking corporations
    3.4.5.3.1 Short-term
    3.4.5.3.2 Long-term
    3.4.5.4 Other sectors
    3.4.5.4.0.1 Short-term
    3.4.5.4.0.2 Long-term
    3.4.5.4.1 Other financial corporations
    3.4.5.4.1.1 Short-term
    3.4.5.4.1.2 Long-term
    3.4.5.4.2 Nonfinancial corporations, households, and NPISHs
    3.4.5.4.2.1 Short-term
    3.4.5.4.2.2 Long-term
    3.4.6 Other accounts receivable/payable—other (F89O)
    3.4.6.1 Central bank
    3.4.6.1.1 Short-term
    3.4.6.1.2 Long-term
    3.4.6.1.9 Monetary authorities (where relevant)
    3.4.6.1.9.1 Short-term
    3.4.6.1.9.2 Long-term
    3.4.6.2 Deposit-taking corporations, except the central bank
    3.4.6.2.1 Short-term
    3.4.6.2.2 Long-term
    3.4.6.3 General government
    3.4.6.3.1 Short-term
    3.4.6.3.2 Long-term
    3.4.6.4 Other sectors
    3.4.6.4.0.1 Short-term
    3.4.6.4.0.2 Long-term
    3.4.6.4.1 Other financial corporations
    3.4.6.4.1.1 Short-term
    3.4.6.4.1.2 Long-term
    3.4.6.4.2 Nonfinancial corporations, households, and NPISHs
    3.4.6.4.2.1 Short-term
    3.4.6.4.2.2 Long-term
    3.4.7 Special drawing rights (F12)n.a.
    3.5 Reserve assets (FR)
    3.5.1 Monetary gold (F11)n.a.
    3.5.1.1 Gold bullion6n.a.
    3.5.1.2 Unallocated gold accounts6n.a.
    3.5.2 Special drawing rights (F12)n.a.
    3.5.3 Reserve position in the IMFn.a.
    3.5.4 Other reserve assetsn.a.
    3.5.4.1 Currency and depositsn.a.
    3.5.4.1.1 Claims on monetary authoritiesn.a.
    3.5.4.1.2 Claims on other entitiesn.a.
    3.5.4.2 Securitiesn.a.
    3.5.4.2.1 Debt securities (F3R)n.a.
    3.5.4.2.1.1 Short-term (F31R)n.a.
    3.5.4.2.1.2 Long-term (F32R)n.a.
    3.5.4.2.2 Equity and investment fund shares (F5R)n.a.
    3.5.4.3 Financial derivatives (F7R)4n.a.
    3.5.4.4 Other claimsn.a.
    3 Total assets/liabilities (F)
    Of which: (by instrument):
    3.0.1 Equity and investment fund shares (F5)
    3.0.1.1 Equity (F51)
    3.0.1.2 Investment fund shares (F52)
    3.0.2 Debt instruments
    3.0.2.1 Special drawing rights (F12)
    3.0.2.2 Currency and deposits (F2)
    3.0.2.3 Debt securities (F3)
    3.0.2.4 Loans (F4)
    3.0.2.5 Insurance, pension, and standardized guarantee schemes (F6)
    3.0.2.6 Other accounts receivable/payable (F8)
    3.0.3 Other financial assets and liabilities
    3.0.3.1 Monetary gold (F11)n.a.
    3.0.3.2 Financial derivatives and ESOs (F7)
    CreditsDebits
    Net errors and omissions
    Memorandum Items—Exceptional Financing
    1. Current and/or capital transfers
    1.1 Debt forgiveness
    1.2 Other intergovernmental grants
    1.3 Grants received from IMF subsidy accounts
    2. Direct investment
    2.1 Equity investment associated with debt reduction
    2.2 Debt instruments
    3. Portfolio investment—liabilities7
    4. Other investment—liabilities7
    4.1 Drawings on new loans by authorities or by other sectors on behalf of authorities
    4.2 Rescheduling of existing debt
    5. Arrears7,8
    5.1 Accumulation of arrears
    5.1.1 Principal on short-term debt
    5.1.2 Principal on long-term debt
    5.1.3 Original interest
    5.1.4 Penalty interest
    5.2 Repayment of arrears
    5.2.1 Principal
    5.2.2 Interest
    5.3 Rescheduling of arrears
    5.3.1 Principal
    5.3.2 Interest
    5.4 Cancellation of arrears
    5.4.1 Principal
    5.4.2 Interest
    (See end of 11P listing for footnotes.)Short-term and long-term are defined on an original maturity basis in the standard components.Additional items for balance of payments:

    • Direct investment:

      • Direct investment by instrument, maturity, and institutional sector for reconciliation with national accounts, monetary and financial statistics, and government finance statistics (see paragraphs 2.32, 2.34, and 14.59)

      • Direct investment involving resident SPEs (SPEs according to national definitions) (see paragraphs 4.50 and 4.87)

      • Direct investment in the reporting economy and direct investment abroad (see Box 6.4)

      • Real estate investment (see paragraph 6.31)

      • Pass-through funds (see paragraphs 6.33–6.34)

      • Data by kind of economic activity (industry) (see paragraph 6.50)

      • Mergers and acquisitions (see paragraph 8.18)

    • Data for the money-issuing sector, i.e., the central bank plus other deposit-taking corporations plus other institutions covered in the definition of broad money (e.g., money market funds in some cases; see paragraph 4.72)

    • Financial account items for public corporations (see paragraph 4.108)

    • Data by partner economy (see paragraphs 4.146–4.148)

    • Detail for investment income to match the 11P, to facilitate rate of return calculations (see paragraphs 7.13 and 11.6)

    • Gross flows for financial account items (see paragraph 8.9)

    • Reconciliation table between merchandise source data and goods on a balance of payments basis (see Table 10.2)

    • Gross insurance premiums earned and unadjusted insurance claims (see paragraph 10.112)

    • Transfers implied by loans at concessional interest (see paragraph 12.51)

    • Personal remittances (XD5452PR) (see paragraph 12.27(a))

    • Total remittances (XD5452TR) (see paragraph 12.27(b))

    • Total remittances and transfers to nonprofit institutions serving households (see paragraph 12.27(c))

    • Insurance claims included in other capital transfers (see paragraph 13.24)

    B. International Investment Position

    International Investment PositionAssetsLiabilities
    Net International Investment Position (B90)
    1 Direct investment (AFD)
    1.1 Equity and investment fund shares (AF5D)
    1.1.1 Direct investor in direct investment enterprises
    1.1.2 Direct investment enterprises in direct investor (reverse investment)
    1.1.3 Between fellow enterprises
    1.1.3.1 if ultimate controlling parent is resident
    1.1.3.2 if ultimate controlling parent is nonresident
    1.1.3.3 if ultimate controlling parent is unknown
    Of which: 1.1.0.1 Investment fund shares/units (AF52D)
    Of which: 1.1.0.1.1 Money market fund shares/units (AF521D)
    1.2 Debt instruments
    1.2.1 Direct investor in direct investment enterprises
    1.2.2 Direct investment enterprises in direct investor (reverse investment)
    1.2.3 Between fellow enterprises
    1.2.3.1 if ultimate controlling parent is resident
    1.2.3.2. if ultimate controlling parent is nonresident
    1.2.3.3 if ultimate controlling parent is unknown
    Of which: 1.2.0.1 Debt securities (AF3D):
    1.2.0.1.1 Direct investor in direct investment enterprises
    1.2.0.1.2 Direct investment enterprises in direct investor (reverse investment)
    1.2.0.1.3 Between fellow enterprises
    1.2.0.1.3.1 if ultimate controlling parent is resident
    1.2.0.1.3.2 if ultimate controlling parent is nonresident
    1.2.0.1.3.3 if ultimate controlling parent is unknown
    2 Portfolio investment (AFP)
    2.1 Equity and investment fund shares (AF5P)
    2.1.1 Central bankn.a.
    2.1.1.9 Monetary authorities (where relevant)n.a.
    2.1.2 Deposit-taking corporations, except the central bank
    2.1.3 General governmentn.a.
    2.1.4 Other sectors
    2.1.4.1 Other financial corporations
    2.1.4.2 Nonfinancial corporations, households, and NPISHs
    2.1.0.1 Equity securities other than investment fund shares/units (AF51P)
    2.1.0.1.1 Listed (AF511P)
    2.1.0.1.2 Unlisted (AF512P)
    2.1.0.2 Investment fund shares/units (AF52P)
    Of which: 2.1.0.2.1 Money market fund shares/units (AF521P)
    2.2 Debt securities (AF3P)
    2.2.1 Central bank
    2.2.1.1 Short-term
    2.2.1.2 Long-term
    2.2.1.9 Monetary authorities (where relevant)
    2.2.1.9.1 Short-term
    2.2.1.9.2 Long-term
    2.2.2 Deposit-taking corporations, except the central bank
    2.2.2.1 Short-term
    2.2.2.2 Long-term
    2.2.3 General government
    2.2.3.1 Short-term
    2.2.3.2 Long-term
    2.2.4 Other sectors
    2.2.4.0.1 Short-term
    2.2.4.0.2 Long-term
    2.2.4.1 Other financial corporations
    2.2.4.1.1 Short-term
    2.2.4.1.2 Long-term
    2.2.4.2 Nonfinancial corporations, households, and NPISHs
    2.2.4.2.1 Short-term
    2.2.4.2.2 Long-term
    3 Financial derivatives (other than reserves) and employee stock options (AF7F)55
    3.1 Central bank55
    3.1.9 Monetary authorities (where relevant)55
    3.2 Deposit-taking corporations, except the central bank55
    3.3 General government55
    3.4 Other sectors55
    3.4.1 Other financial corporations55
    3.4.2 Nonfinancial corporations, households, and NPISHs55
    3.0.1 Financial derivatives (other than reserves) (AF71F)55
    3.0.1.1 Options (AF711F)55
    3.0.1.2 Forward-type contracts (AF712F)55
    3.0.2 Employee stock options (AF72)55
    4 Other investment (AFO)
    4.1 Other equity (AF511O)
    4.2 Currency and deposits (AF2O)
    4.2.1 Central bank
    4.2.1.0.1 Short-term
    4.2.1.0.2 Long-term
    4.2.1.9 Monetary authorities (where relevant)
    4.2.1.9.1 Short-term
    4.2.1.9.2 Long-term
    4.2.2 Deposit-taking corporations, except the central bank
    4.2.2.1 Short-term
    4.2.2.2 Long-term
    Of which: 4.2.2.0.1 Interbank positions (AF221O)
    4.2.3 General government
    4.2.3.1 Short-term
    4.2.3.2 Long-term
    4.2.4 Other sectors
    4.2.4.0.1 Short-term
    4.2.4.0.2 Long-term
    4.2.4.1 Other financial corporations
    4.2.4.1.1 Short-term
    4.2.4.1.2 Long-term
    4.2.4.2 Nonfinancial corporations, households, and NPISHsn.a.
    4.2.4.2.1 Short-termn.a.
    4.2.4.2.2 Long-termn.a.
    4.3 Loans (AF4O)
    4.3.1 Central bank
    4.3.1.1 Credit and loans with the IMF (other than reserves)
    4.3.1.2 Other short-term
    4.3.1.3 Other long-term
    4.3.1.9 Monetary authorities (where relevant)
    4.3.1.9.1 Credit and loans with the IMF (other than reserves)
    4.3.1.9.2 Other short-term
    4.3.1.9.3 Other long-term
    4.3.2 Deposit-taking corporations, except the central bank
    4.3.2.1 Short-term
    4.3.2.2 Long-term
    4.3.3 General government
    4.3.3.1 Credit and loans with the IMF
    4.3.3.2 Other short-term
    4.3.3.3 Other long-term
    4.3.4 Other sectors
    4.3.4.0.1 Short-term
    4.3.4.0.2 Long-term
    4.3.4.1 Other financial corporations
    4.3.4.1.1 Short-term
    4.3.4.1.2 Long-term
    4.3.4.2 Nonfinancial corporations, households, and NPISHs
    4.3.4.2.1 Short-term
    4.3.4.2.2 Long-term
    4.4 Insurance, pension, and standardized guarantee schemes (AF6O)
    4.4.1 Central bank
    4.4.1.9 Monetary authorities (where relevant)
    4.4.2 Deposit-taking corporations, except the central bank
    4.4.3 General government
    4.4.4 Other sectors
    4.4.4.1 Other financial corporations
    4.4.4.2 Nonfinancial corporations, households, and NPISHs
    4.4.0.1 Nonlife insurance technical reserves (AF6IO)
    4.4.0.2 Life insurance and annuity entitlements (AF62O)
    4.4.0.3 Pension entitlements (AF63O)
    4.4.0.4 Claims of pension funds on pension managers (AF64O)
    4.4.0.5 Entitlements to nonpension benefits (AF65O)
    4.4.0.6 Provisions for calls under standardized guarantees (AF66O)
    4.5 Trade credit and advances (AF81O)
    4.5.1 Central bank
    4.5.1.1 Short-term
    4.5.1.2 Long-term
    4.5.1.9 Monetary authorities (where relevant)
    4.5.1.9.1 Short-term
    4.5.1.9.2 Long-term
    4.5.2 General government
    4.5.2.1 Short-term
    4.5.2.2 Long-term
    4.5.3 Deposit-taking corporations, except the central bank
    4.5.3.1 Short-term
    4.5.3.2 Long-term
    4.5.4 Other sectors
    4.5.4.0.1 Short-term
    4.5.4.0.2 Long-term
    4.5.4.1 Other financial corporations
    4.5.4.1.1 Short-term
    4.5.4.1.2 Long-term
    4.5.4.2 Nonfinancial corporations, households, and NPISHs
    4.5.4.2.1 Short-term
    4.5.4.2.2 Long-term
    4.6 Other accounts receivable/payable—other (AF89O)
    4.6.1 Central bank
    4.6.1.1 Short-term
    4.6.1.2 Long-term
    4.6.1.9 Monetary authorities (where relevant)
    4.6.1.9.1 Short-term
    4.6.1.9.2 Long-term
    4.6.2 Deposit-taking corporations, except the central bank
    4.6.2.1 Short-term
    4.6.2.2 Long-term
    4.6.3 General government
    4.6.3.1 Short-term
    4.6.3.2 Long-term
    4.6.4 Other sectors
    4.6.4.0.1 Short-term
    4.6.4.0.2 Long-term
    4.6.4.1 Other financial corporations
    4.6.4.1.1 Short-term
    4.6.4.1.2 Long-term
    4.6.4.2 Nonfinancial corporations, households, and NPISHs
    4.6.4.2.1 Short-term
    4.6.4.2.2 Long-term
    4.7 Special drawing rights (AF12)n.a.
    5 Reserve assets (AFR)n.a.
    5.1 Monetary gold (AF11)n.a.
    5.1.1 Gold bullion6n.a.
    5.1.2 Unallocated gold accounts6n.a.
    Of which: 5.1.0.1 Monetary gold under swap for cash collateraln.a.
    5.2 Special drawing rights (AF12)n.a.
    5.3 Reserve position in the IMFn.a.
    5.4 Other reserve assetsn.a.
    5.4.1 Currency and depositsn.a.
    5.4.1.1 Claims on monetary authoritiesn.a.
    5.4.1.2 Claims on other entitiesn.a.
    5.4.2 Securitiesn.a.
    5.4.2.1 Debt securities (AF3R)n.a.
    5.4.2.1.1 Short-term (AF31R)n.a.
    5.4.2.1.2 Long-term (AF32R)n.a.
    5.4.2.2 Equity and investment fund shares (AF5R)n.a.
    Of which: 5.4.2.0.1 Securities under repo for cash collateraln.a.
    5.4.3 Financial derivatives (AF7R)4n.a.
    5.4.4 Other claimsn.a.
    Total assets/liabilities (AF)
    Of which: (by instrument):
    0.1 Equity and investment fund shares (AF5)
    0.1.1 Equity (AF51)
    0.1.2 Investment fund shares (AF52)
    0.2 Debt instruments
    0.2.1 Special drawing rights (AF12)
    0.2.2 Currency and deposits (AF2)
    0.2.3 Debt securities (AF3)
    0.2.4 Loans (AF4)
    0.2.5 Insurance, pension, and standardized guarantee schemes (AF6)
    0.2.6 Other accounts receivable/payable (AF8)
    0.3 Other financial assets and liabilities
    0.3.1 Monetary gold (AF11)n.a.
    0.3.1 Financial derivative and ESOs (AF7)
    As well as the additional items for the financial account (listed above for the balance of payments standard components) that are also applicable to the 11P, the following are further additional items for the 11P:
    Reserve-related liabilities (see Table A9-V below; includes memorandum and supplementary items)n.a.
    Loans—measures of impairment (see paragraphs 7.45–7.56):
    fair value, nonperforming loans (XAF4_NNP)9 loan loss (bad debt) provisions, arrearsn.a.
    for assets; for each institutional sector and maturity
    Currency composition of assets and liabilities and institutional sector
    See Table A9-I (memorandum) and Tables A9-II and A9-III (supplementary) below
    Foreign currency assets of the monetary authorities:n.a.
    Foreign currency deposits with deposit-taking corporations resident in the reporting economy (see paragraph 6.65)n.a.
    Foreign currency claims on neighboring economies (see paragraph 6.73)n.a.
    Foreign assets of special purpose government funds not included in reserve assets (see paragraphs 6.93–6.98)n.a.
    Pooled assets included in reserve assets (see paragraphs 6.99–6.101)n.a.
    Pledged assets excluded from reserve assets (see paragraphs 6.1076.109)n.a.
    Debt securities at nominal values (see paragraph 7.30)
    Remaining maturity split for debt liabilities (see Table A9-IV below)n.a.
    For each instrument and sectorn.a.
    Integrated 11P statement with positions, transactions and other changes in volume, exchange rate changes, and other revaluations (as shown in Table 7.1)
    by asset and liability category
    changes in positions due to transactions by other parties (see paragraph 9.16)
    Contingent assets/liabilities (XAF11__CP) (see paragraph 5.10)
    n.a. not applicable—no entries in this cellOther sectors—other financial corporations, nonfinancial corporations, households, and NPISHs

    Further detail in EBOPS, see MSITS Annex II, Extended Balance of Payments Services Classification.

    Standard components for those countries that are unable (for example, for reasons of confidentiality) to provide the full breakdown by mode of transport; otherwise supplementary, but can be derived by summing the standard components for each mode of transport.

    If available for publication. If not available for publication, include in other investment-interest.

    Assets and liabilities combined and reported as a net figure for assets less liabilities, included under assets.

    Preferably assets and liabilities reported separately, but otherwise a net figure for liabilities less assets, included, by convention, under assets.

    If available for publication.

    Specify sector involved and standard component in which the item is included.

    Arrears related to exceptional financing. Not a transaction, but included in the “analytic” presentation (see paragraphs 14.17 and A1.21).

    Loans at fair value as a memorandum item, if feasible. Nonperforming loans at nominal value as a supplementary item (or memorandum if fair value of loans is unavailable).

    Construction abroad—Construction (CR.); Goods and services acquired (DR.). Construction in the reporting economy—(Goods and services acquired (CR.); (Construction (DR.).

    C. Additional Analytical Position Data

    (a) Currency Composition

    Table A9-I.Currency Composition of Assets and Liabilities (at a reference date)1

    Table A9-I-1a. Debt Claims on Nonresidents

    Year … (latest year under review)
    Central

    bank
    General

    government
    Deposit-taking

    corporations,

    except the

    central bank
    Other sectors5Inter-

    company

    lending6
    Total
    TotalOFCOther
    Total2
    Domestic currency
    Foreign currency
    U.S. dollar
    Euro
    Yen
    Other currencies
    Unallocated3
    Of which one year or less4
    Domestic currency
    Foreign currency
    U.S. dollar
    Yen
    Other currencies
    Unallocated3
    Reserve assets7
    In SDR basket
    In SDR basket
    Table A9-I-1b.Financial Derivative Positions with Nonresidents Foreign Currency Derivatives: Notional Value of Contracts with Nonresidents8
    Central

    bank
    General

    government
    Deposit-taking

    corporations,

    except the

    central bank
    Other sectors5Inter-

    company

    lending6
    Total
    TotalOFCOther
    Receive foreign currencyn.a.
    U.S. dollarn.a.
    Euron.a.
    Yenn.a.
    Other currenciesn.a.

    Table A9-I is a memorandum item.

    Excluding reserve assets.

    See paragraph 5.107 on when currency data is shown as unallocated.

    Original maturity.

    OFC = other financial corporations, Other = nonfinancial corporations (except intercompany lending), households, and NPISHs.

    Data on debt instruments from the direct investment category. Intercompany lending (as defined in paragraph 6.26) is classified as long-term by convention. Intercompany lending is excluded from data for the other sectors.

    Total reserve assets.

    Data on notional value of derivatives in this table should include those derivatives that swap foreign currency liabilities into domestic currency (e.g., if the monetary authority issues a foreign currency bond and uses a foreign currency swap contract with a nonresident to swap the proceeds into domestic currency, the notional value of the swap contract to receive foreign currency when the swap contract matures should be reported in the Table I-1b). For similar foreign currency derivative transactions with residents, similar data on notional positions with other residents could be considered.

    Table A9-I-2aDebt Liabilities to NonresidentsYear … (latest year under review)
    Central

    bank
    General

    government
    Deposit-taking

    corporations,

    except the

    central bank
    Other sectors5Inter-

    company

    lending6
    Total
    TotalOFCOther
    Total
    Domestic currency Foreign currency
    U.S. dollar
    Euro
    Yen
    Other currencies
    Unallocated
    Of which one year or less1
    Domestic currency
    Foreign currency
    U.S. dollar
    Euro
    Yen
    Other currencies
    Unallocated
    Table A9-I-2b.Financial Derivative Positions with Nonresidents Foreign Currency Derivatives: Notional Value of Contracts with Nonresidents
    Central

    bank
    General

    government
    Deposit-taking

    corporations,

    except the

    central bank
    Other sectors2Inter-

    company

    lending
    Total
    TotalOFCOther
    Pay foreign currencyn.a.
    U.S. dollarn.a.
    Euron.a.
    Yenn.a.
    Other currenciesn.a.

    Original maturity.

    OFC = other financial corporations, Other = nonfinancial corporations (except intercompany lending), households, and NPISHs.

    Data on debt instruments from the direct investment category. There is no original maturity breakdown for intercompany lending (as defined in paragrap 6.26); see also paragraph 5.103 on maturity for direct investment). Intercompany lending is excluded from data for the other sectors.

    Table A9-II.Currency Composition of Assets and Liabilities (time series data)1

    Table A9-II-1a. Debt Claims on Nonresidents

    All SectorsYear 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8
    Total2
    Domestic currency
    Foreign currency
    U.S. dollar
    Euro
    Yen
    Other currencies
    Unallocated
    Of which one year or less3
    Domestic currency
    Foreign currency
    U.S. dollar
    Euro
    Yen
    Other currencies
    Unallocated
    Reserve assets
    In SDR basket
    Not in SDR basket
    Table A9-II-1b.Financial Derivative Positions with Nonresidents Financial Derivatives: Notional Value of Foreign Currency Contracts with Nonresidents
    Pay foreign currency
    U.S. dollar
    Euro
    Yen
    Other currencies

    Table A9-II is supplementary and covers time series data, not projections.

    Excluding reserve assets.

    Original maturity.

    Table A9-II-2a.Debt Liabilities to Nonresidents
    All SectorsYear 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8
    Total
    Domestic currency
    Foreign currency
    U.S. dollar
    Euro
    Yen
    Other currencies
    Unallocated
    Of which one year or less1
    Domestic currency
    Foreign currency
    U.S. dollar
    Euro
    Yen
    Other currencies
    Unallocated

    Original maturity.

    Table A9-II-2b.Financial Derivative Positions with Nonresidents Financial Derivatives: Notional Value of Foreign Currency Contracts with Nonresidents
    Receive foreign currency
    U.S. dollar
    Euro
    Yen
    Other currencies
    Table A9-III. Currency Composition by Sector and Instrument (at a reference date)1

    Table III-1a. Debt Claims on Nonresidents

    Foreign

    currency
    Domestic

    currency
    UnallocatedTotal
    LONG-TERM
    Central bank2
    Debt securities
    Trade credit and advances
    Loans
    Currency and deposits
    Other debt claims
    General government
    Debt securities
    Trade credit and advances
    Loans
    Currency and deposits
    Other debt claims
    Deposit-taking corporations, except the central bank
    Debt securities
    Trade credit and advances
    Loans
    Currency and deposits
    Other debt claims
    Other sectors3
    Debt securities
    Trade credit and advances
    Loans
    Currency and deposits
    Other debt claims
    SHORT-TERM
    Central bank2
    Debt securities
    Trade credit and advances
    Loans
    Currency and deposits
    Other debt claims
    General government
    Debt securities
    Trade credit and advances
    Loans
    Currency and deposits
    Other debt claims
    Deposit-taking corporations, except the central bank
    Debt securities
    Trade credit and advances
    Loans
    Currency and deposits
    Other debt claims
    Other sectors3
    Debt securities
    Trade credit and advances
    Loans
    Currency and deposits
    Other debt claims
    DIRECT INVESTMENT4
    Intercompany lending
    Debt claims on direct investors
    Debt claims on direct investment enterprises
    Debt claims on fellow enterprises
    TOTAL

    Table A9-III is supplementary.

    Excluding reserve assets.

    A further breakdown for (i) other financial corporations, and (ii) nonfinancial corporations (except intercompany lending), households, and NPISHs is encouraged.

    There is no original maturity breakdown for intercompany lending (as defined in paragraph 6.26). Intercompany lending is excluded from data for the other sectors.

    Table A9-III-1b.Financial Derivative Positions with NonresidentsFinancial Derivatives: Notional Value of Foreign Currency and Foreign-Currency-Linked Contracts with Nonresidents
    To Receive Foreign Currency Central bank
    Forwards
    Options
    General government
    Forwards
    Options
    Deposit-taking corporations, except the central bank
    Forwards
    Options
    Other sectors1
    Forwards
    Options
    Total
    Forwards
    Options

    A further breakdown for (1) other financial corporations and (2) nonfinancial corporations (except intercompany lending), households, and NPISHs is encouraged.

    Table A9-III-2a.Debt Liabilities to Nonresidents
    Foreign

    currency
    Domestic

    currency
    UnallocatedTotal
    LONG-TERM
    Central bank
    Debt securities
    Trade credit and advances
    Loans
    Currency and deposits
    Other debt liabilities
    General government
    Debt securities
    Trade credit and advances
    Loans
    Currency and deposits
    Other debt liabilities
    Deposit-taking corporations, except the central bank
    Debt securities
    Trade credit and advances
    Loans
    Currency and deposits
    Other debt liabilities
    Other sectors1
    Bond and notes
    Trade credit and advances
    Loans
    Currency and deposits
    Other debt liabilities
    SHORT-TERM
    Central bank
    Debt securities
    Trade credit and advances
    Loans
    Currency and deposits
    Other debt liabilities
    General government
    Debt securities
    Trade credit and advances
    Loans
    Currency and deposits
    Other debt liabilities
    Deposit-taking corporations, except the central bank
    Debt securities
    Trade credit and advances
    Loans
    Currency and deposits
    Other debt liabilities
    Other sectors1
    Debt securities
    Trade credit and advances
    Loans
    Currency and deposits
    Other debt liabilities
    DIRECT INVESTMENT2
    Intercompany lending
    Debt liabilities to direct investors
    Debt liabilities to direct investment enterprises
    Debt liabilities to fellow enterprises
    TOTAL

    A further breakdown for (i) Other financial corporations, and (ii) Nonfinancial corporations (except intercompany lending), households, and NPISHs is encouraged.

    There is no original maturity breakdown for intercompany lending (as defined in paragraph 6.26). Intercompany lending is excluded from data for the other sectors.

    Table A9-III-2b.Financial Derivative Positions with NonresidentsFinancial Derivatives: Notional Value of Foreign-Currency and Foreign Currency-Linked Contracts with Nonresidents
    To pay foreign currency
    Central bank
    Forwards
    Options
    General government
    Forwards
    Options
    Deposit-taking corporations, except the central bank
    Forwards
    Options
    Other sectors1
    Forwards
    Options
    Total
    Forwards
    Options

    A further breakdown for (i) Other financial corporations, and (ii) Nonfinancial corporations (except intercompany lending), households, and NPISHs is encouraged.

    (b) Remaining Maturity

    Table A9-IV.Remaining Maturity of Debt Liabilities to Nonresidents

    (at a reference date)1

    Specific Financial Instruments: Remaining Maturity of One Year or Less of Long-Term Debt Instruments by Sector

    Central

    bank
    General

    government
    Deposit-taking

    corporations,

    except the

    central bank
    Other sectors5Total
    TotalOFCOther
    Deb securities
    Trade credit and advances
    Loans
    Currency and deposits
    Other debt liabilities
    Total

    Table A9-IV is supplementary.

    2

    A further breakdown for (i) Other financial corporations, and (ii) Nonfinancial corporations (except intercompany lending), households, and NPISHs is encouraged.

    (c) Reserve-Related Liabilities:

    Table A9-V.Memorandum/Supplementary Items: Position Data(at a reference date)Reserve-Related Liabilities
    Memorandum Items
    Reserve-related liabilities (RRL) to nonresidents1
    2.2. Short-term
    2.2.1. Credit and loans from the IMF
    2.2.2. Debt securities
    2.2.3. Deposits
    2.2.4. Loans
    2.2.4.1. Repo loans2
    2.2.4.2. Other loans
    2.2.5. Other short-term foreign currency liabilities to nonresidents
    Supplementary Items3
    1. Reserve assets (Section 1.A of Reserve Template)
    2. Reserve-related liabilities (RRL) to nonresidents4
    2.1. Long-term
    2.1.1. Credit and loans from the IMF
    2.1.2. Debt securities
    2.1.3. Deposits
    2.1.4. Loans
    2.1.4.1. Repo loans5
    2.1.4.2. Other loans
    2.1.5. Other foreign currency liabilities to nonresidents
    2.1.5.1. SDR allocation
    2.1.5.2. Other long-term foreign currency liabilities
    2.2. Short-term
    2.2.1. Credit and loans from the IMF
    2.2.2. Debt securities
    2.2.3. Deposits
    2.2.4. Loans
    2.2.4.1. Repo loans
    2.2.4.2. Other loans
    2.2.5. Other foreign currency liabilities to nonresidents
    2.2.5.2. Other short-term foreign currency liabilities
    3. Reserve assets (1.) less short-term RRL to nonresidents (2.2.)
    4. Other foreign currency assets6
    4.1. Long-term
    4.2.1. Debt securities
    4.2.2. Deposits
    4.2.3. Loans
    4.2.3.1. Repo loans
    4.2.3.2. Other loans
    4.2.4. Other foreign currency assets
    4.2. Short-term
    4.2.1. Debt securities
    4.2.2. Deposits
    4.2.3. Loans
    4.2.3.1. Repo loans
    4.2.3.2. Other loans
    4.2.4. Other foreign currency assets7
    5. Other foreign currency liabilities
    5.2.1. Long-term
    5.2.1.1. Debt securities
    5.2.1.2. Deposits
    5.2.1.3. Loans
    5.2.1.3.1. Repo loans
    5.2.1.3.2. Other loans
    5.2.1.4. Other foreign currency liabilities
    5.2.2. Short-term
    5.2.2.1. Debt securities
    5.2.2.2. Deposits
    5.2.2.3. Loans
    5.2.2.3.1. Repo loans
    5.2.2.3.2. Other loans
    5.2.2.4. Other foreign currency liabilities
    6. Foreign currency resources: 1 + 4
    7. Foreign currency liabilities: 2 + 5
    8. Net foreign currency resources: 6 – 7

    Data for RRL are to be presented on a remaining maturity basis.

    The inclusion of a repo loan within RRL depends on the treatment of repo transactions within reserves. If the security stays in reserve assets, the repo loan is recorded as a liability within RRL. Otherwise the repo loan is excluded from RRL.

    For comprehensiveness, this listing of supplementary items incorporates the memorandum items for short-term liabilities (2.2.). See paragraph 6.115 for further information.

    Data for RRL, other foreign currency assets and liabilities are to be presented on a remaining maturity basis.

    The inclusion of a repo loan within RRL depends on the treatment of repo transactions within reserves. If the security stays in reserve assets, the repo loan is recorded as a liability within RRL. If the security is reclassified to portfolio investment, the asset and the repo loan liability are included under other foreign currency asset and other foreign currency liabilities respectively.

    Other foreign currency assets and liabilities includes claims and liabilities of the monetary authorities and central government to both residents and nonresidents, other than those covered in reserve assets and RRL to nonresidents. This approach for other foreign currency assets and liabilities is consistent with the approach in Sections 1.B and 2 of the Reserves Template. To support reconciliation with government finance statistics, a subsector split between central government and the central bank could be included.

    This item would include any net financial derivative positions of the central government and of the monetary authorities not included in reserve assets nor RRL.

    Index

    • A

    • Accounting principles

    • Accounting system

      • bookkeeping principles, 3.263.31

      • credit entries, 3.30

      • debit entries, 3.30

      • horizontal double-entry bookkeeping—counterpart entries, 3.28

      • “net acquisition of financial assets,” 3.31

      • “net incurrence of liabilities,” 3.31

      • quadruple entries, 3.29

      • relationship of the SNA accounts for the rest of the world to the international accounts, A7.2A7.3

      • types of entries, 3.303.31

      • vertical double-entry bookkeeping—corresponding entries, 3.27

    • Accounts receivable/payable. See also Other accounts receivable/payable

      • interest on, 11.51

      • nonnegotiable instruments, 7.55

    • Accrual accounting

    • Accumulation accounts

    • Acquisitions and disposals of nonproduced nonfinancial assets

    • Activities of multinational enterprises statistics by activity and by product, A4.14A4.16

    • Affiliate

    • Aggregation and netting

    • Allocated gold account(s)

    • AMNE statistics. See Activities of multinational enterprises statistics

    • Amortized value

    • Analytic presentation of data

    • Ancillary corporations

      • classification by sector, 4.58

      • description and attributes, 4.19

    • Annuity entitlements. See Life insurance and annuity entitlements

    • Arrears

      • accrual of (standard presentation), 3.563.57

      • accumulation of arrears—current period, A1.21A1.22

      • analytic presentation of data, A1.22, A1.23

      • creation of a new instrument and, 5.102

      • definition, 5.99

      • financial account reporting, 8.588.59

      • not related to exceptional financing, 5.101

      • reclassification of an existing instrument and, 5.102

      • related to exceptional financing, 5.100, A1.21A1.23

      • repayment of, A1.23

      • subclassifications, 5.995.102

    • Asset-backed securities, 5.47

    • Associates

    • Audiovisual and related services

    • B

    • Bailout

      • treatment of as capital transfers, 13.34

    • Balance of payments

    • Balance of Payments Manual, 5th edition

    • Balance of Payments and International Investment Position Manual, 6th edition

    • Balance of Payments Compilation Guide, 1.3, 1.26

    • Balance of Payments Textbook, 1.26

    • Balance sheet analysis

      • Manual revision theme, 1.33

    • Balance sheet approach

    • Bank for International Settlements

      • Guide to the International Banking Statistics, 7.9

    • Bankers’ acceptances

    • Black market currency exchange rates

    • Book value

    • Borrowing for balance of payments support

      • analytic presentation of data, A1.14

      • short-term, A1.15

    • Branches

      • construction projects, 4.29

      • description, 4.26

      • features of, 4.27

      • mobile equipment and, 4.31

      • multiterritory pipelines, 4.32

      • notional resident units for land and other natural resources owned by nonresidents and, 4.374.38

      • production delivered from a base, 4.304.33

      • reporting implications, 4.28

    • Brass plate companies

    • Business services. See Technical, trade-related, and other business services; also see Specific services

    • Business travel

      • border, seasonal, and other short-term workers and, 10.93

      • definition, 10.91

      • examples, 10.91

      • goods and services acquired for personal use and, 10.92

    • Buybacks. See Debt prepayment and debt buybacks

    • C

    • Cancellation of financial assets and liabilities

      • circumstances leading to, 9.8

      • uncompensated seizures of assets by governments, 9.11

      • unilateral cancellation by debtor, 9.10

    • Capital account

    • Capital transfers

      • assets of persons changing their economic territory of residence, 13.30

      • bailouts, 13.34

      • capital contributions to international organizations or nonprofit institutions, 13.32

      • cash transfers, 12.1312.15

      • concessional lending, 13.33

      • debt forgiveness, 13.2213.23

      • definition, 12.13, 13.19

      • household-to-household, 13.35

      • investment grants, 13.2513.26

      • large gifts and inheritances, 13.31

      • major nonrecurrent payments in compensation for damages, 13.29

      • nonlife insurance claims, 13.24

      • one-off guarantees, 13.27

      • size and frequency and, 12.13

      • taxes, 13.28

    • Captive financial institutions and money lenders

      • conduits, 4.86

      • definition, 4.82

      • financial corporations included, 4.83

      • financial intermediation services charges indirectly measured and, 10.127

      • holding companies, 4.844.85, 10.127

      • wealth-holding entities, 4.87

    • Cash basis for recording flows

    • Cash transfers

    • Central banks. See also Deposit-taking corporations

    • Change to the framework

      • update procedure, 1.41

    • Changes in residence

      • assets moved between entities, 4.166

      • change in residence of individuals, 4.165

      • entities other than persons, 4.167

    • CIF. See Cost, insurance, and freight

    • Civil servants. See Diplomats, military personnel, and other civil servants employed abroad

    • Claim(s)

    • Clarification beyond dispute

      • update procedure, 1.39

    • Classifications of financial assets and liabilities

      • arrears, 5.995.102

      • claims, 5.65.8

      • contingent assets and liabilities, 5.105.14

      • by currency, 5.1065.108

      • debt instruments, 5.315.73

      • definitions of economic assets and liabilities, 5.25.16

      • economic asset classification, Table 5.1

      • employee stock options, 5.965.98

      • equity and investment fund shares, 5.195.30

      • financial assets, 5.9

      • financial derivatives, 5.805.95

      • financial instruments, 5.5

      • Islamic banking instruments, 5.16

      • by maturity, 5.1035.105

      • monetary gold, 5.745.78

      • returns on financial assets and liabilities: financial instruments and their corresponding type of income, Table 5.2

      • securities, 5.15

      • SNA 2008 financial instruments classification with corresponding BPM6 broad categories, Table 5.3

      • by type of instrument, 5.175.98

      • by type of interest rate, 5.1095.114

    • Commitment basis for recording of flows, 3.37

    • Committee on Balance of Payments Statistics

      • establishment of, 1.25

      • revisions between editions of the Manual, 1.371.43

    • Compensation for damages

      • injuries or damages caused by natural disasters, 12.55

      • major nonrecurrent payments as capital transfers, 13.29

      • payments of compensation as transfers, 12.5512.56

    • Compensation of employees

    • Computer services

    • Conduit

    • Construction

    • Consulting services. See Professional and management consulting services

    • Contingent assets and liabilities

      • definition, 5.10

      • financial derivatives and, 5.83

      • letters of credit and, 5.13

      • one-off guarantees of payment, 5.12

      • value of future payments and, 5.11

    • Contracts. See also Specific types of contracts

    • Contractual terms

    • Control and influence

    • Convertible bonds

      • as debt securities, 5.46

      • financial account recording, 8.29

    • Coordinated Direct Investment Survey Guide, 1.27, 6.18, 7.9

    • Coordinated Portfolio Investment Survey Guide, 1.27, 7.9

    • Corporate inversion

    • Corporations. See also Direct investment enterprises;

      • Quasi-corporations; specific types of corporations

      • ancillary, 4.19, 4.58

      • artificial subsidiaries, 4.184.19

      • changes in residence, 4.167, 9.23

      • enterprises with little or no physical presence, 4.1344.135

      • flexible corporate structures with little or no physical presence, 4.504.52

      • as institutional units, 4.154.19

      • retained earnings and, 11.3311.36

      • types of, 4.14

    • Cost, insurance, and freight

    • Courier services. See Postal and courier services

    • Credit derivatives

    • Crews of ships, aircraft, oil rigs, space stations, or other similar equipment

    • Cross-border units. See Institutional units with cross-border elements

    • Cross-border workers

    • CUCBs. See Currency union central banks

    • Cultural services. See Personal, cultural, and recreational services

    • Currency

    • Currency composition by sector and instrument

    • Currency composition of assets and liabilities

    • Currency union central banks

      • intra-currency union claims and liabilities, A3.44A3.48

      • transactions and positions of national agencies, A3.32A3.39

    • Currency unions

      • aggregation of national data and, A3.21A3.23

      • allocation of seigniorage, A3.47

      • allocation of transactions in goods, A3.26A3.28

      • application of core balance of payments concepts, A3.17A3.48

      • centralized and decentralized, A3.13A3.15

      • common monetary areas and, A3.10

      • currency union central banks and, A3.9, A3.11

      • definition, A3.8A3.10

      • definitional issues, A3.8A3.48

      • description, A3.9, A3.11

      • distribution of profits, A3.48

      • domestic currency, A3.16

      • geographical allocation of stocks and flows, A3.21A3.28

      • institutional sector allocation, A3.20

      • multiterritory enterprises, A3.19

      • recording of trade transactions in currency and economic unions, A3.26A3.28, Box A3.1

      • regional organizations, A3.12

      • reserve assets and, A3.29A3.30

      • residence and, A3.17A3.19

      • single monetary policy for, A3.5A3.6

      • statistical issues, A3.7

      • transactions and positions in banknotes, A3.42A3.43

      • treatment of national agencies and reserve assets in a decentralized CU, A3.40A3.41

      • treatment of national agencies in a centralized CU, A3.32A3.39

    • Current account

    • Current international cooperation

      • description, 12.47

      • external aid provided by government through a nonresident entity, 8.248.26, 12.48

      • funding of technical assistance, 12.50

      • loans with concessional interest rates, 12.51

    • Current transfer(s)

    • CUs. See Currency unions

    • Customs arrangements

      • description, A3.55A3.57

      • designated agency levies, collects, and distributes the proceeds from duties, A3.58A3.60

      • designated agency levies duties but member economies collect duties, A3.61A3.63

      • member economies have collective rights to levy and collect duties, A3.64A3.66

      • member economies have collective rights to levy the duty, but only one member collects the duties, A3.67A3.68

      • types of, A3.58A3.68

    • D

    • Data by partner economies

    • Data Quality Assessment Framework

    • Debt assumption

    • Debt concessionality

      • description, A2.67

      • one-off transaction recording of, A2.68

    • Debt conversion. See also Debt prepayment and debt buybacks

    • Debt defeasance

    • Debt-for-development swaps

    • Debt-for-equity swaps

      • analytic presentation of data, A1.12

      • debt due for payment in the current period, A2.30A2.31

      • debt due for payment in the future, A2.33A2.34

      • debt exchanged directly for equity investment, A1.10

      • debt in arrears, A2.32

      • description, A1.9

      • direct debt conversion, A2.29A2.34

      • indirect, A1.11

      • market price valuation, A1.13

      • nongovernmental organizations and, A2.24

    • Debt forgiveness

    • Debt instrument(s)

    • Debt liabilities

    • Debt payments on behalf of others

    • Debt prepayment and debt buybacks

    • Debt reorganization

      • debt assumption and debt payments on behalf of others, A2.48A2.57

      • debt concessionality and, A2.67A2.70

      • debt conversion and debt prepayment, A2.23A2.47

      • debt forgiveness, A2.7A2.9

      • debt rescheduling and refinancing, A2.10A2.22

      • debt service falling due between Paris Club agreed minute date and specified implementation date, A2.58A2.60

      • debt service moratorium extended by creditors, A2.61A2.62

      • debt write-offs and, A2.66

      • defeasance and, A2.65

      • definition, A2.2

      • description, 9.29

      • failure to honor debt obligations and, A2.4

      • liquidity and, A2.3

      • new money facilities and, A2.63A2.64

      • types of, A2.5

    • Debt rescheduling or refinancing

    • Debt restructuring. See Debt reorganization

    • Debt securities. See also Specific types of securities

    • Debt service moratoriums

    • Debt write-offs

    • Deep-discount bonds

      • interest, 11.56

      • international investment position, 7.32

    • Defined benefit schemes

    • Defined contribution schemes

      • amounts payable by employers, 11.22

      • definition, 7.65

      • investment income attributable to policyholders in, 11.82

    • Depollution services

      • services included and related services, 10.152

    • Deposit-taking corporations

      • definition, 4.71

      • liabilities of, 4.72

      • types of financial intermediaries included, 4.71

    • Depository receipts

      • data by partner economies, 4.161

      • definition, 5.23

    • Deposits

      • definition, 5.39, 6.86

      • indexed or linked to a commodity price, 5.39

      • interbank positions, 5.42

      • interest on, 11.51

      • international investment position, 7.55

      • loans and, 5.40

      • other deposits, 5.43

      • overnight, 7.62

      • as reserve assets, 6.86, 7.69

      • transferable, 5.41

    • Derived measures

    • Diplomats, military personnel, and other civil servants employed abroad

      • as residents of territories, 4.123

    • Direct insurance

    • Direct investment

      • Activities of Multinational Enterprises and, 6.52, A4.1A4.19

      • affiliates, 6.17

      • analytical use of different presentations, 6.446.45

      • associates, 6.15

      • beginning and ending relationships, 6.36

      • borrowing for fiscal purposes, 8.248.26

      • breakdown of direct investment income, Table 11.2

      • control and influence issues, 6.126.14, Box A6a.1

      • corporate inversion and other restructuring, 8.198.22

      • coverage of flows and positions, 6.256.36

      • data by partner economies, 4.1564.157

      • debt between selected affiliated financial corporations and, 6.28

      • definition, 6.8, 7.14, Box A6a.1

      • derivation of data under the directional principle, Box 6.4

      • direct investment enterprises, 6.11

      • direct investment relationships, 6.96.10

      • direct investors, 6.11

      • directional principle and, 6.426.43

      • domestic ownership links and, 6.35, Box 6.3

      • entities that borrow on behalf of their affiliates, 7.207.22, 8.248.26

      • examples of identification of direct investment relationships under FDIR, Box 6.1

      • fellow enterprises, 6.17, 11.100

      • financial account recording, 8.148.26

      • financial instrument, maturity, and currency classifications and, 6.48

      • flows in kind, 8.17

      • foreign-controlled corporations and, 6.53

      • immediate and indirect relationships, 6.12

      • intercompany lending and, 6.266.27

      • international investment position, 7.147.25

      • mergers and acquisitions, 8.18

      • partner data, 6.49, 4.1564.157

      • “pass-through funds,” 6.336.34

      • primary income account and, 11.9611.102

      • quasi-corporations, 7.237.25

      • reinvested earnings of a direct investment

        • enterprise, numerical example of calculation, Box 11.5

      • reinvestment of earnings, 8.158.16, 11.4011.47

      • relationships that resemble direct investment relationships, 6.47

      • relationships with combination of investors, Box 6.2

      • requirements for a direct investment relationship, 6.196.24

      • reverse investment, 6.396.41, 11.99

      • round tripping, 6.46

      • subsidiaries, 6.15

      • superdividends, 8.23

      • topical summary, A6a.1A6a.14

      • transfer pricing, 11.10111.102

      • types of transactions and positions, 6.376.45, 11.97

      • ultimate source and host economy, 4.157

      • valuation of unlisted and other equity, 7.157.19

      • voting power and, 6.126.14, 6.19

    • Direct investment enterprise(s)

    • Direct investment relationship, 6.96.10, Box A6a.1

    • Direct investor(s)

    • Directional principle

      • definition, 6.42

      • derivation of data under the directional principle, Box 6.4

      • direct investment abroad and, 6.42

      • direct investment in the reporting economy, 6.42

      • fellow enterprises and, 6.43

    • Distributive transactions

    • Dividends

      • bonus shares and, 11.29

      • definition, 11.24

      • distributed income from quasicorporations and, 11.26

      • equity in investment funds and, 11.32

      • exceptional payments by corporations to shareholders and, 11.27

      • link to instrument classification, 11.25

      • liquidating, 11.30

      • primary income account and, 11.2411.32

      • recording, 3.48, 11.31

      • stock dividends, 11.28

    • Domestic currency

    • Double-entry bookkeeping. See also Horizontal double-entry bookkeeping; Vertical double-entry bookkeeping

      • basic principle of, 14.11

    • Due-for-payment

      • recording of flows and, 3.36

    • Duties. See Customs arrangements

    • E

    • Economic assets

      • classification system, 5.4

      • definition, 5.2

      • kinds of economic benefits that may be derived from, 5.3

      • ownership of, 5.3

    • Economic territory

      • areas included, 4.5

      • changes in the scope of, 4.9

      • description, 4.3

      • households and, 4.117

      • international organizations, 4.7

      • joint zones, 4.10

      • legal jurisdiction dimension, 4.6

      • special zones, 4.8

      • types of, 4.4

    • Economic unions

      • data requirement formulation, A3.49A3.50

      • definition, A3.51

      • recording issues, A3.54

      • recording of trade transactions in currency and economic unions, Box A3.1

      • residence issues, A3.52A3.53

    • Economy

    • EcUns. See Economic unions

    • Editorial amendments

      • update procedure, 1.38

    • Embedded derivatives

    • Emissions permits

    • Employee stock options

      • changes in volume, 9.12

      • definition, 5.96

      • direct investment and, 6.29

      • financial account reporting, 8.41

      • financial derivatives and, 5.96

      • functional category characteristics, 6.586.60

      • international investment position, 7.39

      • revaluations, 9.30

      • suppliers of goods and services and, 5.97

      • as wages and salaries in kind, 11.2011.21

    • Employer-employee relationship

    • Enterprises. See also Direct investment enterprise; Fellow enterprises

      • “arm’s length” transactions, 4.54

      • corporations with little or no physical presence, 4.1344.135

      • definition, 4.23

      • deliveries between affiliated enterprises, 10.24

      • global enterprise groups, 4.544.55

      • international organizations and, 4.107

      • local enterprise groups, 4.544.56

      • multiterritory, 4.414.44

      • production delivered from a base, 4.1364.137

      • quasi-corporations and, 4.133

      • residence of, 4.1314.137

      • selected effects of the residence status of an enterprise owned by a nonresident on the statistics of the host economy, Table 4.4

      • single economy connection, 4.132

    • Environmental cleanup efforts

    • Equity. See also Debt-for-equity swaps

      • debt instruments and, 5.32

      • definition, 5.21

      • depository receipts and, 5.23

      • direct investment and, 6.32

      • distinguishing feature, 5.19

      • listed shares and, 5.24

      • other equity, 5.26, 6.616.62

      • ownership in legal entities, 5.22

      • unlisted shares and, 5.24

      • valuation of, 5.27

      • valuation of unlisted and other equity, 7.157.18

    • Errors and omissions

    • ESOs. See Employee stock options

    • Establishment(s)

      • breaking up of enterprises into one or more establishments, 4.53

      • definition, 4.53

    • Exceptional financing transactions

      • above-the line items, A1.2

      • accumulation and repayment of debt arrears, A1.21A1.23

      • analytic presentation of, A1.1

      • balance of payments accounting for selected exceptional financing transactions, Table A1.1

      • below-the-line items, A1.2

      • borrowing for balance of payments support, A1.14A1.15

      • debt-for-equity swaps, A1.9A1.13

      • debt prepayment and debt buybacks, A1.19A1.20

      • debt rescheduling or refinancing, A1.16A1.18

      • definition, A1.1

      • identification of, A1.1A1.2

      • transfers, A1.5A1.8

    • Exchanges

    • External Debt Statistics: A Guide for Compilers and Users, 1.27, 5.109, 6.26, 6.48, 7.9

    • F

    • Face value

    • Fair value

      • calculation of, 7.49

      • definition, 3.88, 7.48

      • valuation of positions of financial assets and liabilities 3.85

    • FATS. See Foreign AffiliaTes Statistics

    • FDIR. See Framework for Direct Investment Relationships

    • Fellow enterprises

      • definition, 6.17, Box A6a.1

      • directional principle and, 6.43

      • income on investment between, 11.100

    • Financial account

      • arrears, 8.588.59

      • bonus shares, 8.33

      • borrowing for fiscal purposes, 8.248.26

      • change of contractual terms, 8.54, 9.15

      • concepts and coverage, 8.18.13

      • convertible bonds, 8.29

      • corporate inversion and other restructuring, 8.198.22

      • corresponding entries, 8.2

      • currency, 8.53

      • debt defeasance, 8.308.31

      • definition, 8.1

      • description, of 2.172.18

      • direct investment, 8.148.26

      • direct investment flows in kind, 8.17

      • employee stock options, 8.41

      • entries associated with different types of debt assumption, Box 8.1

      • financial derivatives, 8.348.40

      • financial derivatives (other than reserves) and employee stock options, 8.348.41

      • gross recording on a supplementary basis, 8.9

      • institutional sectors and, 4.61

      • insurance technical reserves, pension fund

        • entitlements, and provision for calls under standardized guarantees, 8.468.49

      • mergers and acquisitions, 8.18

      • net lending/net borrowing, 8.3

      • net recording, 2.19, 8.78.8

      • one-off guarantees and other debt assumption, 8.428.45

      • other investment, 8.428.54

      • overview of, Table 8.1

      • portfolio investment, 8.278.33

      • regional arrangements, A3.72

      • reinvestment of earnings, 8.158.16

      • reinvestment of earnings in investment funds, 8.28

      • reserve assets, 8.558.57

      • securities repurchase agreements and other reverse transactions, 8.52

      • share and debt buybacks, 8.32

      • special drawing rights, 8.508.51

      • superdividends, 8.23

      • timing and valuation, 8.108.13

    • Financial assets. See also Classifications of financial assets and liabilities; International investment position; Other changes in financial assets and liabilities account; Reserve assets

      • classification of, 5.175.18

      • currency denomination, 3.102

      • definition, 3.24, 5.9

      • financial instruments and, 5.9

      • link between financial assets classification and functional categories, Table 6.1

      • net recordings, 3.1143.119

      • timing of recording of, 3.543.59

      • transactions in existing assets, 9.16

      • valuation of, 3.843.91

    • Financial auxiliaries

    • Financial corporation(s)

      • captive financial institutions and money lenders, 4.824.87

      • central bank, 4.674.70

      • classes of, 4.64

      • definition, 4.63

      • deposit-taking corporations, except the central bank, 4.714.72

      • financial auxiliaries, 4.794.80

      • insurance corporations, 4.88

      • money market funds, 4.73

      • non-MMF investment funds, 4.744.75

      • other financial intermediaries, except insurance corporations and pension funds, 4.764.78

      • pension funds, 4.894.90

      • subsectors of, 4.65

    • Financial derivatives

    • Financial innovation

    • Financial instrument(s)

    • Financial intermediation services charges indirectly measured (FISIM)

    • Financial leases

      • contracts, leases, and licenses distinguished from 5.60

      • debt liability at the inception of, 5.59

      • definition, 5.56

      • examples of, 5.57

      • goods under 3.46

      • interest issues, 11.73

      • international investment position, 7.57

      • numerical example, Box A6b.1

      • operating leases distinguished from, 5.60, 10.155

      • resource leases distinguished from, 5.60

      • topical summary, A6b

      • treatment of, 5.58

    • Financial liabilities. See also Classifications of financial assets and liabilities; International investment position; Other changes in financial assets and liabilities account

      • categories of, 5.175.18

      • currency of denomination, 3.102

      • link between financial assets and liabilities classification and functional categories, Table 6.1

      • net recording, 3.1143.118

      • time of recording of, 3.543.59

      • valuation of positions of, 3.843.91

    • Financial or finite risk reinsurance

    • Financial services. See also Financial intermediation services charges indirectly measured

    • Fines and penalties

    • FISIM. See Financial intermediation services charges indirectly measured

    • Flexible corporate structures with little or no physical presence

      • features of, 4.50

      • purposes used for, 4.51

      • treatment of as separate institutional units, 4.52

    • Flows

    • FOB. See Free on board

    • Foreign AffiliaTes Statistics

      • AMNE statistics and, A4.1

    • Foreign currency

    • Foreign direct investment. See Direct investment

    • Forward-type contracts

    • Framework for Direct Investment Relationships (FDIR)

      • control and influence, 6.14

      • description, 6.8

      • domestic ownership links and, 6.35

      • identification of direct investment relationships under FDIR, Box 6.1

      • investment funds and, 6.30

    • Free on board

    • Freight and insurance

      • data by partner economies, 4.151

    • Freight insurance

    • Freight services

      • coverage and valuation, 10.78

      • numerical examples of the treatment of, Box 10.3

      • rerouting 10.79

      • time of recording 10.79

    • Frozen assets

    • Functional categories

    • G

    • Gambling

    • GATS. See General Agreement on Trade in Services

    • General Agreement on Trade in Services

      • activities of multinational enterprises statistics and, A4.4

    • General government

      • central bank activities performed by, 4.694.70

      • composition of, 4.92

      • definition, 4.91

      • government entities resident abroad, 4.93

      • principal functions, 4.91

      • residence issues, 4.138

      • restructuring agencies, 4.944.95

      • subsectors of, 4.92

    • General merchandise

      • customs data and, 10.18

      • definition, 10.13

      • deliveries between affiliated enterprises, 10.24

      • general trade, 10.25

      • goods for own use or to give away acquired by travelers, 10.20

      • goods for resale acquired by travelers while on visits, 10.19

      • goods on consignment 3.46, 3.65, 10.29

      • high-value capital goods 10.28

      • international merchandise trade statistics and, 10.14

      • items to be excluded because there is no international transaction, 10.22

      • items to be excluded because they are included elsewhere, 10.23

      • items to be included, 10.1710.21

      • re-exports, 10.3710.39

      • re-imports, 10.40

      • shuttle trade 10.19

      • special trade, 10.25

      • time of recording, 10.2610.29

      • valuation, 10.3010.36

    • Gifts

      • as capital transfers, 13.31

      • as current transfers, 12.57

      • as goods and services flow, 10.4

      • included in general merchandise 10.17, 10.21

      • taxes on, 13.28

    • Global enterprise groups. See also Activities of multinational enterprises statistics

    • Globalization

      • Manual revision theme, 1.32

    • Gold

      • gold bullion included in monetary gold, 4.162

      • gold coins and commemorative coins, 5.37

      • nonmonetary, 5.78, 10.49

    • Gold accounts

    • Gold bullion

      • claims and, 5.6

      • financial asset 5.9

      • monetary gold and, 4.162

      • monetization and demonitization of, 9.18

      • as reserve assets, 6.786.82

    • Gold swaps

    • Golden shares

      • control of corporations 4.109

    • Goods

      • definition, 10.7

      • financial lease arrangements, 3.46, 3.72

      • general merchandise, 10.1310.40

      • geographic allocation of transactions in, A3.26A3.28

      • gold coins and commemorative coins, 5.37

      • goods under merchanting, 10.4110.49

      • international merchandise trade statistics and, 3.45, 10.1410.16

      • nonmonetary gold, 10.5010.54

      • on consignment, 3.46, 3.65, 10.29

      • other goods, 10.4110.54

      • reconciliation between merchandise trade data and total goods on a balance of payments basis, 10.5510.56

      • residence of the seller or purchaser, 4.150

      • sent abroad for processing, 3.47

      • time of recording of transactions, 3.443.46

    • Goods and services account

    • Government

      • direct investor, 6.22

      • goods and services supplied by and to government and international organization enclaves, 10.17410.177

      • investment grants and, 13.2513.26

      • uncompensated seizures of assets by, 9.11

    • Government entities resident abroad

    • Government finance statistics

      • international accounts and, 2.34

    • Government Finance Statistics Manual 2001

    • Government goods and services n.i.e.

      • borderline between taxes and payments for, 10.181

      • coverage 10.173

      • goods and services acquired by staff employed in enclaves and their dependents, 10.178

      • goods and services supplied by and to government and international organization enclaves, 10.17410.177

      • other services supplied by and to governments, 10.179

      • technical assistance, Box 10.6

    • Government licenses and permits

    • Gross recording

      • definition, 3.112

      • financial account (supplementary basis) 8.9

    • Guest workers. See Highly mobile individuals

    • Guide to the International Banking Statistics, 1.27

    • H

    • Harmonized System

      • commodity classifications, 10.15

    • Hedge funds

    • Highly mobile individuals

    • Historic cost

    • Holding companies

      • activities, 4.844.85

      • description, 4.84

      • financial intermediation services charges indirectly measured and, 10.127

    • Horizontal double-entry bookkeeping

    • Households

      • change in residence of individuals, 4.165

      • crews of ships, aircraft, oil rigs, space stations, or other similar equipment, 4.122

      • cross-border workers, 4.125

      • definition, 4.14. 4.20, 4.96

      • diplomats, military personnel, and other civil servants employed abroad, 4.123

      • family members and,