Balance of Payments Manual

Back Matter

Back Matter

Author(s):
International Monetary Fund
Published Date:
November 2005
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    Balance of Payments: Appendices
    I. Relationship of the Rest of the World Account to the Balance of Payments Accounts and the International Investment Position

    Introduction

    499. Balance of payments accounts and related data on the international investment position (stocks of external financial assets and liabilities) are closely linked to the SNA. This linkage is reinforced by the fact that, in most countries, data on the balance of payments and the international investment position (IIP) are compiled first and subsequently incorporated in relevant external account components of the SNA rest of the world account. There is virtually complete concordance between the SNA and the Manual with respect to the delineation of resident units (either producers or consumers); valuation of transactions and of the stock of external assets and liabilities; time of recording of transactions; conversion procedures; coverage of international transactions in goods and services, income flows, current transfers, capital transfers, and foreign financial assets and liabilities; and coverage of the IIP. Differences in classification or level of detail exist, however, between the rest of the world account and the balance of payments accounts. These reflect, inter alia, differences in analytical requirements and the necessity of using, in the SNA, a uniform classification scheme for all sectors of the economy. The bulk of the discussion in this appendix focuses on the relationship between aggregates and details contained in the rest of the world account and corresponding items in balance of payments accounts.

    Resident units

    500. In the SNA and the Manual, resident producers and consumers are identified in the same fashion. Chapter 4 of the Manual, which contains a discussion on residence, is entirely consistent with Chapter XIV of the SNA. In both the SNA and in balance of payments accounts, resident units are identified on the basis of the center of economic interest concept and the definition of economic territory. (These definitions are contained in Chapter 4.)

    Valuation

    501. In both the SNA and the balance of payments accounts, market price is used as the primary basis of valuation. For transactions accounts, market price refers to the actual price agreed upon by transactors (that is, the amount that a willing buyer pays to acquire something from a willing seller when the exchange is one that occurs between independent parties and one into which nothing but commercial considerations enter). It is noted in Chapter 5 of the Manual that market price proxies or equivalents should be used in situations in which market prices in the literal sense cannot be determined (for example, transfer pricing that significantly distorts measurement in resource transfers between affiliated enterprises, barter transactions, grants in kind, etc.). The use of end-of-period market (current) prices or proxies is advocated for both systems in balance sheet accounts affecting external claims and liabilities.

    Time of Recording

    502. For both systems, the time of recording transactions is the same as that for accrual accounting (that is, when economic value is created, transformed, exchanged, transferred, or extinguished). Claims and liabilities are deemed to arise when there are changes in ownership. Application of the accrual basis is essentially identical in specific categories of transactions in both systems. For example, exports and imports of goods are, in principle, recorded on the basis of changes of ownership although, in both systems, there are specific exceptions with regard to goods under financial lease, goods shipped between affiliated enterprises, goods for processing, and goods underlying merchanting transactions. Services are recorded when actually rendered—times that often coincide with the times at which the services are produced. Interest is recorded on an accrual basis; dividends are recorded as of the dates payable. Reinvested earnings on direct investment are recorded in the periods in which the earnings are generated. Transfers (taxes, fines, etc.) imposed by one party on another are recorded as of the dates of occurrence of the transactions giving rise to the liabilities to pay; other transfers are recorded at the times that the resources to which the transfers are offsets change ownership. Transactions in financial claims and liabilities are recorded on the basis of changes of ownership (that is, when both the creditor and debtor enter the claim and liability, respectively, on their books). Chapter 6 contains a full discussion of the application of the accrual basis underlying the balance of payments accounts.

    Conversion Procedures

    503. Consistent procedures are employed for converting transactions denominated in a variety of currencies or units of account into the unit of account (usually the national currency) used for compiling the balance of payments statement and the national accounts. Under a single exchange rate system, use of the market exchange rate prevailing at the time the transaction takes place is suggested in the SNA and the Manual. This rate is defined as the midpoint between buying and selling rates applicable to the transaction or, alternatively, as the average rate for the shortest period applicable. When parallel markets are in existence, the appropriate conversion rate is the rate (midpoint spot rate) applying to foreign currencies purchased or sold in parallel markets.

    504. A system of multiple official exchange rates gives rise to implicit taxes and subsidies. In the SNA, it is recommended that transactions be converted at the actual (multiple) rates applicable. However, global adjustments reflecting the amount of taxes or subsidies should be shown in the rest of the world account, and counterpart entries should be made under capital transfers. Taxes and subsidies are calculated as the difference between (i) the values of transactions at the actual multiple rates applicable to specific transactions and (ii) the values at a unitary rate, which is calculated as a weighted average of all official rates used for external transactions. When multiple rates exist, the use of a unitary or principal rate—that is, the actual (multiple) exchange rate that applies to the largest part of external transactions—is suggested in the Manual.

    505. For conversion of balance sheet items (stocks of external financial assets and liabilities), the use of actual market exchange rates applicable to specific assets and liabilities on the date to which the balance sheet relates is suggested in the Manual.

    Classification and Linkages

    506. Although harmonization of the coverage of major aggregates has been attained between the two systems, differences in level of detail reflect differences in analytical requirements, the relative quantitative significance of some items in international transactions, and constraints imposed by the internal structures of the respective systems. Nonetheless, bridges can be constructed to derive relevant national accounting flows and stocks from balance of payments accounts and the IIP.

    507. In terms of transactions, these accounts are distinguished in the SNA rest of the world account (external transactions account): V.I External account of goods and services, V.II External account of primary incomes and current transfers, V.III.1 Capital account, and V.III.2 Financial account. The latter two are components of V.III External accumulation accounts. In balance of payments accounts, the transactions reflected in accounts V.I and V.II are contained in the current account; those reflected in account V.III.1 are contained in the capital account of the capital and financial account. Flows reflected in account V.III.2 are shown in the financial account of the capital and financial account. Account V.III.3.1 Other changes in volume of assets and V.III.3.2 Revaluation account are separate subdivisions of the IIP statement. Thus, account V.III.3.1 corresponds to the column for other adjustments in the IIP, while account V.III.3.2 corresponds to the columns for valuation changes (that is, price changes and exchange rate changes) in the IIP. Account V.IV External assets and liabilities is equivalent to the IIP, which is that part of the national wealth statement representing the stock of external financial assets and liabilities. Located at the end of this appendix, tables 1 through 6 provide a reconciliation between categories shown in relevant external accounts of the SNA and corresponding items in balance of payments accounts and the IIP; tables 7 through 9 refer to the classification scheme that is reflected in the Manual and underlies balance of payments accounts and the IIP statement. Items marked with asterisks (*) denote additional details necessary to derive relevant national accounting flows from balance of payments and IIP data.

    508. As indicated in Table 1, SNA coverage of exports and imports of goods and exports and imports of services is identical to balance of payments coverage of corresponding items—with the exception of the item “financial intermediation charge indirectly measured.” According to the Manual, this service is included under investment income as an indistinguishable part of interest income. In balance of payments accounts, exports and imports of services are disaggregated in considerable detail to provide data for analysis and policy decisions—particularly for negotiations in international trade in services within the framework of the General Agreement on Tariffs and Trade. Categories of services identified in the balance of payments are consistent with those of the Central Product Classification (CPC)—except for travel and government services n.i.e., which have no counterparts.

    509. For account V.II, external account of primary incomes and current transfers, comparable categories in the balance of payments are 1. B. Income and 1. C. Current transfers. Account V.II coverage of compensation of employees and property income is virtually identical with that of 1. B. Income except that the latter includes “financial intermediation charge indirectly measured” indistinguishably under investment income-direct investment-interest. This treatment was adopted because of the practical difficulties of deriving—by sector, instrument, currency, and term structure—a multiplicity of reference rates for interest and appropriate asset or liability positions to estimate the imputed financial intermediary service charge.

    510. The major elements of account V.III.1, the capital account of the external accumulation accounts, are identical with the capital account of the capital and financial account of the balance of payments. Although the balancing item net lending/net borrowing in account V.III.1 is not explicitly identified in the balance of payments, this item can be derived by adding the balance of the current account and the balance of the transactions reflected in the capital account.

    511. Coverage of account V.III.2, the SNA financial account, is identical with that of the financial account of the capital and financial account in the balance of payments, although the level of detail is different. (See Table 4 at the end of this appendix.) In the SNA, financial assets are classified primarily by type of instrument. In the balance of payments, financial items are classified primarily by function—direct investment, portfolio investment, other investment (including loans), and reserve assets. In addition to categories identifying types of financial instruments (insurance technical reserves being an exception), the balance of payments contains an abbreviated sector breakdown (monetary authorities, general government, banks, and other sectors) to provide links with other bodies of economic and financial statistics such as money and banking, government finance, international banking, and external debt. Furthermore, to conform with the SNA, the Manual states that entries in the financial account of the balance of payments are recorded, in principle, on a net basis (increases less decreases in assets or liabilities). However, gross recording is included as supplementary information (for example, in the case of drawings and repayments on long-term loans).

    Reconciliation of Rest of the World Accounts with Balance of Payments Accounts

    Table 1Account V.I External Account of Goods and Services
    SNA categoriesCorrespond toBalance of Payments Standard Components (items), Additional Details, and Aggregates
    usescredit
    P.6Exports of goods and servicesItems 1.A.a and 1.A.b.1 through 11, as noted subsequently
    P.61Exports of goodsItem 1.A.a goods
    P.62Exports of servicesSum of items 1.A.b.1 through 11 services plus items 1.B.2.2.2.1.1 and 1.B.2.3.1 financial intermediation charge indirectly measured
    resourcesdebit
    P.7Imports of goods and servicesItem 1.A.a and 1.A.b.1 through 11, as noted subsequently
    P.71Imports of goodsItem 1.A.a goods
    P.72Imports of servicesSum of items 1.a.b.1 through 11 services plus items 1.B.2.2.2.1.1 and 1.B.2.3.1 financial intermediation charge indirectly measured
    B.11EXTERNAL BALANCE OF GOODS AND SERVICESItem 1.A
    Table 2Account V.II External Account of Primary Incomes and Current Transfers
    SNA categoriesCorrespond toBalance of Payments Standard Components (items), Additional Details, and Aggregates
    usescredit
    D.1Compensation of employeesItem 1.B.1 compensation of employees
    D.29Other taxes on productionItem 1.C.1.2 other taxes on production
    D.39Other subsidies on productionItem 1.C.1.3 other subsidies on production
    D.4Property incomeItem 1.B.2 investment income minus items 1.B.2.2.2.1.1 and 1.B.2.3.1 financial intermediation charge indirectly measured
    D.5Current taxes on income, wealth, etc.Item 1.C.1.1 current taxes on income, wealth, etc.
    D.61Social contributionsItem 1.C.1.4 social contributions
    D.62Social benefitsItem 1.C.2.2.5 social benefits
    D.7Other current transfersItem 1.C.2.1 workers’ remittances plus item 1.C.1.6 other current transfers of general government plus item 1.C.2.2.6 other current transfers of other sectors
    D.8Adjustment for the change in net equity of households in pension funds*
    resourcesdebit
    D.1Compensation of employeesItem 1.B.1 compensation of employees
    D.29Other taxes on productionItem 1.C.2.2.2 other taxes on production
    D.39Other subsidies on productionItem 1.C.2.2.3 other subsidies on production
    D.4Property incomeItem 1.B.2 investment income minus items 1.B.2.2.2.1.1 and 1.B.2.3.1 financial intermediation charge indirectly measured
    D.5Current taxes on income, wealth, etc.Item 1.C.2.2.1 current taxes on income, wealth etc.
    D.61Social contributionsItem 1.C.2.2.4 social contributions
    D.62Social benefitsItem 1.C.1.5 social benefits
    D.7Other current transfersItem 1.C.2.1 workers’ remittances plus item 1.C.1.6 other current transfers of general government plus item 1.C.2.2.6 other current transfers of other sectors
    B.12CURRENT EXTERNAL BALANCEItem 1. current account

    Item D.8 is not included in the current account in the balance of payments, nor are the receipts of pensions from, or net contributions to, (funded) pension funds.

    Table 3Account V.III.1 Capital Account [of Account V.III External Accumulation Accounts]
    SNA categoriesCorrespond toBalance of Payments Components (items), Additional Details, and Aggregates
    changes in assetstransactions in assets
    K.2Acquisitions less disposals of nonproduced, nonfinancial assetsItem 2.A.2 acquisition/disposal of nonproduced, nonfinancial assets
    B.9NET LENDING (+)/NET BORROWING (-)Item 1. current account balance plus item 2. A capital account balance
    changes in liabilities and net worthtransactions in liabilities
    B.12CURRENT EXTERNAL BALANCEItem 1. current account
    D.9Capital transfers receivableItem 2.A.1 capital transfers
    D.9Capital transfers payableItem 2.A.1 capital transfers
    B.10.1CHANCES IN NET WORTH DUE TO SAVING AND NET CAPITAL TRANSFERSItem 1. current account balance plus item 2.A.I net capital transfers
    Table 4Account V.III.2 Financial Account [of Account V.III External Accumulation Accounts]
    SNA categoriesCorrespond toBalance of Payments Standard Components (items), Additional Details, and Aggregates
    changes in assetstransactions in assets
    F.1Monetary gold and SDRsSum of items 2.B.4.1 monetary gold and 2.B.4.2 special drawing rights
    F.2Currency and depositsSum of items 2.B.3.1.3 currency and deposits (part of other investment) and 2.B.4.3.1 deposits (part of reserve position in the Fund), 2.B.4.4.1 currency and deposits (part of foreign exchange), and 2.B.4.5.1 currency and deposits (part of other reserve claims)
    F.3Securities other than sharesSum of items 2.B.2.1.2 debt securities (part of portfolio investment), 2.B.4.4.2.2 bonds and notes (part of foreign exchange), 2.B.4.4.2.3 money market instruments and financial derivatives (part of foreign exchange), 2.B.4.5.2.2 debt securities (part of other reserve claims), 2.B.1.2.3.1.1 debt securities issued by direct investors (part of direct investment in the reporting economy), and 2.B.1.1.3.1.1 debt securities issued by affiliated enterprises (part of direct investment abroad)
    F.4LoansSum of items 2.B.3.1.2 loans (part of other investment) and 2.B.4.3.2 loans (part of reserve position in the Fund)
    F.5Shares and other equitySum of items 2.B.1.1.1.1 equity capital-claims on affiliated enterprises (part of direct investment abroad), 2.B.1.1.2 reinvested earnings (part of direct investment abroad), 2.B.1.2.1.1 equity capital-claims on direct investors (part of direct investment in the reporting economy), 2.B.2.1.1 equity securities (part of portfolio investment), and 2.B.4.4.2.1 and 2.B.4.5.2.1 equities (part of foreign exchange and other reserve claims)
    F.6Insurance technical reservesSum of items 2.B.3.1.4.4.1.1 net equity of households in life insurance reserves and in pension funds and 2.B.3.1.4.1.1.1, 2.B.3.1.4.2.1.1, 2.B.3.1.4.3.1.1, and 2.B.3.1.4.4.1.2 prepayments of premiums and reserves against outstanding claims (all part of other investment)
    F.7Other accounts receivableSum of items 2.B.1.1.3.1.2 other claims on affiliated enterprises (part of direct investment abroad), 2.B.1.2.3.1.2 other claims on direct investors (part of direct investment in the reporting economy), 2.B.3.1.1 trade credits (part of other investment), and 2.B.3.1.4 other assets
    minus items 2.B.3.1.4.4.1.1, net equity of households in life insurance reserves and in pension funds, and 2.B.3.1.4.1.1.1, 2.B.3.1.4.2.1.1, 2.B.3.1.4.3.1.1, and 2.B.3.1.4.4.1.2 prepayments of premiums and reserves against outstanding claims (all part of other investment)
    changes in liabilities and net worthtransactions in liabilities
    F.2Currency and depositsItem 2.B.3.2.3 currency and deposits
    F.3Securities other than sharesItem 2.B.1.1.3.2.1 debt securities issued by direct investors plus item 2.B.1.2.3.2.1 debt securities issued by affiliated enterprises plus item 2.B.2.2.2 debt securities (part of portfolio investment)
    F.4LoansItem 2.B.3.2.2 loans
    F.5Shares and other equitySum of items 2.B.1.1.1.2 equity capital-liabilities to affiliated enterprises (part of direct investment abroad), item 2.B.1.2.1.2 equity capital-liabilities to direct investors (part of direct investment in the reporting economy), item 2.B.1.2.2 reinvested earnings (part of direct investment in the reporting economy), and item 2.B.2.2.1 equity securities (part of portfolio investment)
    F.6Insurance technical reservesSum of items 2.B.3.2.4.4.1.1 net equity of households in life insurance reserves and in pension funds and 2.B.3.2.4.4.1.2 prepayments of premiums and reserves against outstanding claims
    F.7Other accounts payableSum of items 2.B.1.1.3.2.2 other liabilities of direct investors (part of direct investment abroad), 2.B.1.2.3.2.2 other liabilities to direct investors (part of direct investment in the reporting economy), item 2.B.3.2.1 trade credits (part of other investment), and item 2.B.3.2.4 other liabilities
    minus items 2.B.3.2.4.4.1.1 net equity of households in life insurance reserves and in pension funds, and 2.B.3.2.4.4.1.2 prepayments of premiums and reserves against outstanding claims (all part of other investment)
    B.9NET LENDING (+)/NET BORROWING (-)
    Table 5Account V.III.3.1 Other Changes in Volume of Assets Account
    SNA CategoriesCorrespond toIIP Standard Components and Additional Details
    chances in assetschances in assets
    K.7Catastrophic lossesCatastrophic losses (part of other adjustments)
    K.8Uncompensated seizuresUncompensated seizures (part of other adjustments)
    K.10Other volume changes in financial assets and liabilities n.e.c.Other volume changes (part of other adjustments)
    K.12Changes in classifications and structureChange in classifications and structure (part of other adjustments)
    changes in liabilities and net worthchanges in liabilities
    K.7Catastrophic lossesCatastrophic losses (part of other adjustments)
    K.12Changes in classifications and structureChanges in classifications and structure (part of other adjustments)
    B.10.2CHANCES IN NET WORTH DUE TO OTHER CHANCES IN VOLUME OF ASSETS
    Account V.III.3.2 Revaluation Account
    SNA CategoriesCorrespond toIIP Standard Components and Additional Details
    changes in assetschanges in assets
    K.11Nominal holding gains/losses in financial assetsSum of entries in the columns for price and exchange rate changes
    K.11.1Neutral holding gains/losses in financial assetsSum of entries in the columns for neutral holding gains/losses
    K.11.2Real holding gains/losses in financial assetsSum of entries in the columns for real holding gains/losses
    changes in liabilities and net worthchanges in liabilities
    K.11Nominal holding gains/losses in liabilitiesSum of entries in the columns for price and exchange rate changes
    K.11.1Neutral holding gains/losses in liabilitiesSum of entries in the columns for neutral holding gains/losses in liabilities
    K.11.2Real holding gains/losses in liabilitiesSum of entries in the columns for real holding gains/losses in liabilities
    B.10.3CHANGES IN NET WORTH DUE TO NOMINAL HOLDING GAINS/LOSSESPrice and exchange rate changes in assets less price and exchange rate changes in liabilities
    B.10.31CHANCES IN NET WORTH DUE TO NEUTRAL HOLDING GAINS/LOSSESNeutral holding gains/losses in assets less neutral holding gains/losses in liabilities
    B.10.32CHANCES IN NET WORTH DUE TO REAL HOLDING GAINS/LOSSESReal holding gains/losses in assets less real holding gains/losses in liabilities
    Table 6Account V.IV External Assets and Liabilities
    Account V.IV.1 Opening Balance Sheet
    SNA CategoriesCorrespond toIIP Standard Components and Additional Details
    AFFinancial assetsassets
    Sum of items A.1.1.1 claims (equity capital and reinvested earnings) on affiliated enterprises (part of direct investment abroad), A.1.2.1 claims (other capital) on affiliated enterprises (part of direct investment abroad), B.1.1.1 claims (equity capital and reinvested earnings) on direct investors (part of direct investment in the reporting economy), B.1.2.1 claims (other capital) on direct investors (part of direct investment in the reporting economy), A.2 portfolio investment, A.3 other investment, and A.4 reserve assets
    AFLiabilitiesliabilities
    Sum of items B.1.1.2 liabilities (equity capital and reinvested earnings) to direct investors (part of direct investment in the reporting economy), B.I.2.2 liabilities (other capital) to direct investors (part of direct investment in the reporting economy), A.l.1.2 liabilities (equity capital and reinvested earnings) to affiliated enterprises (part of direct investment abroad), A.1.2.2 liabilities (other capital) to affiliated enterprises (part of direct investment abroad), B.2 portfolio investment, and B.3 other investment
    B.90NET WORTH
    Account V.IV.2 Changes Between Balance Sheets
    SNA categoriesCorrespond toIIP Standard Components and Additional Details
    AFTotal changes in financial assetsSum of transactions, price and exchange rate changes, and other adjustments in respect of the corresponding IIP items identified in account V.IV.1 of the SNA
    AFTotal changes in liabilitiesSum of transactions, price and exchange rate changes, and other adjustments in respect of corresponding IIP items identified in account V.IV.I of the SNA
    Account V.IV.1 Opening Balance Sheet
    SNA CategoriesCorrespond toIIP Standard Components and Additional Details
    assets
    B.10CHANCES IN NET WORTH, TOTALTotal changes in item A (assets) minus total changes In item B (liabilities)
    Account V.IV.3 Closing Balance Sheet
    SNA CategoriesCorrespond toIIP Standard Components and Additional Details
    AFFinancial assetsSum of end-of-period values of corresponding items contained in the IIP and identified in account V.IV.1 of the SNA
    AFLiabilitiesSum of end-of-period values of corresponding items contained in the IIP and identified in account V.I.V.I of the SNA
    Table 7Balance of Payments: Standard Components and Additional Detail
    CreditDebit
    1.Current account
    A.Goods and services
    a.Goods
    1.General merchandise
    2.Goods for processing
    3.Repairs on goods
    4.Goods procured in ports by carriers
    5.Nonmonetary gold
    5.1Held as a store of value
    5.2Other
    b.Services
    1.Transportation
    1.1Sea transport
    1.1.1Passenger
    1.1.2Freight
    1.1.3Other
    1.2Air transport
    1.2.1Passenger
    1.2.2Freight
    1.2.3Other
    1.3Other transport
    1.3.1Passenger
    1.3.2Freight
    1.3.3Other
    2.Travel
    2.1Business
    2.2Personala
    3.Communications services
    4.Construction services
    5.Insurance servicesb
    6.Financial services
    7.Computer and information services
    8.Royalties and license fees
    9.Other business services
    9.1Merchanting and other trade-related services
    9.2Operational leasing services
    9.3Miscellaneous business, professional, and technical servicesa
    10.Personal, cultural, and recreational services
    10.1Audiovisual and related services
    10.2Other cultural and recreational services
    11.Government services n.i.e.
    B.Income
    1.Compensation of employees
    2.Investment income
    2.1Direct investment
    2.1.1Income on equity
    2.1.1.1Dividends and distributed branch profitsc
    2.1.1.2Reinvested earnings and undistributed branch profitsc
    2.1.2Income on debt (interest)
    2.2Portfolio investment
    2.2.1Income on equity (dividends)
    2.2.2Income on debt (interest)
    2.2.2.1Bonds and notes
    2.2.2.1.1Financial intermediation charge indirectly measured*
    2.2.2.1.2Other interest
    2.2.2.2Money market instruments and financial derivatives
    2.3Other investment
    2.3.1Financial intermediation charge indirectly measured*
    2.3.2Other interest
    2.3.3Imputed income to households from net equity in life insurance reserves and in pension funds*
    C.Current transfers
    1.General government
    1.1Current taxes on income, wealth etc.*XXX
    1.2Other taxes on production*XXX
    1.3Other subsidies on production*XXX
    1.4Social contributions*XXX
    1.5Social benefits*XXX
    1.6Other current transfers of general government*
    2. Other sectors
    2.1Workers’ remittances
    2.2Other transfers
    2.2.1Current taxes on income, wealth, etc.*XXX
    2.2.2Other taxes on production*XXX
    2.2.3Other subsidies on production*XXX
    2.2.4Social contributions*XXX
    2.2.5Social benefits*XXX
    2.2.6Other current transfers of other sectors*
    2.Capital and Financial Account
    A.Capital account
    1.Capital transfers
    1.1General government
    1.1.1Debt forgiveness
    1.1.2Other
    1.2Other
    1.2.1Migrants’ transfers
    1.2.2Debt forgiveness
    1.2.3Other
    2.Acquisition/disposal of nonproduced, nonfinancial assets
    B.Financial account
    1.Direct investment
    1.1Abroad
    1.1.1Equity capital
    1.1.1.1Claims on affiliated enterprises
    1.1.1.2Liabilities to affiliated enterprises
    1.1.2Reinvested earnings
    1.1.3Other capital
    1.1.3.1Claims on affiliated enterprises
    1.1.3.1.1Debt securities issued by affiliated enterprises*
    1.1.3.1.2Other claims on affiliated enterprises*
    1.1.3.2Liabilities to affiliated enterprises
    1.1.3.2.1Debt securities issued by direct investors*
    1.1.3.2.2Other liabilities of direct investors*
    1.2In reporting economy
    1.2.1Equity capital
    1.2.1.1Claims on direct investors
    1.2.1.2Liabilities to direct investors
    1.2.2Reinvested earnings
    1.2.3Other capital
    1.2.3.1Claims on direct investors
    1.2.3.1.1Debt securities issued by direct investors*
    1.2.3.1.2Other claims on direct investors*
    1.2.3.2Liabilities to direct investors
    1.2.3.2.1Debt securities issued by affiliated enterprises*
    1.2.3.2.2Other liabilities to direct investors*
    2.Portfolio investment
    2.1Assets
    2.1.1Equity securities
    2.1.1.1Monetary authorities
    2.1.1.2General government
    2.1.1.3Banks
    2.1.1.4Other sectors
    2.1.2Debt securities
    2.1.2.1Bonds and notes
    2.1.2.1.1Monetary authorities
    2.1.2.1.2General government
    2.1.2.1.3Banks
    2.1.2.1.4Other sectors
    2.1.2.2Money market instruments
    2.1.2.2.1Monetary authorities
    2.1.2.2.2General government
    2.1.2.2.3Banks
    2.1.2.2.4Other sectors
    2.1.2.3Financial derivatives
    2.1.2.3.1Monetary authorities
    2.1.2.3.2General government
    2.1.2.3.3Banks
    2.1.2.3.4Other sectors
    2.2Liabilities
    2.2.1Equity securities
    2.2.1.1Banks
    2.2.1.2Other sectors
    2.2.2Debt securities
    2.2.2.1Bonds and notes
    2.2.2.1.1Monetary authorities
    2.2.2.1.2General government
    2.2.2.1.3Banks
    2.2.2.1.4Other sectors
    2.2.2.2Money market instruments
    2.2.2.2.1Monetary authorities
    2.2.2.2.2General government
    2.2.2.2.3Banks
    2.2.2.2.4Other sectors
    2.2.2.3Financial derivatives
    2.2.2.3.1Banks
    2.2.2.3.2Other sectors
    3.Other investment
    3.1Assets
    3.1.1Trade credits
    3.1.1.1General government
    3.1.1.1.1Long-term
    3.1.1.1.2Short-term
    3.1.1.2Other sectors
    3.1.1.3.1Long-term
    3.1.1.3.2Short-term
    3.1.2Loans
    3.1.2.1Monetary authorities
    3.1.2.1.1Long-term
    3.1.2.1.2Short-term
    3.1.2.2General government
    3.1.2.2.1Long-term
    3.1.2.2.2Short-term
    3.1.2.3Banks
    3.1.2.3.1Long-term
    3.1.2.3.2Short-term
    3.1.2.4Other sectors
    3.1.2.4.1Long-term
    3.1.2.4.2Short-term
    3.1.3Currency and deposits
    3.1.3.1Monetary authorities
    3.1.3.2General government
    3.1.3.3Banks
    3.1.3.4Other sectors
    3.1.4Other assets
    3.1.4.1Monetary authorities
    3.1.4.1.1Long-term
    3.1.4.1.1.1Prepayments of premiums and reserves against outstanding claims*
    3.1.4.1.1.2Other assets*
    3.1.4.1.2Short-term
    3.1.4.2General government
    3.1.4.2.1Long-term
    3.1.4.2.1.1Prepayments of premiums and reserves against outstanding claims*
    3.1.4.2.1.2Other assets*
    3.1.4.2.2Short-term
    3.1.4.3Banks
    3.1.4.3.1Long-term
    3.1.4.3.1.1Prepayments of premiums and reserves against outstanding claims*
    3.1.4.3.1.2Other assets*
    3.1.4.3.2Short-term
    3.1.4.4Other sectors
    3.1.4.4.1Long-term
    3.1.4.4.1.1Net equity of households in life insurance reserves and in pension funds*
    3.1.4.4.1.2Prepayments of premiums and reserves against outstanding claims*
    3.1.4.4.1.3Other assets*
    3.1.4.4.2Short-term
    3.2Liabilities
    3.2.1Trade credits
    3.2.1.1General government
    3.2.1.1.1Long-term
    3.2.1.1.2Short-term
    3.2.1.2Other sectors
    3.2.1.3.1Long-term
    3.2.1.3.2Short-term
    3.2.2Loans
    3.2.2.1Monetary authorities
    3.2.2.1.1Use of Fund credit and loans from the Fund
    3.2.2.1.2Other long-term
    3.2.2.1.3Short-term
    3.2.2.2General government
    3.2.2.2.1Long-term
    3.2.2.2.2Short-term
    3.2.2.3Banks
    3.2.2.3.1Long-term
    3.2.2.3.2Short-term
    3.2.2.4Other sectors
    3.2.2.4.1Long-term
    3.2.2.4.2Short-term
    3.2.3Currency and deposits
    3.2.3.1Monetary authorities
    3.2.3.2Banks
    3.2.4Other liabilities
    3.2.4.1Monetary authorities
    3.2.4.1.1Long-term
    3.2.4.1.2Short-term
    3.2.4.2General government
    3.2.4.2.1Long-term
    3.2.4.2.2Short-term
    3.2.4.3Banks
    3.2.4.3.1Long-term
    3.2.4.3.2Short-term
    3.2.4.4Other sectors
    3.2.4.4.1Long-term
    3.2.4.4.1.1Net equity of households in life insurance reserves and in pension funds*
    3.2.4.4.1.2Prepayments of premiums and reserves against outstanding claims*
    3.2.4.4.1.3Other liabilities*
    3.2.4.4.2Short-term
    4.Reserve assets
    4.1Monetary gold
    4.2Special drawing rights
    4.3Reserve position in the Fund
    4.3.1Deposits*
    4.3.2Loans*
    4.4Foreign exchange
    4.4.1Currency and deposits
    4.4.1.1With monetary authorities
    4.4.1.2With banks
    4.4.2Securities
    4.4.2.1Equities
    4.4.2.2Bonds and notes
    4.4.2.3Money market instruments and financial derivatives
    4.5Other claims
    4.5.1Currency and deposits*
    4.5.2Securities*
    4.5.2.1Equities*
    4.5.2.2Debt securities*

    See Selected Supplementary Information table on page 139 for components.

    Memorandum items: 5.1 Gross premiums; 5.2 Gross claims

    If distributed branch profits are not identified, all branch profits are considered to be distributed.

    Details necessary for reconciliation with classifications used in the SNA Rest of the World Account

    Table 8Selected Supplementary Information
    1.Liabilities constituting foreign authorities’ reserves
    1.1Bonds and other securities
    1.1.1Monetary authorities
    1.1.2General government
    1.1.3Banks
    1.1.4Other sectors
    1.2Deposits
    1.2.1Monetary authorities
    1.2.2Banks
    1.3Other liabilities
    1.3.1Monetary authorities
    1.3.2General government
    1.3.3Banks
    1.3.4Other sectors
    2.Exceptional financing transactions
    2.1Transfers
    2.1.1Debt forgiveness
    2.1.2Other intergovernmental grants
    2.1.3Grants received from Fund subsidy accounts
    2.2Direct investment
    2.2.1Investment associated with debt reduction
    2.2.2Other
    2.3Portfolio investment; borrowing by authorities or by other sectors on behalf of authorities—liabilities*
    2.4Other investment—liabilities*
    2.4.1Drawings on new loans by authorities or by other sectors on behalf of authorities
    2.4.2Rescheduling of existing debt
    2.4.3Accumulation of arrears
    2.4.3.1Principal on short-term debt
    2.4.3.2Principal on long-term debt
    2.4.3.3Original interest
    2.4.3.4Penalty interest
    2.4.4Repayments of arrears
    2.4.4.1Principal
    2.4.4.2Interest
    2.4.5Rescheduling of arrears
    2.4.5.1Principal
    2.4.5.2interest
    2.4.6Cancellation of arrears
    2.4.6.1Principal
    2.4.6.2Interest
    3.Other transactions
    3.1Portfolio investment income
    3.1.1Monetary authorities
    3.1.2General government
    3.1.3Banks
    3.1.4Other sectors
    3.2Other (than direct investment) income
    3.2.1Monetary authorities
    3.2.2General government
    3.2.3Banks
    3.2.4Other sectors
    3.3Other investment (liabilities)
    3.3.1Drawings on long-term trade credits
    3.3.2Repayments of long-term trade credits
    3.3.3Drawings on long-term loans
    3.3.4Repayments of long-term loans
    4.Services sub-items
    4.1Travel (personal)
    4.1.1Health-related
    4.1.2Education-related
    4.1.3Other
    4.2Miscellaneous business, professional, and technical services
    4.2.1Legal, accounting, management consulting, and public relations
    4.2.2Advertising, market research, and public opinion polling
    4.2.3Research and development
    4.2.4Architectural, engineering, and other technical services
    4.2.5Agricultural, mining, and on-site processing
    4.2.6Other

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

    Table 9International Investment Position: Standard Components and Additional Details
    Changes in Position Reflecting
    Position at Beginning of YearTransactionsPrice ChangesExchange Rate ChangesOther AdjustmentsPosition at End of Year
    *a*b*a*b
    A.Assets
    1.Direct investment abroad
    1.1Equity capital and reinvested earnings
    1.1.1Claims on affiliated enterprises
    1.1.2Liabilities to affiliated enterprises
    1.2Other capital
    1.2.1Claims on affiliated enterprises
    1.2.2Liabilities to affiliated enterprises
    2.Portfolio investment
    2.1Equity securities
    2.1.1Monetary authorities
    2.1.2General government
    2.1.3Banks
    2.1.4Other sectors
    2.2Debt securities
    2.2.1Bonds and notes
    2.2.1.1Monetary authorities
    2.2.1.2General government
    2.2.1.3Banks
    2.2.1.4Other sectors
    2.2.2Money market instruments
    2.2.2.1Monetary authorities
    2.2.2.2General government
    2.2.2.3Banks
    2.2.2.4Other sectors
    2.2.3Financial derivatives
    2.2.3.1Monetary authorities
    2.2.3.2General government
    2.2.3.3Banks
    2.2.3.4Other sectors
    3.Other investment
    3.1Trade credits
    3.1.1General government
    3.1.1.1Long-term
    3.1.1.2Short-term
    3.1.2Other sectors
    3.1.2.1Long-term
    3.1.2.2Short-term
    3.2Loans
    3.2.1Monetary authorities
    3.2.1.1Long-term
    3.2.1.2Short-term
    3.2.2General government
    3.2.2.1Long-term
    3.2.2.2Short-term
    3.2.3Banks
    3.2.3.1Long-term
    3.2.3.2Short-term
    3.2.4Other sectors
    3.2.4.1Long-term
    3.2.4.2Short-term
    3.3Currency and deposits
    3.3.1Monetary authorities
    3.3.2General government
    3.3.3Banks
    3.3.4Other sectors
    3.4Other assets
    3.4.1Monetary authorities
    3.4.1.1Long-term
    3.4.1.2Short-term
    3.4.2General government
    3.4.2.1Long-term
    3.4.2.2Short-term
    3.4.3Banks
    3.4.3.1Long-term
    3.4.3.2Short-term
    3.4.4Other sectors
    3.4.4.1Long-term
    3.4.4.2Short-term
    4.Reserve assets
    4.1Monetary gold
    4.2Special drawing rights
    4.3Reserve position in the Fund
    4.4Foreign exchange
    4.4.1Currency and deposits
    4.4.1.1With monetary authorities
    4.4.1.2With banks
    4.4.2Securities
    4.4.2.1Equities
    4.4.2.2Bonds and notes
    4.4.2.3Money market instruments and financial derivatives
    4.5Other claims
    B.Liabilities
    1.Direct investment in reporting economy
    1.1Equity capital and reinvested earnings
    1.1.1Claims on direct investors
    1.1.2Liabilities to direct investors
    1.2Other capital
    1.2.1Claims on direct investors
    1.2.2Liabilities to direct investors
    2.Portfolio investment
    2.1Equity securities
    2.1.1Banks
    2.1.2Other sectors
    2.2Debt securities
    2.2.1Bonds and notes
    2.2.1.1Monetary authorities
    2.2.1.2General government
    2.2.1.3Banks
    2.2.1.4Other sectors
    2.2.2Money market instruments
    2.2.2.1Monetary authorities
    2.2.2.2General government
    2.2.2.3Banks
    2.2.2.4Other sectors
    2.2.3Financial derivatives
    2.2.3.1Monetary authorities
    2.2.3.2General government
    2.2.3.3Banks
    2.2.3.4Other sectors
    3.Other investment
    3.1Trade credits
    3.1.1General government
    3.1.1.1Long-term
    3.1.1.2Short-term
    3.1.2Other sectors
    3.1.2.1Long-term
    3.1.2.2Short-term
    3.2Loans
    3.2.1Monetary authorities
    3.2.1.1Use of Fund credit and loans from the Fund
    3.2.1.2Other long-term
    3.2.1.3Short-term
    3.2.2General government
    3.2.2.1Long-term
    3.2.2.2Short-term
    3.2.3Banks
    3.2.3.1Long-term
    3.2.3.2Short-term
    3.2.4Other sectors
    3.2.4.1Long-term
    3.2.4.2Short-term
    3.3Currency and deposits
    3.3.1Monetary authorities
    3.3.2Banks
    3.4Other liabilities
    3.4.1Monetary authorities
    3.4.1.1Long-term
    3.4.1.2Short-term
    3.4.2General government
    3.4.2.1Long-term
    3.4.2.2Short-term
    3.4.3Banks
    3.4.3.1Long-term
    3.4.3.2Short-term
    3.4.4Other sectors
    3.4.4.1Long-term
    3.4.4.2Short-term

    Because direct investment is classified primarily on a directional basis—abroad under the heading Assets and in the reporting economy under the heading Liabilities—disaggregations of claims/liabilities are shown for the components of each, although these sub-items do not strictly conform to the overall headings of Assets and Liabilities.

    Details necessary for reconciliation with classifications used in the SNA Rest of the World Account: a = neutral holding gains/losses; b = real holding gains/losses

    II. A Note on Sectors

    512. As presented in this Manual, sectorization of the balance of payments portfolio investment and other investment accounts and related components of the international investment position strengthens the links between the international accounts, the SNA, and IMF statistical systems such as money and banking, government finance, and international banking. In addition, the sectorization enhances the analytic usefulness of the accounts.

    513. Identification of four sectors—monetary authorities, general government, banks, and other sectors—of the compiling economy provides a combined functional and institutional approach to sectorization. Although the sectors do not comprise institutional units as in the SNA, there is a significant degree of concordance with that system. Specific differences are noted subsequently.

    514. The monetary authorities sector, which is based on a functional concept, includes the central bank (or currency board, monetary agency, etc.) and certain operations that are usually attributed to the central bank but are sometimes carried out by other government institutions or commercial banks. Such operations include the issuance of currency; maintenance and management of international reserves, including those resulting from transactions with the IMF; and the operation of exchange stabilization funds. Such transactions are, in effect, rerouted through the central bank. This coverage of monetary authorities is consistent with that described in the IMF draft of the Manual on Monetary and Financial Statistics. In the SNA, the central bank is a subsector of the financial corporate sector.

    515. The general government sector, with the exception noted in the previous paragraph, is consistent with that sector in the SNA. General government consists of (i) government units that exist at each level—central, state, or local—of government within the national economy; (ii) social security funds operated at each level of government; (iii) nonprofit institutions that are majority financed and controlled by government units; and (iv) unincorporated enterprises that are owned and operated by government units and that produce goods and services, including collective services or public goods. (However, if it is appropriate under SNA guidelines to treat unincorporated enterprises as quasi-corporations, such enterprises are allocated to the financial or nonfinancial corporate sectors.)

    516. The banking sector is identical with the “other (than the central bank) depository corporations” subsector of the financial corporate sector in the SNA and the “other (than the central bank) depository institutions” subsector of the financial institutions sector in IMF money and banking statistics. Included are all resident units engaging in financial intermediation as a principal activity and having liabilities in the form of deposits or financial instruments (such as short-term certificates of deposit) that are close substitutes for deposits. Deposits include those payable on demand and transferable by check or otherwise usable for making payments and those that, while not readily transferable, may be viewed as substitutes for transferable deposits. Thus, in addition to commercial banks, the banking sector encompasses institutions such as savings banks, savings and loan associations, credit unions or cooperatives, building societies, and post office savings banks or other government-controlled savings banks (if such banks are institutional units separate from government).

    517. The other sectors category is comprised of nonfinancial corporations (private, public, and quasi-corporations), insurance companies, pension funds, other nondepository financial intermediaries, private nonprofit institutions, and households.

    III. Balance of Payments Classification of International Services and the Central Product Classification

    Classification of International Transactions in Services

    Scope

    518. The classification of international transactions in services, which is included among the standard components of the balance of payments, provides for the recording of all international trade in services. The classification is not as detailed as the Central Product Classification (CPC), mainly because the CPC applies to the structure of total production and encompasses domestic as well as international transactions. Meaningful analytical categories are formed by combining appropriate items that may be comparatively insignificant in international transactions, although such items may be important in domestic transactions.

    Structure and coding system of the classification

    519. The structure of the classification is hierarchical, and the related coding system is decimal—as is the CPC. The categories were developed from the subclasses (five-digit codes), classes (four-digit codes), groups (three-digit codes), and divisions (two-digit codes) of the CPC, although the classification corresponds with the CPC mostly at the three-digit level. Other differences from the CPC are discussed subsequently in this appendix.

    520. The classification is flexible in that each three-digit category (the most detailed in the classification) can be expanded by the addition of another decimal place. Conversely, if less detail is available, one- or two-digit categories are appropriate.

    Central Product Classification

    Objectives

    521. The main objective of the CPC is to provide a framework for international comparison of various kinds of statistics on goods, services, and assets. The CPC is a useful guide for countries and international organizations that are developing new systems or revising existing schemes in order to make such systems or schemes compatible with the international standard.

    Scope

    522. The CPC covers categories for all products that can be the objects of domestic or international transactions or entered into stocks. In addition to products that are the output of economic activity, nonproduced assets—including land and intangible assets such as patents, licenses, trademarks, and copyrights—that arise from legal contracts are also covered.

    Structure and coding system

    523. The structure of the CPC is hierarchical, and the coding system is purely decimal. The classification consists of sections (identified by the first digit), divisions (identified by the first and second digits), groups (identified by the first three digits), classes (identified by the first four digits), and subclasses (identified by five digits). Codes for the sections range from zero through nine, and each section may be divided into nine divisions. At the third digit of the code, each division may, in turn, be divided into nine groups, which may be further divided into nine classes and into nine subclasses.

    Differences Between the CPC and the Balance of Payments Classification

    524. Although the balance of payments classification closely follows the CPC, there are a number of differences in coverage and classification between the two systems:

    • Two categories, travel and government services n.i.e., in the balance of payments classification of services do not have analogues in the CPC.

    • Travel is covered as a balance of payments category because it subsumes a number of related services such as appropriate transportation, catering, entertainment, etc. Also, data for this item are collected from the consumers of these services, and most countries present data in this form in balance of payments statements.

    • Government services n.i.e., includes the consumption of goods and services by embassies, consulates, military, and other establishments of foreign governments; of diplomatic and consular staff and their dependents in the countries where they are stationed; and of international and regional organizations. This category also includes public administration and other services provided by governments and extraterritorial organizations. Whereas the CPC treats all processing and repairs as service items, the balance of payments classification treats only the value of on-site processing and certain repairs (e.g., on computers, construction, and transport equipment maintenance performed in ports and airports) as services to be reported under the appropriate category. All other processing and the value of all other repairs are included in the balance of payments under goods on the practical grounds that most processing involves transformation of the goods and most repairs are made to investment goods.

    525. The table on pages 148 and 149 shows the correspondence of balance of payments standard components to various CPC categories.

    Comparison of the Balance of Payments Classification of International Transactions in Services and the Central Product Classification (CPC)1
    Central Product Classification2
    SectionDivisionGroupClass
    1.Transportation7
    1.1Sea transport721+part
    1.1.1Passengerof 7457211
    1.1.2Freight7212
    1.1.3Other7213+7214+part of sea-going vessels in 745
    1.2Air transport73
    1.2.1Passenger7317311+7312
    1.2.2Freight7327321+7322+7329
    1.2.3Other734+746
    1.3Other transport3
    1.3.1Passenger
    1.3.2Freight
    1.3.3Other
    2.Travel4
    2.1Business
    2.2Personal5
    2.2.1Health-related*
    2.2.2Education-related*
    2.2.3Other
    3.Communications services7567511+7512
    4.Construction services51511 through 518
    5.Insurance services7812+814
    6.Financial servicespart of 818118111 through 8113
    7.Computer and information services84+ 9629621
    8.Royalties and license fees8928921+8922
    9.Other business services8
    9.1Merchanting and other trade-related services626216211
    9.2Operational leasing services838318310
    9.3Miscellaneous business, professional, and technical services*
    10.Personal, cultural, and recreational services96+97(excluding 962)
    10.1Audiovisual and related services9619611 through 9613
    10.2Other cultural and recreational services963, 964, 970, 9619

    Categories left blank have no direct correspondence with the Central Product Classification (CPC).

    Section = one-digit; division = two-digit; group = three-digit; class = four-digit

    Comprises CPC groups 711, 712, 713, 722, 733, 741 through 744, part of 745, 748, and 749

    Includes CPC classes 7471 and 7472

    Includes CPC divisions 92 and 93

    6

    Excludes classes 7541 and 7542

    Memorandum items; 5.1 Gross premiums and 5.2 Gross claims

    Comprises CPC divisions 62, 83, and 85 through 88

    These subdivisions are not included among the standard components of the balance of payments but are included under selected supplementary information.

    Central Product Classification
    SectionDivisionGroupClass
    9.3.1Research and Development85851 through 8538510 through 8530
    9.3.2Legal, accounting, management consulting, and public relations861+862+865+part of 8648611 through 8613+8619+8621 through 8622
    9.3.3Advertising, market research, and public opinion polling871+8648711 through 8712+8719
    9.3.4Architectural, engineering, and other technical services8678671 through 8676
    9.3.5Agricultural, mining, and on-site processing88°881 through 8838811 through 8830
    9.3.6Other82863+866+872 through 8798720+8730+8740+8750+8760+8790

    Part of 88 relates to maintenance of transportation equipment.

    IV. Accounting for Exceptional Financing Transactions

    526. The accounting procedures for recording exceptional financing transactions in the balance of payments are relevant in the context of an analytic presentation such as the IMF’s aggregated presentation in the Balance of Payments Statistics Yearbook (BOPSY). In an analytic presentation, exceptional financing transactions that accommodate balance of payments needs are shown below the line in the appropriate accounts; credit entries and corresponding debit entries are shown above the line. However, there are some cases in which below-the-line debit entries are also recorded under exceptional financing (e.g., when payments arrears are extinguished by way of repayment, forgiveness, refinancing, rescheduling, or other arrangements and when the authorities—for balance of payments reasons—make loan repayments in advance of the due dates).

    527. The table at the end of Appendix 4 summarizes (in both analytic and standard presentations) appropriate balance of payments entries for recording selected exceptional financing transactions for debtor countries. Entries for creditor countries should be fully symmetrical. However, for creditor countries, there should be no below-the-line entries under exceptional financing. The table, for illustrative purposes, shows separate credit and debit entries for each relevant item of the financial account, although net recording is generally recomended in the Manual for the financial account. In practice, credit and debit entries affecting the same item of the financial account will cancel each other and thus will not appear as separate entries in the balance of payments statement.

    Accumulation of Arrears

    528. In the standard presentation of the balance of payments, arrears of interest and amortization—that is, amounts that are past due and unpaid—are recorded as if the amounts had been paid on schedule. An offsetting entry is made to reflect the associated new short-term liability. For arrears of interest accrued in the current recording period, a debit entry is recorded under investment income in the current account, and a corresponding credit entry is made under other investment-other liabilities (short-term) in the financial account for the accrual of arrears. For arears of interest accrued in a previous recording period, the entries are somewhat different. The accrual principle for recording interest requires a debit entry under investment income in the period in which interest was accrued and an offsetting credit entry in the financial account under the appropriate instrument. Subsequently, when arrears are incurred on interest accrued in a previous period, a debit entry is recorded under the appropriate instrument in the financial account and a credit contra entry is recorded for the accrual of arrears under other investment-other liabilities (short-term). For amortization arrears, a debit entry is made in the appropriate component of the financial account (for example, short- or long-term loans under other investment) and a credit contra entry is made under other investment-other liabilities (short-term) for the accrual of arrears.

    529. In the analytic presentation, only payments arrears resulting from balance of payments difficulties (that is, arrears resulting from the inability of the authorities to provide foreign exchange and not from the inability of the original debtor to provide national currency) are included under exceptional financing. Such payments arrears are recorded below the line as credit entries under exceptional financing, and offsetting debit entries are recorded above the line under the appropriate account.

    Repayment of Arrears

    530. In the standard presentation of the balance of payments, the repayment of arrears—cash settlements (only) of both interest and amortization—is recorded as a debit entry under other investment-other liabilities (short-term), and a corresponding credit entry is recorded under reserve assets.

    531. In the analytic presentation, repayments of arrears arising from balance of payments needs are recorded below the line as debit entries under exceptional financing (for the reduction of liabilities), and corresponding credit contra entries are recorded under reserve assets.

    Debt Forgiveness

    532. In the standard presentation of the balance of payments, debt forgiveness—the voluntary cancellation of all or part of a debt within a contractual arrangement between a creditor in one economy and a debtor in another economy that is experiencing balance of payments difficulties—is recorded by the debtor as a credit entry under capital transfers. An offsetting debit entry is recorded for the reduction of the liability in the financial account. The appropriate debit entries depend upon the recording period in which the forgiven debt service obligations fall due. For forgiveness of obligations past due (that is, arrears of interest and amortization), a debit entry is recorded under other investment-other liabilities (short-term). For forgiveness of obligations due in the current recording period, a debit entry is recorded, under the appropriate debt instrument in the financial account, for the reduction of the principal and for any interest accrued in the previous period. For interest accruing in the current recording period, a debit entry is recorded under investment income in the current account. For forgiveness of an obligation not yet due, a debit entry is recorded under the appropriate debt instrument in the financial account. No entry is made for interest not yet due.

    533. In the analytic presentation, debt forgiveness for obligations falling due in the current recording period and in arrears is recorded below the line as a credit entry under exceptional financing. Corresponding debit entries are recorded above the line—except when arrears are forgiven, in which case the debit entry is recorded below the line. In contrast, for the forgiveness of debt not yet due, credit and debit entries are recorded above the line so that entries are the same in both the analytic and standard presentations.

    534. For valuation of debts forgiven, it is recomended in the Manual that, in principle, market prices be used as the valuation basis for both flows and stocks. Because typical debt forgiveness agreements are usually restricted to debt that is owed to official creditors and not traded in organized markets, the value recorded for such nonmarketable debt instruments is nominal or face value, which—in this case—is an acceptable proxy for market value.

    Other Intergovernmental Grants

    535. Grants (including grants from Fund subsidy accounts) provided for the purpose of satisfying balance of payments needs in the recipient country are part of exceptional financing. In the analytic presentation, the grants are recorded below the line as credit entries under exceptional financing, and a corresponding debit entry is recorded under reserve assets.

    Debt/Bond Swaps

    536. In the standard balance of payments presentation, a debt/bond swap (the exchange, usually at a discount, of an existing debt instrument such as a loan for another form of debt instrument such as a bond) is recorded by the debtor as a credit entry under portfolio investment to show the creation of the new obligation. An offsetting debit entry is made under the appropriate debt instrument for the reduction in liabilities. Appropriate debit entries are shown in the table at the end of Appendix 4.

    537. In the analytic presentation, debt/bond swaps of obligations falling due in the reporting period and in arrears are recorded below the line as credit entries under exceptional financing; corresponding debit entries are made above the line. However, when arrears are canceled as a result of debt/bond swaps, debit entries are recorded below the line. For obligations not yet due, appropriate entries are recorded above the line.

    538. A debt/bond swap often involves a difference between the nominal or face value of the debt swapped and the face value of the bond being issued. In the balance of payments, such swaps are recorded at market prices. If the bond is similar to other bonds being traded, the market price of a traded bond would be an appropriate proxy for the value of the new bond. If the debt being swapped was recently acquired by the creditor, the acquisition price would be an appropriate proxy. Alternatively, if the coupon interest rate on the new bond is below the prevailing interest rate, the discounted value of the bond could serve as a proxy. If such information is not available, the face value of the bond being issued may be used as a proxy. The difference between the face value of the old debt and the market price of the new bond represents a realized holding (capital) loss for the creditor.

    Debt/Equity Swaps

    539. Debt/equity swaps consist of the exchange, usually at a discount, of bank claims on, or other debt instruments of, debtor economies for nonresident investors’ equity investments in those economies.

    540. For debt exchanged directly for equity investment, the recording is similar to that for debt/bond swaps (discussed in paragraphs 536 through 538). In this case, however, the credit entries should be made under direct investment-equity capital. These transactions should be recorded at the prices at which the equity investors acquired the claims in the secondary market.

    541. Under a second modality, a fixed-payment liability denominated in foreign currency (e.g., a debt security or loan) is exchanged at a discount for a financial instrument denominated in domestic or foreign currency or exchanged directly for a domestic deposit. In the standard presentation, this transaction is recorded by the debtor as an increase in liabilities (credit) under the appropriate financial instrument exchanged for the debt being redeemed; corresponding debit entries depend on the classification of the obligation (liability) being redeemed. Subsequently, the nonresident investor exchanges the financial instrument received for equity investment in an enterprise of the debtor economy. At this point, a credit entry is recorded under direct investment-equity capital, and an offsetting debit entry is made under the appropriate financial instrument being exchanged. Specific entries are shown in the table at the end of Appendix 4.

    542. In the analytic presentation, only the initial transaction associated with a debt/equity swap is relevant. Swaps of obligations falling due in the reporting period and in arrears are recorded below the line as credit entries under exceptional financing; corresponding debit entries are made above the line. A debit entry is also recorded below the line if arrears are canceled as a result of the debt/equity swap agreement. For obligations not yet due, no entries are recorded below the line as exceptional financing.

    543. Debt/equity swaps are valued at market prices in the balance of payments. If the balance of payments is compiled in foreign currency, the market value in foreign currency of the first transaction—the exchange of the debt instrument for another type of financial instrument—is the price at which the claim on the debtor country was acquired from the original creditor by the nonresident equity investor. The second transaction associated with the debt/equity swap is recorded on the basis of the price (paid in domestic currency and converted into foreign currency at the market exchange rate) for the equity acquired by the nonresident investor. If the balance of payments is compiled in domestic currency, the value for the first transaction is the amount received by the equity investor in exchange for the debt instrument.18 For the second transaction, the value is the domestic currency value of the equity acquired by the nonresident investor.

    Borrowing for Balance of Payments Support

    544. Borrowing for balance of payments support refers to borrowing (including bond issues) by the government or central bank (or by other sectors on behalf of the authorities) to meet balance of payments needs. In the analytical presentation, the drawing of such a loan or the issue of such a bond is recorded below the line as a credit entry under exceptional financing; subsequent repayments are recorded above the line. Advance repayments for balance of payments purposes are also recorded under exceptional financing.

    Rescheduling and Refinancing

    545. Debt rescheduling refers to the formal deferment of debt service payments and the application of new and extened maturities to the deferred amounts; debt refinancing refers to the conversion of an original debt, including any arrears, into a new loan. In the standard balance of payments presentation, appropriate debit entries for debt rescheduling depend upon the recording period in which the debt obligations fall due. Corresponding credit contra entries are recorded under other investment-liabilities-loans (long-term) in the financial account to reflect the drawing of a new loan. For rescheduling of obligations past due (that is, arrears of interest and amortization), a debit entry is recorded under other investment-other liabilities (short-term). For rescheduling or refinancing of obligations due in the current recording period, debit entries are recorded under the appropriate debt instruments in the financial account for the reduction of principal and for any interest accrued in the previous recording period. For interest accruing in the current recording period, a debit entry is recorded in the current account under investment income. For rescheduling of obligations not yet due, debit entries are recorded under the appropriate debt instruments in the financial account. No entry is made for interest not yet due.

    546. Some debt restructuring agreements link the rescheduling of obligations due beyond the current recording period to the fulfillment of certain conditions by the time that the obligations fall due. In such cases, entries are recorded in the balance of payments only in the period in which the specified conditions are met.

    547. In the analytic presentation, only rescheduling or refinancing arising from balance of payments needs is recorded. Reschedulings or refinancings of debt falling due in current recording periods and in arrears are recorded below the line as credit entries under exceptional financing; offsetting debit entries are made above the line, except when arrears are rescheduled or refinanced. In this case, debit entries are also recorded below the line. For rescheduling or refinancing of obligations not yet due, there are only entries above the line under the appropriate debt instrument.

    New Money Facilities

    548. Some debt restructurings feature new money facilities (new loan facilities that may be used for the payment of existing debt service obligations). In the standard balance of payments presentation, successive drawings on new money facilities are recorded, usually under other investment-liabilities-loans-monetary authorities (long-term), in the current recording period as a credit for the debtor. Offsetting debit entries are made under reserve assets. As debt service payments are made on the loans included in the debt restructuring, debit entries are recorded under investment income in the current account; the repayment of principal, interest accrued in the previous recording period, and arrears (if any) are recorded under the appropriate liability.

    549. In the analytic presentation, the entries are the same as those described in paragraph 547.

    Balance of Payments Accounting for Selected Exceptional Financing Transactions1
    AnalyticStandard
    Type of Transaction2CreditDebitCreditDebit
    ACCUMULATION OF ARREARS
    InterestExceptional financingInvestment income, other investment3Other investment, other liabilities (short-term)Investment income, other investment3
    Other investment, liabilities, loans (long-term)4Other investment, liabilities, loans (long-term)4
    AmortizationExceptional financingOther investment, liabilities, loans (long-term)Other investment, other liabilities (short-term)Other investment, liabilities, loans (long-term)
    REPAYMENT OF ARREARS5
    InterestReserve assetsExceptional financingReserve assetsOther investment, other liabilities (short-term)
    AmortizationReserve assetsExceptional financingReserve assetsOther investment, other liabilities (short-term)
    DEBT FORGIVENESS
    Payments falling due in the current recording period
    InterestExceptional financingInvestment income, other investment3Capital transfers, debt forgivenessInvestment income, other investment3
    Other investment, liabilities, loans (long-term)4Other investment, liabilities, loans (long-term)4
    AmortizationExceptional financingOther investment, liabilities, loans (long-term)Capital transfers, debt forgivenessOther investment, liabilities, loans (long-term)
    Payments in arrears
    InterestExceptional financingExceptional financingCapital transfers, debt forgivenessOther investment, other liabilities (short-term)
    AmortizationExceptional financingExceptional financingCapital transfers, debt forgivenessOther investment, other liabilities (short-term)
    Payments not yet due in the current recording period
    AmortizationCapital transfers, debt forgivenessOther investment, liabilities, loans (long-term)Capital transfers, debt forgivenessOther investment, liabilities, loans (long-term)
    OTHER INTERGOVERNMENTAL GRANTS6
    Exceptional financingReserve assetsCurrent transfers, general governmentReserve assets
    DEBT/BOND SWAPS
    Payments falling due in the current recording period7
    AmortizationExceptional financingOther investment, liabilities, loans (long-term)Portfolio investment, liabilities, debt securitiesOther investment, liabilities, loans (long-term)
    Payments in arrears7
    InterestExceptional financingExceptional financingPortfolio investment, liabilities, debt securitiesOther investment, other liabilities (short-term)
    Amortization7Exceptional financingExceptional financingPortfolio investment, liabilities, debt securitiesOther investment, other liabilities (short-term)
    Payments not yet due
    AmortizationPortfolio investment, liabilities, debt securitiesOther investment, liabilities, loans (long-term)Portfolio investment, liabilities, debt securitiesOther investment, liabilities, loans (long-term)
    DEBT/EQUITY SWAPS
    Direct swaps
    Payments falling due in the current recording period8
    AmortizationExceptional financingOther investment, liabilities, loans (long-term)Direct investment, equity capitalOther investment, liabilities, loans (long-term)
    Payments in arrears8
    InterestExceptional financingExceptional financingDirect investment, equity capitalOther investment, other liabilities (short-term)
    AmortizationExceptional financingExceptional financingDirect investment, equity capitalOther investment, other liabilities (short-term)
    Payments not yet due
    AmortizationDirect investment, equity capitalOther investment, liabilities, loans (long-term)Direct investment, equity capitalOther investment, liabilities, loans (long-term)
    Indirect swaps
    Exchange of a fixed-payment liability denominated in foreign currency for a security denominated in domestic currency9
    Payments falling due in the current recording period8
    AmortizationExceptional financingOther investment, liabilities, loans (long-term)Portfolio investment, liabilities, debt securitiesOther investment, liabilities, loans (long-term)
    Payments in arrears8
    InterestExceptional financingExceptional financingPortfolio investment, liabilities, debt securitiesOther investment, other liabilities (short-term)
    AmortizationExcept ional financingExceptional financingPortfolio investment, liabilities, debt securitiesOther investment, other liabilities (short-term)
    Payments not yet due8
    AmortizationPortfolio investment, liabilities, debt securitiesOther investment, liabilities, loans (long-term)Portfolio investment, liabilities, debt securitiesOther investment, liabilities, loans (long-term)
    Exchange of a liability denominated in domestic currency for equity investment
    Direct investment, equity capitalPortfolio investment, liabilities, debt securitesDirect investment, equity capitalPortfolio investment, liabilities, debt securities
    BORROWING FOR BALANCE OF PAYMENTS SUPPORT10
    Drawings on new loansExceptional financingReserve assetsOther investment, liabilities, loans (long-/short-term)Reserve assets
    Bond issuesExceptional financingReserve assetsPortfolio investment, liabilities, debt securitiesReserve assets
    RESCHEDULING AND REFIN ANCING
    Payments falling due in the current recording period
    InterestExceptional financingInvestment income, other investment3Other investment, liabilities, loans (long-term)Investment income, other investment3
    Other investment, liabilities, loans (long-term)4Other investment, liabilities, loans (long-term)4
    AmortizationExceptional financingOther investment, liabilities, loans (long-term)Other investment, liabilities, loans (long-term)Other investment, liabilities, loans (long-term)
    Payments in arrears
    InterestExceptional financingExceptional financingOther investment, liabilities, loans (long-term)Other investment, other liabilities (short-term)
    AmortizationExceptional financingExceptional financingOther investment, liabilities, loans (long-term)Other investment, other liabilities (short-term)
    Payments not yet due in the current recording period
    AmortizationOther investment, liabilities, loans (long-term)Other investment, liabilities, loans (long-term)Other investment, liabilities, loans (long-term)Other investment, liabilities, loans (long-term)

    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 debt instrument in the financial account. In this table, it has been assumed that long-term 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.

    For interest accrued in the current recoding period

    For interest accrued in the previous period

    Cash settlement only

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

    These payments are recorded by using the market price of the new security issued.

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

    Initially, the debtor country can exchange the liability denominated in a foreign currency for a security denominated in domestic currency, a security denominated in foreign currency, or domestic deposits. Therefore, the appropriate debit entry depends on the type of liability for which the liability that is denominated in foreign currency is exchanged.

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

    V. Selected Issues in Balance of Payments Analysis

    Introduction

    550. Preceding sections of the Manual present, in considerable detail, concepts underlying the standard components of the balance of payments and the international investment position of an economy. The importance of this accounting and statistical reporting framework describing a country’s international transactions derives primarily from the links between these transactions and the domestic economy. These links go in two directions: (i) from the external to the internal side of the economy and (ii) from changes in domestic economic conditions to changes in a country’s transactions with the rest of the world. This section discusses some of these major links and a number of important connections between the major components of the balance of payments and between these components and a country’s international investment position. This discussion directs particular emphasis to the factors influencing external transactions and the extent to which such factors are sustainable. Finally, some of the implications of balance of payments adjustments for economic policy are considered. In this appendix, it is assumed, by and large, that international and domestic transactions are not constrained by formal or informal administrative controls and that market participants are free to respond to price signals and macroeconomic policies.

    General Framework

    551. The relationship between the balance of payments and the domestic economy has already been described (in Chapter 3 and Appendix 1) in terms of the SNA and the current account. Embodied in an identity derived in Chapter 3, this relationship shows that the current account balance is equal to the difference between gross domestic saving (S) and investment (1):

    (1) CAB = X-M + NY + NCT = S-I

    when

    X= exports of goods and services
    M= imports of goods and services
    NY= net income from abroad
    NCT= net current transfers

    Thus the current account balance mirrors the saving and investment behavior of the domestic economy. In analyzing changes in the current account position of a country, it is therefore important to understand the manner in which these changes reflect movements in saving and investment. For example, an increase in domestic investment relative to domestic saving will have the same impact on the current account—at least in the short run—as a decline in saving relative to investment. However, the longer-run implications for the external position of the country may be quite different. More generally, equation (1) shows that any change in a country’s current account position (e.g., a larger surplus or smaller deficit) must necessarily be matched by an increase in domestic saving relative to investment. This highlights the importance of ascertaining the extent to which any policy measures designed to alter the current account balance directly (e.g., changes in tariffs, quotas, and exchange rates) will affect domestic saving and investment behavior in such a way as to achieve the intended effects of the policy measures on the external sector.

    552. This link between the domestic and external sectors of an economy can be expressed alternatively in terms of the difference between gross national disposable income (GNDY) and expenditure on goods and services by domestic residents (A). These two variables are defined as:

    (2) GNDY = C + I + G + CAB

    (3) A = C + I + G = domestic absorption or expenditure

    From these two equations, it follows that the balance on goods, services, and net income plus net current transfers is equal to the difference between gross national disposable income and the use or absorption of this income through expenditures by residents:

    (4) GAB - GNDY-A

    The implication of this relationship for balance of payments analysis is the same as that already noted: improvement in a country’s current account requires that resources must be released through a fall in domestic absorption (i.e., a reduction in expenditure relative to income). Alternatively, it may be possible to achieve an improvement in the external position by means of an increase in national income that is not matched by a commensurate rise in absorption. Implementation of structural measures that reduce distortions and increase the efficiency of the economy would be one way to achieve this objective.

    553. This last point highlights an important aspect of the equations shown previously; these are identities that define relationships among variables rather than describe the behavior of economic agents. By themselves, the equations cannot provide a full analysis of the factors determining developments in the current account. For example, total spending on goods and services by domestic residents (A) is likely to be influenced in part by their income (GNDY). Thus it would be inappropriate to use equation (4) to analyze the impact of a change in GNDY on the balance of goods and services without taking full account of the induced response in A of such a change. In particular, if an increase in income were spent by domestic residents entirely on additional goods and services (foreign and domestically produced), higher income would have no impact on the external balance. This example illustrates the necessity for understanding the spending propensities of domestic residents when analyzing the balance of payments.

    554. The interrelationship between the internal and external sectors of an economy can be seen in greater detail by distinguishing between the private and government sectors. Private saving and investment (Sp and Ip) and government saving and investment (Sg and Ig) are identified:

    (5) S-I = Sp+Sg-Ip-Ig

    Use of the definition of the current account from equation (1) then gives:

    (6) CAB - (Sp-Ip) + (Sg-Ig) - S-I

    This equation shows that, if government sector dissaving is not offset by net saving on the part of the private sector, the current account will be in deficit. More specifically, the equation shows that the budgetary position of the government (Sg-Ig) may be an important factor influencing the current account balance. In particular, a sustained current account deficit may reflect persistent government spending in excess of receipts, and such excess spending suggests that fiscal tightening is the appropriate policy action.

    555. To reiterate an important point, however, equation (6) cannot be used by itself to analyze, developments in the foreign sector in terms of investment and saving on the part of the private and government sectors because there are links between the variables on the right-hand side of equation (6). For example, an increase in taxes could be considered the appropriate policy measure both to raise government saving (or reduce dissaving) and to contribute to an improvement in a country’s current account position. In analyzing the impact of higher taxes, it is necessary to take account of the behavioral response of private saving and private investment. Private investment could be positively or negatively affected by higher taxes. The effect would depend, in part, on whether the taxes were levied on consumption, an action that would release domestic resources and thereby tend to “crowd in” domestic investment, or on returns to capital. In addition, private saving would tend to fall because of the decline in disposable income caused by taxes on consumption. Thus equation (6) provides only a starting point for an analysis of the interaction between domestic saving and investment decisions and the external sector; the equation must be supplemented by specific information about the factors that determine the behavior of both the private sector and the government before the effect of policy measures on a country’s current account can be ascertained.

    556. In addition to current transactions (i.e., those involving the exchange of goods, the provision of services, and the receipt and payment of income and transfers), the flow of financial transactions (i.e., those involving changes in financial claims on, and liabilities to, the rest of the world) must be analyzed. As noted in chapters 8 and 16, these transactions have two main components: (i) narrowly defined financial transactions in direct investment, portfolio investment, and other investment (including trade credits, loans, and deposits) and (ii) transactions in reserve assets. There are direct linkages between these components of a country’s international transactions. For example, imports of goods are often financed by nonresident suppliers so that an increase in imports will typically be matched by a financial inflow. At the expiration of the financing period, the payment to the nonresident supplier will involve either a drawdown of foreign assets (e.g., foreign deposits held by domestic banks) or the replacement of the liability to the nonresident supplier by another liability to nonresidents. There are also close connections between many financial account transactions. For example, the proceeds from the sale of bonds in foreign capital markets (a financial inflow) may be invested temporarily in short-term assets abroad (a financial outflow).

    557. As noted in Chapter 2, the basic principle of double-entry bookkeeping used in constructing the balance of payments implies that the sum of all international transactions—current and capital and financial, including reserve assets—is in principle equal to zero. However, because data for balance of payments entries often are derived independently from different sources, implementation of the double-entry recording system is not perfect. As a result, there typically are net credits or net debits (i.e., net errors and omissions in the accounts). To simplify the exposition in this section, it is assumed that there are no recording errors or omissions and that the sum of all current and capital and financial account items, including reserve assets, is equal to zero. This property of the entire set of a country’s international transactions, which is called the balance of payments identity, is stated by equation (7), in which (again for simplicity) it is assumed that net capital transfers are equal to zero.

    (7) CAB = NKA + RT

    when

    NKA =net capital and financial account (i.e., all capital and financial transactions excluding reserve assets)
    RT =reserve asset transactions

    558. This equation shows that the current account balance is necessarily equal (with sign reversed) to the net capital and financial account balance plus reserve asset transactions. This relationship shows that the net provision, as measured by the current account balance, of resources to or from the rest of the world must—by definition—be matched by a change in net claims on the rest of the world. For example, a current account surplus is reflected in an increase in net claims, which may be in the form of official or private claims, on nonresidents or in the acquisition of reserve assets on the part of the monetary authorities. Alternatively, a deficit implies that the net acquisition of resources from the rest of the world must be paid for by either liquidating foreign assets or increasing liabilities to nonresidents. Seen in this light, the balance of payments identity constitutes the budget constraint for the entire economy.

    559. The previously described framework for analysis of the balance of payments is applicable, irrespective of the exchange rate regime adopted by a country. For example, if the exchange rate is pegged, then transactions in reserve assets will be determined by the net demand or supply of foreign exchange at that exchange rate (i.e., RT = CAB–NKA). At the other extreme, if the exchange rate arrangement involves a pure float so that no exchange market intervention takes place, then CAB = NKA. In the intermediate case of a managed float, purchases and sales of reserve assets are typically undertaken to achieve a desired exchange rate path for the domestic currency in terms of one or more foreign currencies. (This section does not cover the advantages and disadvantages of particular exchange rate arrangements and policies. However, the exchange rate is an important instrument of balance of payments adjustment, and a subsequent section includes information on this topic.)

    The Capital and Financial Account and Balance of Payments Financing

    560. The capital and financial account measures net foreign investment or net lending/net borrowing vis-à-vis the rest of the world. This account is one channel through which a country invests its net wealth; the other is primarily tangible domestic capital. The wealth accumulation aspect of the capital and financial account can be seen more clearly by recalling that the current account is equal to the difference between total domestic saving and investment. Hence equation (7) can be rewritten as:

    (8) S-I = NKA + RT

    Thus, to the extent that domestic saving is not matched by an increase in domestic capital accumulation, there will be an increase in private or official assets held in the rest of the world.

    561. Equation (8) describes flows of resources and capital over time. The summation, over an extended period of time, of a country’s saving provides a picture of the stock of its total wealth. As defined in Chapter 3, a nation’s stock of assets consists of nonfinancial and financial assets. As the financial assets and liabilities of domestic sectors cancel each other, a country’s balance sheet consists of its stock of domestic nonfinancial assets plus its net international investment position (the stock of external financial assets minus the stock of external liabilities).

    562. Concepts and measurement issues related to a country’s international investment position are discussed in Chapter 23. As noted there, the net international investment position of a country at the end of a specific period reflects not only financial flows, which are given by the right-hand side of equation (8), but also valuation changes and other adjustments during the period, all of which affect the current value of a country’s total (private and official) claims on nonresidents and its total liabilities to nonresidents. (Valuation and other adjustments are omitted as the primary focus of this discussion of the balance of payments is on links between stocks of claims and liabilities vis-à-vis nonresidents, changes in these stocks, and the current account.)

    563. There is another connection between the financial account and the current account. Financial flows generate changes in foreign claims and liabilities. In nearly all cases, these financial stocks earn a rate of return (interest, dividends, or profits) that appears in the current account as investment income. This link between the accounts is particularly relevant in the case of a country running a current account deficit because there is an important dynamic relationship between an existing deficit and the future current account position. A deficit in the current account must be financed by some combination of an increase in liabilities to nonresidents and a reduction in claims on nonresidents so that the net result is a decline in net foreign assets. As a consequence, there will be a reduction in net investment income (unless rates of return adjust in an offsetting manner), and this reduction will increase the current account deficit. This interaction between the current account and the financial account can lead to a destabilizing situation in which the current account position progressively worsens unless changes in economic policies or adjustments in certain variables (e.g., exchange rates) are made to arrest the deterioration.

    564. In analyzing the balance of payments and, in particular, the sustainability of any specific current account situation, it is important to consider the determinants of financial flows. These relate mainly to factors affecting the rate of return and risk on foreign and domestic assets. Such factors include interest rates, the profitability of direct and other investments, expected changes in exchange rates, and tax considerations. These factors are embodied in the expected real (i.e., adjusted for exchange rates and inflation) after-tax rate of return on the stock of foreign assets held by residents and on the stock of claims held by nonresidents. Residents and nonresidents are subject to different legal and tax considerations, which affect the rates of return on asset holdings. However, both are similarly affected by economic conditions external to the countries in which they are resident. Moreover, these external conditions are exogenous to an individual country. Therefore (for the purposes of this discussion), it seems reasonable to assume that these conditions are constant and to focus on the domestic economic situation affecting rates of return on investments in the relevant country.

    565. In addition, domestic and nonresident investors appear to be influenced largely by the same set of factors affecting rates of return on domestic investments. In other words, irrespective of whether the investor’s residence is in the home country or abroad, the decision of whether to invest in the home country or another country will be influenced—for the most part—by the same set of considerations relating to expected returns on domestic assets. Changes (such as interest rates, rate of profit, inflation, and the exchange rate) in domestic variables are therefore likely to have similar effects on residents deciding to invest at home or abroad and on nonresidents choosing to invest in their home countries rather than in other, worldwide investment opportunities. Consequently, when one views the net financial account, one may plausibly assume that the stock of claims on nonresidents and the stock of liabilities to nonresidents are influenced by the same array of considerations.19

    566. On the basis of this background, it is possible to examine a key aspect of balance of payments analysis (namely, the financing of a current account deficit by means of net financial inflows and reserve assets) and some of the economic policy issues involved.20 For such an analysis, it would be helpful to use equation (7), the balance of payments identity, and to assume that initially S = I (i.e., that the current account is zero and that net capital and financial account and reserve asset account transactions are also zero). From this initial situation, it is instructive to trace the effects, on the current account and the financial account, of an autonomous increase, which is generated by a rise in the productivity of capital, in domestic investment. If this additional investment is not matched by a corresponding rise in domestic saving, interest rates will tend to rise as long as the monetary authorities do not peg the rates. The excess of investment over domestic saving will be reflected in a current account deficit, which may be financed by a net financial inflow induced by the rise (in comparison to interest rates abroad) in domestic interest rates.

    567. Whether there is spontaneous financial account financing of a current account deficit depends on a number of considerations. First, the financial inflow may be directly related to increased domestic capital spending in the form of foreign direct investment, loans obtained from foreign banks, or bonds issued in international capital markets. The foreign financing can be for the purchase of foreign goods and services required for an investment project and for the purchase of domestic inputs. Alternatively, additional investment may be financed domestically by means of bank loans or issues of equities and bonds. In this case, there is no direct link between increased domestic expenditures and foreign financing. However, the tendency for domestic interest rates to rise (in comparison with rates abroad) because of the increased investment will provide an incentive for funds to flow into the country. Whether or not funds do so depends largely on how investors view the economic prospects of the country. The prevalence of stable economic and political conditions—particularly if it is not likely that the higher interest rate will be offset by a continuing depreciation of the exchange rate of the country—will increase the spontaneous movement of funds into the country.

    568. The financial inflow associated with the excess of investment over saving involves a reduction in the net foreign asset position of the country and the reduction, in turn, will change the net investment income flow of the country. The key analytical issue is whether the country will be able to service the change in the net foreign investment position without undertaking significant modifications in economic policies or without incurring undesirable changes in interest rates or exchange rates. Servicing is likely to occur without changes if the investment makes a significant contribution to the productivity of the economy. Such a contribution can be manifested in two ways: first, the firm or government enterprise undertaking the investment must be sufficiently profitable to pay the rate of return that will attract the funds to finance the investment; second, the additional investment must enhance the debt-servicing capacity of the economy. As long as funds imported from abroad are invested productively in the domestic economy, external financing for a current account deficit is likely to be forthcoming for a considerable period of time. In this situation, the capital-importing country’s current account deficit manifests an efficient allocation of resources.

    569. Alternatively, it is useful to consider a case in which investment is unchanged but domestic saving declines—either because of an increase in government spending not matched by a rise in tax and other revenue or because of an increase in private consumption not matched by an offsetting change in government saving. In this situation, domestic interest rates would also tend to rise. However, unlike the previous case, the shift to a current account deficit is not paralleled by an increase in productivity in the economy. Under these conditions, there may not be a spontaneous inflow of funds if investors view the deterioration in the current account as reflecting inappropriate and unsustainable government policies. For example, the decline in domestic saving may reflect an enlarged public sector deficit that is not associated with increased investment. Alternatively, the rise in absorption may be due to higher private spending generated by an expansionary monetary policy. Under these circumstances, investors may not wish to increase their net claims on the country.

    570. In the absence of a spontaneous financial inflow, some combination of the following will be necessary: policy actions to attract private funds, the use of reserve assets for balance of payments financing, and/or the implementation of balance of payments adjustment measures. From the balance of payments identity (equation (7), it can be seen that, if the current account shifts into deficit, financing must take place either by drawing down the country’s international reserve assets or by increasing incentives for attracting private funds. The latter can be achieved by enhancing the domestic economic environment for long-term investment. The adoption of monetary and fiscal policies that support stable economic conditions and encourage direct and other investment would tend to induce financial inflows on a sustained basis. Funds may also be induced to flow in from abroad—and to provide balance of payments financing—by the raising of domestic interest rates. Such a policy may well be appropriate if the current account deficit is caused by aggregate demand pressures; a restrictive monetary policy would have the effect of dampening excess demand and providing short-term financing. However, such financing may not be dependable from a long-term perspective as, for example, changes in foreign monetary conditions may make investment of liquid assets in the domestic economy appear unattractive. Therefore, it is necessary to look at the underlying causes of a current account deficit requiring fundamental balance of payments adjustment to such an extent that the deficit cannot be financed by financial inflows on a sustained basis.

    571. The appropriateness of using reserve assets to finance a gap between domestic expenditure and income, rather than undertaking adjustment measures to reduce or eliminate this gap, depends on the extent to which the gap is temporary or reversible. As a country’s stock of owned reserve assets (as well as the resources it can borrow to supplement its reserve assets) are limited, the use of reserve assets to finance a current account deficit is confined within these limits. However, by mitigating the necessity for balance of payments adjustment, official financing can perform a useful buffer function. For example, temporary shocks, such as poor harvests or other temporary supply disruptions, to domestic output do not necessarily require comparable changes in the domestic absorption of goods and services. Thus the financing, through the use of reserve assets, of a temporary excess of consumption and investment over national income can provide a desirable smoothing of the path of expenditures by residents. The reserve assets can also be used to finance seasonal swings in foreign payments and receipts. While the financing of temporary shocks is appropriate, recourse—although it can make the adjustment path smoother and more gradual—to owned or borrowed reserve assets does not obviate the necessity for adjustment if deterioration in the current account persists.

    572. There are limits on the extent to which private funds and official resources can finance a current account deficit. The willingness of the private sector to invest in the country may be directly influenced by ongoing changes in reserve assets. If the existing stock of reserve assets is relatively low in comparison with the current account deficit and the monetary authorities are expected to exhaust the country’s reserve assets within the investment horizon of the investors, then the probability of a depreciation of the exchange rate or the introduction of other policy measures adversely affecting the rate of return expected by investors would tend to increase significantly. Under these circumstances, any private funds from abroad that are financing all or part of a current account deficit could quickly switch from a net inflow to a net outflow. As can be seen from equation (8), unless adjustment measures are implemented to reverse both the current account deficit and the financial account outflow, reserve assets would be required to finance both an excess of domestic investment over saving and a net increase in claims on nonresidents. Such a situation would probably result in a loss of confidence in the currency, exacerbation of the financial outflow, and a rapid exhaustion of reserve assets.

    Balance of Payments Adjustment

    573. There are many situations in which it may not be feasible to rely on private and official resources to finance a current account deficit on a sustained basis. For balance of payments analysis, it is therefore important to consider the possible introduction of adjustment measures to achieve a viable external payments position (i.e., conditions under which a deficit on goods and services can be financed by private and official transfers, private capital inflows, and some recourse to reserve assets). The subsequent discussion examines briefly the roles of exchange rate changes, fiscal measures, and monetary policy in achieving balance of payments adjustment.

    574. In this analysis, it is useful to rewrite equation (8) as:

    (9) S-I = CAB = TB + SKB + TRANB = NKA + RT

    when

    TB= trade balance
    SIB= service and income balance
    TRANB= current transfer balance

    The magnitude of the necessary adjustment in the balance of payments depends, to some extent, on the nature of the components of the current account balance. For example, a country may have been running a persistent trade deficit that was financed, in part, by borrowing from private and official sources. In this situation, the country is also likely to be running a deficit on the service and income balance that reflects the servicing of this debt. Part of the deficit arising from trade, service, and income transactions may, however, be offset by a surplus from current transfers, which could reflect both official and private transfers. If such inward transfers are expected to be of a long-term nature and can confidently be relied upon to finance all or part of the deficit in other components of the current account, then the extent of the necessary balance of payments adjustment may be rather small.

    575. However, even in the case of a small adjustment, it is nonetheless important to be fully cognizant of the fact that foreign debts must be paid in the future. Thus the amortization schedule of the country is an important factor for judging the sustainability of a particular balance of payments position. If large amortization payments are due in the near future and expected financial inflows are not sufficient to cover payments falling due, it may be necessary to undertake adjustment measures beforehand to avoid more drastic measures required for dealing with a subsequent balance of payments crisis.

    576. In the face of an unsustainable current account deficit, one adjustment measure that should be considered is a depreciation of the exchange rate of the domestic currency. Such a depreciation may be necessary to offset a domestic price rise (relative to prices abroad) that—by penalizing exports and encouraging imports—worsens the trade balance. To the extent that the depreciation raises the prices of traded goods (i.e., exports and imports) in comparison with the prices of non-traded goods and services, depreciation will promote the substitution of domestic products for imported goods and stimulate foreign demand for domestic output. However, as the depreciation will be accompanied by a rise in domestic prices in response to the increase in the cost of imported goods and services and the rise in demand for exports and domestically produced import substitutes, the improvement in international competitiveness generated by the exchange rate change will be partially or fully eroded. Such a development underscores the importance of supplementing the exchange rate adjustment with restrictive monetary and fiscal policies to facilitate the shift in resources signaled by the change (caused by the depreciation) in relative prices. Thus, an expenditure-switching policy in the form of exchange rate depreciation must generally be supported by expenditure-reducing measures; indeed, such measures are essential if there is no excess capacity in the economy.

    577. The need for such action can be seen from equation (9), which shows that any improvement in the current account must be matched by a corresponding positive change in the difference between domestic saving and investment. An exchange rate depreciation by itself may generate such a change in the desired direction. In particular, if there is no change in the stance of monetary policy, the increase in demand generated by the depreciation will raise the demand for money. With an unchanged money supply, the greater demand for money will tend to increase nominal and real domestic interest rates. As a result, interest-sensitive expenditures will be dampened, and there could be a positive impact on domestic saving. However, it is unlikely that this induced effect on the gap between savings and investment will itself be sufficient, particularly if the economy is at full employment, to achieve the desired improvement in the current account. Therefore, in all likelihood, it will be necessary to accompany the adjustment in the exchange rate with measures to reduce the level of domestic expenditure through tighter monetary and fiscal policies that release resources to expand output in the exporting and import-substitution industries.

    578. The discussion of equation (6) pointed to fiscal deficits as one potential cause of external imbalances. Changes in government spending and taxation may therefore be mandated to achieve the required reduction in the saving/investment gap—to the extent that an exchange rate depreciation does not induce a sufficient response in the difference between total domestic saving and investment. However, it is important that fiscal policy measures be designed to achieve the desired objective and not exacerbate the adjustment problem. For example, cuts in infrastructure investment may have the desired short-run balance of payments effect, but such cuts could have, particularly if the spending reductions are in such areas as transportation, a long-run adverse impact on the supply potential of the country and the generation and supply of energy designed to relieve bottlenecks. Moreover, tax measures that result in very high marginal tax rates or that are aimed particularly at capital income could have the undesired side effect of inducing offsetting reductions in private saving and reducing incentives to invest in the country. Such disincentive effects can be avoided by implementing fiscal action aimed at reducing or eliminating subsidies to inefficient government enterprises and the private sector and by cutting back on government activity that can be performed equally well, if not better, by the private sector.

    579. The stance of monetary policy plays an important role in balance of payments adjustment. The existing external imbalance may reflect an excess of domestic-investment over saving (or what is the same thing—an excess of domestic spending over income) that results from an excessively expansionary monetary policy. It is, first of all, important to adjust the stance of monetary policy so that interest rates are generally positive in real terms and provide an incentive to savers and so that domestic economic conditions are sufficiently stable to encourage investment. From the perspective of aggregate supply and demand, it can be seen from equation (4) that monetary policy should ensure that the level of domestic expenditure is in line with the productive capacity of the economy. Thus, from the point of view of balance of payments analysis, the objective of monetary and fiscal policies is to limit domestic spending to what is available from domestic resources and foreign financing.

    580. One important aspect of monetary policy in balance of payments adjustment is the link between reserve asset transactions and domestic monetary conditions. A decline in reserve assets may be associated with a current account deficit and/or a net financial outflow caused by an expansionary monetary policy. The reserve asset decline can lead to a reduction in the monetary base and therefore to a tightening in the stance of monetary policy. A more restrictive monetary policy tends to correct the payments imbalance through higher interest rates that dampen domestic demand and make domestic assets more attractive to investors. However, this built-in adjustment mechanism can be short-circuited if the monetary authorities offset the effect of the loss of reserve assets on the monetary base by increasing the domestic component of the base (e.g., through open market purchases of securities held by the banking system). Such offsetting action tends to prevent domestic interest rates from rising and thereby contributes to the persistence of the balance of payments deficit.

    581. The foregoing discussion focuses entirely on an economy that faces an actual or incipient balance of payments problem in the form of a persistent current account deficit or financial outflow that may also be accompanied by a loss of reserve assets. This concentration on external deficits reflects the more prevalent tendency for domestic expenditure to exceed available income and the frequent necessity of formulating policies to deal with the financing or adjustment of a balance of payments deficit.21 The opposite situation (namely, a persistent current account surplus, inflow of capital, and substantial accumulation of reserve assets) occurs less often and generally does not pose as severe a problem for economic policy.

    582. Nonetheless, an analysis of some aspects of a surplus balance of payments situation is useful. As can be seen from equation (7), the balance of payments identity, a surplus in the current account is reflected in an increase in net claims held by the private sector or government (NKA) on nonresidents and/or an increase in official reserve assets (RT). The change in the net foreign asset position may be due to a reduction in liabilities to nonresidents rather than to an increase in gross claims. Such a reduction may well be a desirable development if a previous large buildup of liabilities has imposed a severe debt service burden on the country. In this case, a current account surplus can be an appropriate step toward achieving a viable balance of payments position.

    583. The case of an economy with no recent deficits of payments and an increase in its gross private claims on the rest of the world reflects an excess of aggregate domestic saving over domestic investment. If the government’s fiscal position is in deficit, private sector saving will exceed domestic investment. The allocation of part of domestic saving to foreign assets presumably reflects the fact that investors find the rate of return on these assets more attractive, at the margin, than investment opportunities in the domestic economy. The provision of resources to the rest of the world in the form of a buildup of net claims on nonresidents will, by and large, result in an efficient allocation of the domestic economy’s saving as long as the buildup of net claims reflects the operation of market forces rather than government policies designed directly or indirectly to increase such claims.

    584. Thus, for analyzing the balance of payments of a country in persistent surplus, one key consideration is whether government policies distort saving/investment decisions and thereby bias the payments position of an economy toward a surplus. Such distortions can take many forms. First, there are measures aimed directly at influencing the current account. Examples are tariffs and quotas that limit imports, restrictions on payments abroad, and export subsidies and government procurement policies that give preference to domestic producers. Moreover, an exchange market intervention policy may be directed at deliberately undervaluing the country’s currency to achieve a current account surplus. Finally, there may be measures that limit foreign acquisition of domestic assets—a limitation that would tend to bias the financial account toward a net outflow and thereby shift the current account in the direction of a surplus.

    585. These measures may, in fact, not be successful in achieving a larger current account surplus. Policy actions aimed at particular components of the balance of payments will, over time, lead to offsetting movements in other components in the absence of changes in the underlying determinants of saving and investment. In any event, if a large and persistent current account surplus appears to arise from such distortionary measures, the appropriate policy action is the reduction and eventual removal of these distortions. If a persistent surplus remains after such measures are eliminated, then the accumulation of net claims on the rest of the world would appear to manifest the saving and investment propensities of the economy. If, in this case, one were to identify the surplus as a problem, it would generally be necessary to establish that private saving or government saving was excessively high or that domestic investment was too low. It is considerably more difficult to arrive at such a conclusion than to identify the previously enumerated distortions that relate directly to international transactions.

    586. A current account surplus, while reflecting entirely a response to market forces, may cause economic difficulties for a country. For example, a country with “Dutch disease” experiences either a natural resource discovery or a substantial improvement in the terms of trade for the natural resources sector. The expanding sector or terms of trade gains lead to an improvement in the current account and an appreciation of the exchange rate. This development tends to make other sectors of the economy contract and be less competitive internationally. If the newly discovered resources are expected to be depleted fairly rapidly and the gains in terms of trade to be transitory, it may be appropriate to protect the sectors adversely affected. One way to achieve this objective is through exchange market intervention to prevent or moderate the exchange rate appreciation. The accumulation of reserve assets tends to insulate the real economy from having to adjust to the short-run disturbance.

    587. The general conclusion of such an analysis is that, when no government policy actions are aimed at achieving a surplus balance of payments position, it may be difficult to establish that an economy is investing too much of its saving abroad. However, it may be somewhat easier to reach a conclusion with respect to reserve assets. Rather than leading to a rise in net foreign assets held by the private sector, a current account surplus can be reflected in a buildup of foreign reserve assets. A buildup represents specific government policy action in the form of foreign exchange market intervention. Intervention, which involves the sale of domestic currency in exchange for foreign currency, has the tendency to keep the foreign exchange value of the domestic currency lower than it otherwise would be. The accumulation of reserve assets may therefore limit the extent to which the currency appreciates and thereby prevent the operation of the self-correcting mechanism that would tend to reduce the current account surplus.

    588. Thus, one aspect of balance of payments analysis for a country with a persistent current account surplus involves an appraisal of the level of external reserve assets held by monetary authorities. The accumulation of such assets is excessive if the assets exceed, by a wide margin, the amount required to finance short-run balance of payments deficits. In such a situation, the country’s resources may well be better invested in domestic capital formation. If the private and government sectors are unlikely to increase domestic capital formation, cessation of reserve asset accumulation would lead to an increase in domestic absorption and/or to a rise in net foreign investment by domestic residents.22 In either case, allocation of the economy’s resources would tend to be more efficient as the allocation would be responding to market forces.

    Index

    Numbers refer to paragraphs; ranges (e.g., 175–185) are inclusive. References followed by n indicate footnotes.

    • Above-the-line entries, 452, 526, 566n

    • Absorption or expenditure, domestic, 552, 553

    • Accounting

      • accrual, 121, 396, 458

      • for exceptional financing, 454-59, 526-549

    • Accounting services, 264

    • Accounts receivable and payable, 413, 422

    • Accrual accounting, 121, 396, 458

    • Accumulation accounts, 45, 47

    • Acquisition or disposal of nonproduced, nonfinancial assets, 175, 312, 358

      • valuation and timing, 341, 342

    • Adjustment(s), 383, 573-588. See also Time of recording

      • monetary policy in, 579, 580

      • in reserve assets, 436

      • seasonal, 433

    • ADRs. See American Depositary Receipts

    • Advance repayment, 454, 544

    • Advertising services, 264

    • Affiliated enterprise(s), 93, 97-103, 119, 205, 316

    • Agents, 83

      • commissions, 255

      • fees, 228, 240

    • Agricultural services, 264

    • Aid, development, 432

    • Aid agencies, 59

    • Aircraft, 208, 217, 263

    • Airfield facilities, repairs of, 230

    • Airport fees, 300

    • Airport services, 240

    • Alimony, 303

    • Allocation. See Regional allocation

    • American Depositary Receipts (ADRs), 388

    • Amortization, 458, 528, 575

      • cash settlements of, 530

    • Analysis, 550-588

      • general framework, 551-559

    • Animals for breeding, show, or racing, 209

    • Annual or regular contributions to international organizations, 298

    • Arbitrage, 323

    • Architectural services, 264

    • Arrears. See also Exceptional financing

      • accumulation of, 453, 528-529

      • of interest and amortization, 458, 528

      • repayment of, 453, 530-531

    • Art exhibits, 209

    • Asset-backed securities, 390

    • Assets, 331, 413, 422. See also

      • Acquisition or disposal of nonproduced, nonfinancial assets; Financial assets;

      • International investment position; Reserve assets

        • classification of, 464

        • committed, 433

        • external, 505

        • immovable, 316

        • intangible, 358

        • net recording of, 324

        • nonfinancial, 214

        • not considered reserves, 432

      • other than reserves, 32

      • stocks of, 35

        • regional allocation principles, 484

        • valuation of, 107-108

      • subsoil, 312, 358

      • transactions in, 317-320

        • borderline cases, 322-323

      • valuation changes in, 310

    • Associates, 362, 384

    • Auction sales, 262

    • Audiovisual services, 265

    • Auxiliary services, 240

    • Bad debts, 285. See also Write-offs

    • Baggage fees, 232

    • Balance of payments, 139-181, 292. See also specific accounts

      • conceptual framework, 12-33

      • definition of, 13

      • SNA rest of the world account and, 499-511

      • standard components, 143-145

      • structure, 139-142

      • uses of, 7-10

    • Balance of Payments Compilation Guide, 2, 481n

    • Balance of payments identity, 557, 566

    • Balance of payments need, 451-453

      • borrowing for, 544

    • Balance sheets, 45, 54, 55, 377, 467, 561

    • Balancing item (label), 147

    • Bank deposits, 442

    • Bankers acceptances, 258, 391

    • Banking sector, 516

    • Banknotes, uncirculated, 420

    • Banks, 333, 372, 516

      • central, 442, 514

        • regional, 90

      • commercial, 516

      • savings, 516

    • Barter, 93

    • Below-the-line entries, 452, 454, 526, 566n

    • Bilateral statements, 479

    • Black market rates, 137-138

    • BMD. See OECD Detailed Benchmark Definition of Foreign Direct Investment

    • Bonds, 387, 389, 390, 442, 544. See also Debt securities

      • convertible, 390, 390n

      • deep discounted, 283, 390, 396

      • dual currency, 390

      • floating rate, 390

      • indexed, 390

      • with optional maturity dates, 390

      • zero coupon, 390, 396

    • Bond swaps. See Debt/bond swaps

    • Bonus shares, 290

    • Book values, 99, 377, 467

    • Border workers, 67

    • Borrowing, 453

      • for balance of payments support, 544

    • Branches (direct investment), 362, 384

    • Brokerage fees, 258

    • Buffer stock, 441

    • Buildings. See Structures

    • Building societies, 516

    • Bunker fuel. See Fuels

    • Business services, 264

      • other, 166, 212, 230, 254, 261, 267

    • Business travel, 246-248

    • Business travelers, 246

    • CAB. See Current account balance

    • Cable services. See Communications services

    • Call option, 401

    • Cancellation of debt. See Debt forgiveness

    • Capital

      • direct investment, 368-374

      • equity, 369

    • Capital account, 4, 50, 172, 311-312, 507

      • components, 175

      • coverage, 309, 343

      • SNA, 47, 50, 510

    • Capital and financial account, 4, 50, 149, 150, 172-181, 343

      • coverage, 308-310

      • and financing, 560-572

      • structure and characteristics, 308-342

      • valuation and timing, 341-342

    • Capital gains and losses. See Holdings

    • Capital subscriptions to international organizations, 422

    • Capital transfers, 28, 175, 294, 311, 344-345

      • characteristics, 295

      • classification, 311, 345, 346-357

      • distinction between current transfers and, 295-297, 344

      • general government, 347-350

      • net, 50

      • other sectors, 351-357

      • taxes on, 350, 357

      • valuation, 341

    • Cargo handling, 240

    • Carriers. See also Mobile equipment; Transportation equipment

      • crews, 246

      • goods procured in ports by, 156, 195, 230

      • registration fees, 300

      • rentals (charters) of carriers without crew, 230

    • Cash items, 106

    • Cash settlements of interest and amortization, 530

    • Cash transfers, 297, 298

    • Catastrophes, 285

    • Center(s) of economic interest, 21-22, 39, 58, 62-64

      • guidelines, 63

      • international, 71

    • Central bank currency swaps, 405, 434

    • Central banks, 442, 514

      • regional, 90

    • Central Product Classification (CPC), 518

      • differences between balance of payments classification and, 508, 524

      • objectives, 521

      • scope, 522

      • structure and coding system, 523

    • Certificates of deposit, 390

      • negotiable, 391

      • short-term, 516

    • Change(s) of ownership, 112, 113, 114-118, 126, 203-210, 216, 316, 317. See also Time of recording

      • convention for recording, 204

      • exceptions, 119-120, 205-207

      • temporary, 207, 208

    • Charters. See also Leases; Rentals

      • time, 239

      • of transportation equipment without crew, 230, 263

    • c.i.f. valuation. See Valuation

    • Circus equipment, 209

    • Civil servants, 70

    • Claims, 372, 424, 442. See also Financial account

      • availability for use, 431

      • direct investment, 371

      • intercompany, 270

      • for non-life insurance, 304

      • reclassification of, 32

      • tradable, 483

    • Classification, 43-44, 506-511. See also Reclassification; specific items

      • detailed, 151

      • differences between CPC and, 524-525

      • of income, 269-281

      • of international investment position, 464-466

      • of international transactions in services, 518-520

      • major, 149-150

    • CMOs. See Collateralized mortgage obligations

    • Coin(s), 214, 215, 420

      • commemorative, 420

    • Collateralized mortgage obligations (CMOs), 390

    • Commemorative coins, 420

    • Commercial banks, 516

    • Commercial paper, 391

    • Commissions, 240, 255, 258, 262

    • Commitment charges, 258, 281

    • Commodities, 262, 392

    • Commodity gold, 157, 184, 195, 208, 215

      • classification, 438

      • definition, 202

    • Common stocks, 388. See also Securities; Shares

    • Communications services, 160, 253

    • Compensation of employees, 5, 169, 190, 191, 270

      • classification, 272

      • coverage, 509

      • definition, 269

    • Compensation payments, 350, 357

    • Compensatory financing, 441. See also Exceptional financing

    • Compilation guide, balance of payments, 2

    • Computer and information services, 164, 200, 212, 259

    • Confidentiality, 442

    • Consignment. See Goods

    • Construction enterprises, 380

    • Construction services, 161, 200, 230, 254

    • Consular fees, 229

    • Consulates, 59

    • Contingency financing, 441

    • Contracts. See also Futures contracts; Transaction(s)

      • transferable, 358. See also Leases

    • Contributions. See also Transfers

      • to international organizations, 298, 303

      • to social security, 304

    • Conversion, 128. See also Exchange rate(s)

      • multiple official exchange rates and, 134-136

      • principles and practices, 132-133

      • procedures, 42, 503-505

    • Conversion rate, 503

    • Copyrights, 312, 358

    • Corporate bonds. See Bonds

    • Corporate equity. See Equity

    • Corporation(s)

      • definition of, 74

      • nonfinancial, 517

      • public, 77

        • incorporated, 76

    • Correspondence courses, 244

    • Counterparts, 3, 304, 436

    • Courier services, 253

    • Coverage, 195

    • CPC. See Central Product Classification

    • Credit(s), 16, 19. See also Accounting; Loans

      • from IMF, 413, 415, 419

      • letters, 258

      • lines, 258

      • trade, 413, 414, 416

    • Credit tranches, 441

    • Credit unions or cooperatives, 516

    • Crews

      • of carriers, 246

      • rentals of transportation equipment with, 239

      • of transportation equipment, 67

    • Cross-border investment in equity and debt securities, 330

    • Cross-currency warrant, 404

    • CTB. See Current transfer balance

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

    • Currency, 413, 420, 442. See also Conversion

      • domestic

        • exchange rate depreciation, 576

        • sale of, for foreign currency, 587

      • reserve assets, 442

    • Currency swaps, 392, 405, 434, 470

    • Currency warrant, 404

    • Current account, 50, 149, 150, 152-171, 182-194

      • classification, 174, 183-191

      • connections between financial account and, 562-563

      • gross recording, 192-193

      • SNA, 45, 46

      • structure, 183

      • time of recording, 121, 194

      • valuation, 106, 194

    • Current account balance (CAB), 53, 182, 551, 552-555, 557, 558, 559, 574

    • Current account deficit, 553, 558, 563, 569

      • adjustment for, 573-588

      • financing, 566-568, 570-572, 588

    • Current account surplus, 558, 581, 582-585, 586, 587, 588

      • policy aimed to achieve, 584-585

      • reduction of, 587

    • Current transfer balance (CTB), 574

    • Current transfers, 28, 152, 171, 191

      • classification, 298-305, 345

      • definition and coverage, 291-294

      • distinction between capital transfers and, 295-297, 344

      • external account, 507, 509

      • valuation and timing, 306-307

    • Customs frontiers, 203, 219, 222, 224

    • Customs returns, 203, 215

    • Damages, 350

    • Data, uses of, 7-10

    • Death duties, 350, 357

    • Debentures, 389, 390. See also Debt securities

    • Debit(s), 16, 19. See also Accounting

    • Debt. See also Loans

      • external, 474

      • forgiven, 534

      • gross external, 474n

      • income on, 279, 280

      • negotiable, 389

    • Debt/bond swaps, 536-538

    • Debt cancellation. See Debt forgiveness

    • Debt/equity swaps, 453, 456, 472, 539-543

      • valuation of, 543

    • Debt forgiveness, 348, 356, 453, 455, 532-534

    • Debtor/creditor principle, 482, 486n

      • analytical implications, 493-494

    • Debtor/transactor principle, 485, 485n

    • Debt refinancing, 457, 547

    • Debt reorganization, 453, 454, 456

    • Debt repayment, 316

    • Debt rescheduling, 453, 457, 545, 547

    • Debt restructuring, 546

    • Debt securities, 332, 387, 389, 394. See also Bonds

      • cross-border investment in, 330

    • Deep discounted bonds, 283, 390, 396

    • Deficit. See also Current account deficit

      • external, 581

    • Demonetization of gold, 3, 310, 436, 439

    • Depletion of natural resources, 285

    • Depository institutions, 372, 516

    • Deposits, 372, 413, 420, 421, 423, 516. See also Certificates of deposit

      • bank, 442

      • reciprocal, 434

      • reserve assets, 442

      • savings, 421

      • temporary exchange of, 434

      • time, 421

      • transferable, 421

      • Depreciation, 576

      • calculation of, 286

    • Destroyed goods, 208, 209

    • Development aid, 432

    • Diamonds, 215

    • Diplomatic shipments, 209

    • Diplomats, 70

    • Direct insurance, 255. See also Insurance services

    • Direct investment, 32, 176, 177, 330, 339, 359-384

      • capital, 368-374

      • classification, 329, 330, 465

      • concept and characteristics, 359-361

      • enterprises, 362-366, 378-383

      • income, 170, 276-279

      • measurement and recording of earnings, 285-289

      • net recording, 375

      • profitability of, 564

      • recording, 326

      • reinvested earnings, 31, 277, 278, 284, 288, 321, 369

      • supplementary information, 384

      • transactions involving third parties, 490

      • valuation of, 376-377, 467

    • Direct investors, 367, 384

    • Direct transit trade, 209

    • Discounts, 274, 283, 391, 396, 400

    • Display equipment, 209

    • Distributive services, 221, 222, 227. See also Shipping services

    • Diversification, 588n

    • Dividends, 274, 277. See also Bonus shares; Investment income

      • liquidating, 290

      • stock, 290

      • time of recording of, 282, 284

    • Doctors’ fees, 244

    • Domestic absorption or expenditure, 552, 553

    • Domestic currency

      • exchange rate depreciation, 576

      • sale of, 587

    • Domestic saving. See Gross saving

    • Domestic sector, 333-335

    • Domestic securities, 485, 487

    • Double entry system, 16-20, 109, 113, 557

    • Dowries, 303

    • Dual currency bonds, 390

    • “Dutch disease,” 586, 588n

    • Duties. See Customs returns; Death duties

    • Earnings. See also Income; Investment income

      • measurement and recording of direct investment, 285-289

      • operational, 285

      • reinvested, 31, 277, 278, 321, 369

        • recording of, 288

        • time of recording of, 284

    • Economic interest, center(s) of. See Center(s) of economic interest

    • Economic territory, 21-22, 39, 58, 59-61

    • Economic transactions. See Transactions

    • ECUs, 442, 442n

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

    • Electricity, 215

    • Embassies, 59

    • Employees, 67, 269. See also Compensation of employees; Personnel

      • government, 70, 215, 243, 246, 248

      • of international organizations, 67, 88, 246, 248

    • Engineering services, 264

    • Enterprise(s)

      • affiliated, 93, 97-103, 119, 205, 316

      • attribution of production, 78-79

      • definition of, 74

      • direct investment, 362-366

      • government, 77

      • incorporated, 76

      • offshore, 79

      • operating mobile equipment, 80-82

      • owned by two or more governments, 89

      • private, 76

      • public, 76, 362

      • residence of, 73-83, 231

        • guideline for, 73

      • types of, 75-77

      • unincorporated, 76, 316

    • Enterprise surveys, 384

    • Equipment, 214, 349

      • display, 209

      • military, 349

        • gifts of, 298

      • mobile, 208, 209. See also Transportation equipment

        • units operating, 80-82

      • stage and circus, 209

    • Equity

      • cross-border investment in, 330

      • income on, 274, 277, 280

      • reverse investment in, 371

    • Equity capital, 369

    • Equity securities, 387, 388, 394, 442

    • Errors. See Net errors and omissions

    • Eurocommercial paper, 399

    • Exceptional financing, 446, 451-53

      • accounting for, 454-459, 526-549

      • identification of, 453

    • Exchange rate(s), 132, 133, 559. See also Conversion

      • appreciation, 586

      • black or parallel market, 137-138

      • changes, 466

      • depreciation, 576, 577, 578

      • expected changes in, 564

      • favorable, 543n

      • floating, 559

      • market, 132, 133

      • multiple, 131

      • multiple official, 134-136, 138, 504

      • official, 137, 138

      • principal, 135

      • unitary, 135

    • Exchanges, 27

    • Excursionists, 243

    • Exhibits, 209

    • Expenditure(s)

      • domestic, 552, 553

      • shipboard, 232

    • Exports

      • of general merchandise, 199

      • of goods, 114, 508

        • exclusions, 209-210

        • inclusions, 208

      • government, 215

      • returned, 209

      • of services, 508

      • temporary, 209

    • Expropriation, 285, 310

    • Extended Fund facility, 441

    • External assets, stocks of, 505

      • conversion of, 133, 136

    • External debt

      • gross, 474n

      • relation of international investment position to, 474

    • External deficits, 581

    • External financing for current account deficit, 568

    • External liabilities, stocks of, 505

      • conversion of, 133, 136

    • External transactions account, 507, 509

    • Extraordinary income, 285

    • Fares, passenger, 232

    • f.a.s. valuation, 225

    • Fees, 300. See also specific types

    • Financial account, 268, 313-339, 507. See also Capital and financial account

      • borderline cases, 322-323

      • classification of components, 6, 174, 176-181, 308, 328-329

      • connections between current account and, 562-563

      • coverage, 309, 313-316, 446

      • net recording, 527

      • SNA, 47, 50, 52, 511

      • supplementary information, 446-460

      • time of recording, 121

    • Financial assets, 149

      • classification of, 316, 511

      • external, 133, 136

      • foreign, 313

    • Financial derivatives, 315, 387, 389, 392, 393, 442

      • valuation of, 469

    • Financial external assets, conversion of stocks of, 133, 136

    • Financial instruments. See specific instruments

    • Financial intermediaries, non-depository, 517

    • Financial intermediation charge indirectly measured, 258n, 508, 509

    • Financial items. See also specific items valuation of, 106

    • Financial leases, 206, 239, 258, 267, 417

      • goods transferred under, 93, 119, 316

    • Financial liabilities, 149

      • conversion of stocks of external, 133, 136

    • Financial paper, 391

    • Financial services, 163, 258

    • Financial transactions, 52, 106, 123

      • analysis of, 556

      • regional allocation principles, 482-483

      • type of instrument, 332

    • Financing. See also Refinancing

      • capital and financial account and, 560-572

      • compensatory, 441. See also Financing, exceptional

      • contingency, 441

      • current account deficit, 566-568, 570-572, 588

      • exceptional, 446, 451-453

        • accounting for, 454-459, 526-549

        • identification of, 453

      • external, 568

      • foreign sources of, 460

      • official resources for, 572

      • private funds for, 572

      • reserve assets for, 571, 572

    • Fines, 300

    • Fiscal policy. See also Monetary policy objective of, 579

    • Fish, 208

    • Fishing licenses, 300

    • Fishing vessels, 209

    • Flags of convenience, ships flying, 81

    • Floating exchange rates, 559

    • Floating rate bonds, 390

    • f.o.b. valuation, 219, 222, 225, 228

    • Foreign currency, sale of domestic currency for, 587

    • Foreign exchange, 258, 330, 442. See also Exchange rate(s)

    • Foreign exchange assets, 180, 424, 442. See also Reserve assets

      • held by monetary authorities, 432, 433

      • liabilities, 313, 340

      • valuation of, 473

    • Foreign exchange holdings, availability for use, 431

    • Foreign exchange market intervention, 587

      • for exchange rate appreciation, 586

    • Foreign general government, 87

    • Foreign sector, 334

    • Foreign securities, 486, 487

    • Foreign sources of financing, 460

    • Forwarding. See Distributive services

    • Forward rate agreements (FRAs), 408

    • Franchises, 312, 358

    • FRAs. See Forward rate agreements

    • Freight insurance, 158, 162, 187, 230, 255, 256

    • Freight services, 187, 233-238. See also Transportation fuels, 201

    • Fuels, 156, 201

    • Fund (IMF). See International Monetary Fund

    • Futures contracts, 392, 407

      • valuation of, 470

    • Gains and losses, holding, 285

    • Gas, 215

    • Gas drilling rigs, 208, 209

    • GDP. See Gross domestic product

    • General government, 85-89, 333, 515

      • foreign, 87

    • General government transfers, 298, 299, 347-350

    • General merchandise, 153, 195, 199, 353. See also Goods

      • definition of, 196

      • exports of, 199

    • General Resources Account (GRA), 441

    • Geographic territory, 21, 59

    • Gifts, 13, 215, 303

      • large, 357

      • of military equipment, 298

      • for relief efforts, 298, 303

    • Gift taxes, 350, 357

    • Global statement, 479, 492

    • GNDY. See Gross national disposable income

    • Gold

      • held as store of value, 184, 202, 438

      • industrial (other), 184, 202

      • monetary, 180, 214, 330, 424, 431

        • classification, 438

        • definition, 438, 438n

        • regional allocation, 489

        • valuation, 444, 473

      • monetization/demonetization of, 3, 310, 436, 439

      • nonmonetary (commodity), 157, 184, 195, 208, 215

        • classification, 438

        • definition, 202

      • reclassification, 439

    • Gold swaps, 434

    • Goods, 127, 152, 153-157, 184, 185, 195-229. See also Change of ownership; specific types

      • classified under other items, 211-214

      • on consignment, 127, 218

      • coverage and principles, 195

      • definitions, 196-202

      • exports, 114, 508

        • exclusions, 209-210

        • inclusions, 208

      • external account of, 507

      • general merchandise, 153, 195, 196, 199, 353

      • imports, 114, 508

        • exclusions, 209–210

        • inclusions, 208

      • lost or destroyed, 208, 209

      • for processing, 120, 154, 195, 196

        • exceptions, 199

      • procured in ports, 156, 195, 201, 230

      • regional allocation principles, 481

      • repairs on, 155, 195, 200

      • salvaged, 208

      • services items, 212-213

      • smuggled, 215

      • special types, 215

      • time of recording adjustments for, 114-118, 204

      • transferred under financial leases, 93, 119, 316

      • travel, 250-251

      • treated as financial items, 214

    • Government(s)

      • employees, 70, 243, 246, 248

      • exports and imports, 215

      • general, 85-89, 298, 299, 333, 347-350, 515

      • payments for salaries, 298

      • personnel, 159, 215, 243

      • policy actions aimed at achieving surplus, 584-585

      • purchases abroad, 208

      • regular transfers by international organizations to, 298

    • Government agencies

      • general, 85

      • unclassified, 86

    • Government-controlled savings banks, 516

    • Government enclaves, 70

    • Government enterprises, 77

      • unincorporated, 77

      • Government securities, 442

    • Government services, 159, 168, 212, 243, 266, 524

    • GRA. See General Resources Account

    • Grants

      • from Fund subsidy accounts, 453, 535

      • intergovernmental, 453, 535

      • investment, 349, 357

    • Gross domestic product (GDP), 48, 53

    • Gross external debt, definition of, 474n

    • Gross national disposable income, 53, 552, 553

    • Gross recording, 271, 325, 511

      • current account, 192-193

    • Gross saving, 53, 566

    • Guide. See Balance of Payments Compilation Guide

    • Harbor fees, 240

    • Harbors, repairs of, 230

    • Haulage, 240. See also Distributive services

    • Health-related transactions. See Personal, cultural, and recreational services; Travel

    • Hedging, 258, 393

    • Highway vehicles. See Mobile equipment

    • Holdings

      • foreign exchange, 431

      • gains and losses, 285

    • Households, 517

      • residence of, 66

    • IBRD obligations. See World Bank obligations

    • Immigration offices, 59

    • Immovable assets, 316

    • Implicit taxes and subsidies. See Multiple official exchange rates

    • Imports

      • of goods, 114, 508

        • exclusions, 209-210

        • inclusions, 208

      • government, 215

      • returned, 209

      • of services, 508

      • temporary, 209

    • Imputed income, 274, 281

    • Imputed transactions, 31

    • Income, 152, 169-170, 190, 267-290. See also Compensation of employees; Earnings

      • coverage, 267-268

      • on debt, 279, 280

      • definition and classification, 269-281

      • direct investment, 170, 276-279

      • distributed, 277

      • dividends, 274, 282, 284, 290

      • on equity, 274, 277, 280

      • external account for, 507, 509

      • extraordinary, 285

      • imputed, 274, 281

      • interest, 282

      • investment, 5, 170, 190, 267, 268, 316

        • classification, 275, 281

        • definition, 274

        • and international investment position, 475-476

        • time of recording, 282-284

        • types of, 274

      • primary, 507, 509

      • property, 274, 509

      • regional allocation principles, 481

      • taxes on, 122

      • workers’, 267

    • Income account, time of recording, 121

    • Indemnity payments, 299

    • Indexed bonds, 390

    • Index-linked securities, 397

    • Individuals

      • residence of, 66-72

      • resident, 67, 69

      • with several international residences, 72

    • Industrial gold, 202

    • Information or immigration offices, 59

    • Information services, 164

    • Infrastructure investment, 578

    • Inheritances, 303

    • Inheritance taxes, 350, 357

    • Institutional units, resident, 58, 65

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

    • Insurance

      • direct, 255

      • freight, 158, 162, 187, 230, 255, 256

      • life, 257

      • non-life, 257

        • premiums and claims for, 304

      • technical reserves, 257, 257n

    • Insurance companies, 517

    • Insurance enterprises, 379

    • Insurance services, 158, 162, 187, 255, 256

      • international, 257

      • memorandum items, 257

    • Intangible assets, 358. See also Acquisition/disposal of nonproduced, nonfinancial assets; Royalties

    • Integrated economic accounts, 45-56

      • algebraic summary, 53

    • Intercompany claims and liabilities, 270

    • Intercompany transactions, 372

    • Interest, 316

      • arrears of, 458, 528

      • cash settlements of, 530

    • Interest charges, on late tax payments, 300

    • Interest income, time of recording, 282

    • Interest rates, 564

    • Interest rate swaps, 392, 405

    • Intergovernmental grants, 453, 535

    • Intermediary service fees, 258

    • International Financial Statistics, 442

    • International investment position, 55, 181, 461-477

      • adjustments, 383

      • classification, 464-466

      • concept and coverage, 461-463

      • conceptual framework, 12-33

      • investment income and, 475-477

      • net, 55, 462, 474, 562

      • rates of return and, 476-477

      • relation to external debt, 474

      • uses of data, 7-10

      • valuation of components, 467-473

    • International Monetary Fund (IMF)

      • credit and loans from, 413, 415, 419

      • grants from subsidy accounts, 453, 535

    • International organization(s), 88

      • contributions to, 298, 303

      • employees or staff, 67, 246

      • nonmonetary, subscriptions to, 422, 432

      • payments for salaries, 298

      • residence, 497

    • International transactions in services classification scope, 518

      • structure and coding system, 519-520

    • Inventories, 214

    • Investment. See also Direct investment; Portfolio investment

      • classification, 332, 412-413, 465

      • coverage, 411

      • cross-border, 330

      • definitions and recording, 414-423

      • domestic sectors, 333

      • in equity and debt securities, 330

      • functional types, 330

      • infrastructure, 578

      • long-term, 336-339

      • other, 176, 179, 274, 330, 411-423

      • profitability of, 564

      • reverse, 371

      • short-term, 336-339

      • types of, 332

    • Investment grants, 349, 357

    • Investment income, 5, 170, 190, 267, 268, 316

      • classification, 275, 281

      • definition, 274

      • and international investment position, 475-76

      • time of recording, 282-284

      • types of, 274

    • Investment trusts, 388

    • Issue price, 283

    • Issues, placements of, 258

    • Joint enterprises, 82

    • Joint military arrangements, 266

    • Labeling. See Processing

    • Labor income. See Compensation of employees

    • Land, 214, 358

      • ownership of, 316

    • Land transactions, 51, 312

      • for noncommercial purposes, 273

    • LCFARs. See Liabilities constituting foreign authorities’ reserves

    • Leases, 312, 358

      • financial, 206, 239, 258, 267, 417

        • goods transferred under, 93, 119, 316

      • nonfinancial, 209

      • operational, 80, 209, 239, 263

      • resident/nonresident, 263

    • Legacies, 357

    • Legal services, 264

    • Letters of credit, 258

    • Liabilities, 372, 413, 423

      • assets and, 331

      • direct investment, 371

      • external, 505

      • financial, 149

      • financial external, 133, 136

      • foreign, 313

      • intercompany, 270

      • other, 413

      • reclassification of, 32

      • stocks of

        • regional allocation principles, 484

        • valuation of, 107-108

    • Liabilities constituting foreign authorities’ reserves (LCFARs), 340, 446, 447n, 447-450

      • classification of, 448

      • identification of, 445, 450

    • License fees, 165, 260, 300

    • Licensing agreements. See Intangible assets; Royalties

    • Life insurance, 257. See also Insurance services reserves, 388

    • Lighterage, 240. See also Distributive services

    • Lines of credit, 258

    • Liquidating dividends, 290

    • Livestock, 215

    • Loading charges, 233

    • Loading services, 225

    • Loan drawings, 123

    • Loan repayments, 123

    • Loans, 413, 415, 423. See also Debt

      • cancellation of, 472

      • classification of, 316

      • direct, long-term, 432

      • forgiveness of, 472

      • from IMF, 413, 415, 419

      • recording, 416

      • rescheduling, 472

      • valuation of, 471

    • Local governments. See General government

    • Locally recruited staff, 67

    • Long-term investment, 336-339

    • Losses, 285

    • Lost or destroyed goods, 208, 209

    • Lotteries, 303

    • Machinery, 349

    • Mail, 160, 253

    • Maintenance, 201, 240

    • Managed floats, 559

    • Management consulting services, 264. See also Business services

    • Marine insurance. See Insurance services

    • Marine products, 208

    • Market exchange rate(s), 132, 133, 137-138, 503

    • Market price, 98, 99, 376, 377, 444, 467n, 501

      • concept, 91

      • definition, 92

      • equivalents, 95-96, 98, 102, 103

      • transactions and, 92

    • Market research services, 264

    • Market transaction, 92

    • Market valuation, 97, 220

    • Maturities, 337, 390, 391, 396

    • Medical patients, 71, 159, 243, 244

    • Membership dues, 298, 303

    • Merchandise. See General merchandise; Goods

    • Merchanting, 213, 262

    • Midpoint spot rate, 503

    • Migrants, 272, 302

      • effects, 215

      • transfers, 352-355

    • Migration, 29-30

    • Military agencies and establishments, 85, 86, 87

      • bases, 59

      • personnel, 70, 159, 243

      • Military equipment, 349

      • gifts of, 298

    • Military shipments, 209

    • Mining, 264, 383

    • Mobile equipment, 80-82, 208, 209. See also Transportation equipment

    • Monetary authorities, 333, 514

      • foreign assets held by, 432, 433

    • Monetary gold, 180, 214, 330, 424, 431

      • classification, 438

      • definition, 438, 438n

      • regional allocation, 489

      • valuation, 444, 473

    • Monetary policy, 579, 580, 584-585

      • objective of, 579

    • Monetization/demonetization of gold, 3, 310, 436, 439

    • Money. See also Currency; Deposits paper and coin, 214, 215, 420

    • Money market funds, 389

    • Money market instruments, 387, 442

    • Money market securities, 391

    • Mortgages, 390, 415

    • Motor vehicles. See Mobile equipment

    • Multilateral settlements, regional allocation, 491-492

    • Multiple exchange rate system, 131

    • Multiple official exchange rates, 134-136, 138, 504

    • Multi-year arrangements, 454

    • Mutual funds, 388

    • National accounts. See System of National Accounts

    • National frontiers, 203

    • National wealth, 55

    • Natural resources

      • depletion of, 285

      • exploration of, 264, 383

    • Navigational aid services, 240

    • Need, balance of payments. See Balance of payments need

    • Net capital transfers, 50

    • Net creditor (label), 474

    • Net debtor (label), 474

    • Net equity in life insurance reserves, 388

    • Net errors and omissions, 146-148

    • Net foreign investment, 53

    • Net international investment position, 55, 462, 474, 562

    • Net lending/net borrowing, 510

    • Net recording, 319-320, 324-327, 375, 511, 527

    • Net worth, 55, 462

    • New financial instruments, 177

    • New money facilities, 548-549

    • Newspapers, 212

    • NIFs. See Note issuance facilities

    • Noncommercial transactions, 104-105

    • Nonfinancial assets, 214

    • Nonfinancial corporations, 517

    • Nonfinancial leases, 209

    • Nonmonetary gold. See Commodity gold

    • Nonmonetary international organization(s), subscriptions to, 422, 432

    • Nonproduced, nonfinancial assets. See Acquisition or disposal of nonproduced, nonfinancial assets

    • Nonprofit institutions (NPIs), 76

      • nonresident, 357

      • private, 517

      • residence of, 84

    • Nonprofit organizations, 86

    • Note issuance facilities (NIFs), notes issued under, 391, 399, 400

    • Notes, 387, 389, 390, 420, 442

      • issued under NIFs, 391, 399, 400

      • recording, 400

      • short-term, 391, 398, 399

    • NPIs. See Nonprofit institutions

    • Obsolescence, 285

    • OECD Detailed Benchmark Definition of Foreign Direct Investment (BMD), 360, 363

    • Official exchange rates, 137, 138

      • multiple, 134-136, 138, 504

    • Official resources, for financing, 572

    • Official transactions, 266

    • Official travel, 246, 248

    • Offshore enterprise(s), 79, 381

    • Offshore installations, goods consumed in resident-owned, 208

    • Oil, 588n

    • Oil drilling rigs, 208, 209. See also Mobile equipment

    • Omissions. See Net errors and omissions

    • On-site processing, 199, 264, 524

    • Operational earnings, 285

    • Operational leases, 80, 209, 239, 263

    • Option price, 401

    • Options, 258, 315, 389, 392, 401, 402 valuation, 470

    • Other business services, 166, 212, 230, 254, 261, 267

    • Other investments, 176, 179, 274, 330, 411-423. See also specific types of instruments recording, 414-423

    • Other services, 189, 252-266

    • Overall balance, 566n

    • Ownership. See Change of ownership

    • Packaging. See Processing

    • Packing, 240

    • Paper, financial, 391

    • Paper money, 214, 215

    • Parallel market rates, 137-138

    • Parcel post, 215

    • Passenger fares, 232

    • Passenger services, 232

    • Passport fees, 300

    • Patents, 312, 358

    • Payments agreements balances, 432

    • Peacekeeping forces, transactions associated with, 266

    • Penalties on late tax payments, 300

    • Pension funds, 86, 388, 517

    • Pension payments, 299

    • Pension plans, 303

    • Periodicals, 212

    • Personal, cultural, and recreational services, 167, 244, 265

    • Personal effects, 232

    • Personal travel, 249

    • Personnel. See also Employees

      • government, 159, 215, 243

      • military, 70, 159, 243

    • Pilotage, 240

    • Placements of issues, 258

    • Policy. See Monetary policy

    • Portfolio investment, 6, 178, 330, 339, 385-410

      • benefits, 36l

      • classification, 176, 332, 387-394, 465

      • coverage, 385-386

      • definitions, 387-394

      • domestic sectors, 333

      • income, 170, 280

      • recording, 395-408

      • valuation, 409-410, 468

    • Ports, goods procured in, 156, 195, 201, 230

    • Port services, 240

    • Position. See International investment position

    • Postal and courier services, 160, 253

    • Post office savings banks, 516

    • Postpayments, 118

    • Precious metals and stones, 215

    • Preferred stock(s) or share(s), 388, 390

    • Premium price, 400

    • Premiums, for non-life insurance, 304

    • Prepayments, 118

    • Prices. See Market price; Transfer prices; Valuation

    • Primary incomes, external account for, 507, 509

    • Principal rate, 135

    • Private corporations, 517

    • Private enterprise(s), 76

    • Private funds for financing, 572

    • Private nonprofit institutions, 517

    • Processing, 198, 199. See also Goods on-site, 199, 264, 524

    • Production, attribution of, 78-79

    • Professional services, 166, 264

    • Profitability, 564

    • Profits. See also Earnings; Reinvested earnings distributed, 277

    • Promissory notes. See Securities

    • Property income, 274, 509

    • Public corporations, 77, 517

      • incorporated, 76

    • Public enterprise(s), 76, 362

    • Public relations services, 264

    • Purchase price, 402

    • Purchases abroad, 208

    • Put option, 401

    • Quasi-corporation(s), 74, 517

    • Railway facilities repairs, 230

    • Railway rolling stock, 208. See also Mobile equipment

    • Rates of return

      • factors affecting, 564

      • and international investment position, 476-477

    • Real estate investment. See also Direct investment private, non-business, 382

    • Real resources, 18

    • Reclassification, 32, 374

      • of gold, 439

    • Recording. See also Time of recording

      • gross, 192-193, 271, 325, 511

      • net, 319-320, 324-327, 375

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

    • Redemptions, 258

    • Refinancing, 457, 545-547. See also Exceptional financing

    • Refunds, tax, 299

    • Regional allocation, 485-492, 496-498

      • analytical implications, 493-495

      • multilateral settlements, 491-492

      • principles, 481n, 481-484

      • problems and limitations, 485-492

    • Regional central banks, 90

    • Regional statements, 478-498

    • Reinsurance, 255, 257

    • Reinsurance services, 162. See also Insurance services

    • Reinvested earnings, 31, 277, 278, 321, 369

      • recording, 284, 288

    • Rentals. See also Leases

      • of transportation equipment with crew, 239

      • of transportation equipment without crew, 230, 263

    • Repacking, 240

    • Repairs, 524

      • on goods, 155, 195, 200

      • of railway facilities, harbors, and airfield facilities, 230

      • of transportation equipment, 230

    • Repayment(s), 454

      • advance, 454, 544

      • of arrears, 453

      • debt, 316

      • loan, 123

    • Repos. See Repurchase agreements

    • Repurchase agreements, 391, 415, 418

    • Rescheduling, 457, 545-547. See also Exceptional financing

    • Research and development services, 264

    • Reserve assets, 32, 180, 181, 330, 339, 424-445

      • adjustments, 436

      • availability for use, 431

      • classification, 432-435, 437-443, 450, 465

      • concept and coverage, 424-425

      • effective control of, 428-430

      • for financing, 571, 572

      • identification, 426-435, 445, 450

      • interpretation of changes in, 445

      • liabilities. See Liabilities constituting foreign authorities’ reserves

      • other claims, 442

      • reclassifications, 310

      • second-line, 425

      • special cases, 432-435

      • valuation, 310, 436, 444, 473

    • Reserve position, 180, 330, 424, 431, 441

      • valuation of, 473

    • Reserve tranche purchases, 441

    • Residence, 21-22, 496

      • concept of, 57-58

      • considerations for, 565, 565n

      • definition of, 58

      • of enterprises, 73-83, 231

      • of households and individuals, 66-72

      • of nonprofit institutions, 84

    • Resident individuals, 67, 69

    • Resident/nonresident leasing, 263

    • Resident/nonresident transactions, 312, 358

    • Resident units, 39, 57-90, 500

    • Residual items. See Net errors and omissions

    • Rest of the world account, 36

      • and balance of payments accounts, 499-511

        • linkages, 506-511

    • Returned exports and imports, 209

    • Returns, trade, 215

    • Revaluation. See Reclassification

    • Reverse investment, 371

    • Risk, factors affecting, 564

    • Royalties, 165, 260

    • Salaries, 298. See also Compensation of employees

    • Salvaged goods, 208

    • Salvage operations, 240

    • Samples, 209

    • Saving, domestic. See Gross saving

    • Savings and loan associations, 516

    • Savings banks, 516

    • Savings deposits, non-transferable, 421

    • Scholarships, 244

    • Scientific stations, 59

    • SDRs. See Special drawing rights

    • Seasonal adjustments, 433

    • Seasonal workers, 67

    • Secondary instruments, 389, 392

    • Sectors, 333, 512-517

      • banking, 516

      • domestic, 333-335

      • foreign, 334

      • other, 351-357, 517

    • Securities, 214, 215, 268, 387. See also Bonds; Debt securities

      • domestic, 485, 487

      • foreign, 486, 487

      • index-linked, 397

      • net recording of, 324

      • regional allocation of transactions, 485-488

      • reserve assets, 442

    • Seizures. See Expropriation

    • Service charges, 258, 258n, 402, 410

      • indirectly measured financial intermediation, 508, 509

    • Services, 121, 152, 158-168, 185, 186, 252-266. See also specific types

      • classification, 212-213, 252, 518-520

      • coverage, 252

      • definitions, 253-266

      • external account of, 507

      • international, 518-520

      • other, 189, 252-266

      • regional allocation principles, 481

      • time of recording, 502

    • Settlements, cash, 530

    • Shares, 388, 421. See also Equity securities preferred, 388, 390

    • Shipboard expenditures, 232

    • Shipments, 158, 187, 224, 226

      • military and diplomatic, 209

      • unrecorded, 215

    • Shipping services, 224

    • Ships, 208, 217, 262

      • flying flags of convenience, 81

    • Short-term investment, 336-339

    • Silver bullion, 215

    • Sinking funds, 314

    • Smuggled goods, 215

    • SNA. See System of National Accounts

    • Social benefits, 299

    • Social security, 86, 304

    • Souvenirs, 251

    • Special drawing rights (SDRs), 180, 330, 424, 431, 440

      • allocation/cancellation of, 3, 310, 436

      • regional allocation of, 489

      • valuation of, 102, 473

    • Special purpose entities (SPEs), 79, 365, 372

      • transactions through, 373

    • SPEs. See Special purpose entities

    • Staff. See also Employees; Personnel of international organizations, 67

      • locally recruited, 67

    • Stage and circus equipment, 209

    • Standard components, 143-145

    • State government. See General government

    • Statistical discrepancy (label), 147

    • Stock(s), 388. See also Equity securities

      • of assets and liabilities, 35, 505

        • regional allocation principles, 484

        • valuation of, 444

      • conversion of, 133, 136

      • of goods abroad, 207, 213

      • preferred, 388, 390

      • valuation of, 107-108, 376-377

    • Stock dividends, 274, 290

    • Stock warrants. See Warrants

    • Storage, 201, 240

    • Strike price, 401

    • Structures, 214

      • ownership of, 316

    • Students, 71, 159, 244

    • Subscriptions to international organizations, 432

      • capital, 422

    • Subsidiaries, 362, 384

    • Subsidies, 134, 453

    • Subsidy accounts, grants from, 453, 535

    • Subsoil assets, 312, 358

    • Supplementary information, 384, 446-460

    • Supporting services, 240

    • Support remittances, 303

    • Surplus. See Current account surplus

    • Swaps, 258, 405, 434

      • currency, 392, 405, 434, 470

      • debt/bond, 536-538

      • debt/equity, 456, 539-543

      • gold, 434

      • interest rate, 392, 405

      • recording, 406

    • System of National Accounts (SNA), 4, 34-56

      • accumulation accounts, 45, 47

      • balance sheet accounts, 45, 54, 55

      • capital account, 47, 50, 510

      • comparison with balance of payments, 38-44

      • current (transactions) accounts, 45, 46

      • financial account, 47, 50, 52, 511

      • financial intermediation charge indirectly measured, 258n, 508, 509

      • integrated economic accounts, 45-56

      • rest of the world account, 36

      • and balance of payments accounts, 499-511

    • System of National Accounts 1993 (SNA), 5, 23, 24, 360, 362

    • T-accounts, 45

    • Tax(es), 300, 304

      • analysis of higher taxes, 555

      • on capital transfers, 350, 357

      • considerations, 564

      • gift, 350, 357

      • on income, 122

      • inheritance, 350, 357

      • refunds, 299

      • side effects of, 578

    • Tax payments, 93

      • fines, penalties, or interest charges on late payments, 300

    • Teachers’ fees, 244

    • Technical services, 166, 264

    • Telecommunications, 160, 253

    • Temporary exports and imports, 209

    • Territory

      • economic, 21-22, 39, 59-61

      • enclaves, 59, 60, 61

      • geographic, 21, 59

    • Theatrical equipment, 209

    • Time charters, 239

    • Time deposits, 421

    • Time of recording, 41, 109-127, 502. See also Change of ownership adjustments

      • to goods, 114-118, 204, 216-218

      • other, 124-127

      • to other transactions, 121-123

      • to transportation services, 233-238

      • capital and financial account, 341-342

      • current account, 194

      • of current transfers, 307

      • of investment income, 282-284

      • principle of, 24, 109-113

    • Tourism, definition of, 241n

    • Tourists, 243

    • Towing, 201, 239, 240

    • Trade. See also Goods; Services direct transit, 209

    • Trade credits, 413, 414, 416

    • Trademarks, 312, 358

    • Trade-related services, 262. See also Merchanting

    • Trade returns, 215

    • TRANB. See Current transfer balance

    • Transaction(s), 3, 13, 318. See also specific types

      • classification, 43

      • definition, 13

      • imputed, 31

      • and market price, 92

      • types, 25-31

      • valuation, 91-106

    • Transactor principle, 482

      • analytical implications, 493-94

    • Transferable contracts, 358. See also Leases

    • Transfer prices, 97-103, 99

    • Transfers, 13, 18, 28, 150, 171. See also Capital transfers;

      • Current transfers

        • regional allocation principles, 481

        • unrequited. See Grants

    • Transit trade, direct, 209

    • Transportation, 156, 187, 227, 230-240

      • conventions for recording, 233-238

      • definition and coverage, 230-231

      • supporting and auxiliary services, 240

    • Transportation equipment, 209, 349. See also Mobile equipment

      • maintenance and cleaning of, 240

      • rentals

        • with crew, 239

        • without crew, 230, 263

      • repairs of, 230

    • Transportation fuels, 156, 201

    • Transportation services, 158, 159, 200, 224

    • Travel, 159, 188, 192, 212, 241-251, 524

      • business, 246-248

      • definition of, 24ln, 242-244

      • goods and services covered, 250-251

      • nature of, 241

      • official, 246, 248

      • personal, 249

      • types of, 245-249

    • Traveler(s), 67, 159, 241

      • business, 246

      • definition of, 24ln, 243

      • same-day, 243

    • Treasury bills, 391

    • Trusts, investment, 388

    • Underwritings, 258

    • Undistributed profits. See Reinvested earnings

    • Unitary rate, 135

    • Unit of account, 128, 129-131

    • Valuation, 40, 501

      • in absence of market price, 93-94

      • capital and financial account, 341-342

      • current account, 194

      • of current transfers, 306

      • of debt/equity swaps, 543

      • of debt forgiven, 534

      • of direct investment, 376-377, 467

      • of financial derivatives, 469

      • of financial items, 106

      • of goods, 219-229

      • of international investment position components, 467-473

      • market, 97, 220

      • point of, 221-229

      • of portfolio investment, 409-410, 468

      • principles of, 23-24

      • of reserve assets, 444

      • of SDR, 102

      • of stocks, 107-108

      • of transactions, 91-106

    • Valuation changes, 33, 466

      • in assets, 310

      • of portfolio investment, 409

      • in reserves, 310

        • exclusion of, 436

    • Value date, 123, 342

    • Visitor(s), 67. See also Traveler(s) definition of, 241n

    • Wages. See Compensation of employees; Salaries

    • Warehousing, 240

    • Warrants, 392, 403

      • valuation, 470

    • Water, 215

    • Wealth, national, 55

    • Workers, 67. See also Employees; Migrants

      • border, 67

      • income of, 267, 269

      • remittances by, 302

      • seasonal, 67

    • Working balances, 433

    • World Bank obligations, 432

    • World current account discrepancy, 581n

    • Write-offs, 285, 310. See also Debt forgiveness

    • Zero coupon bonds, 283, 390, 396

    The exceptions to the resident/nonresident basis of the balance of payments are the exchange of transferable foreign financial assets between resident sectors and, to a lesser extent, the exchange of transferable foreign financial liabilities between nonresidents. (See paragraph 318.)

    The definitions and classifications of international accounts presented in this Manual are intended to facilitate reporting of data on international transactions to the Fund. These definitions and classifications do not purport to give effect to, or interpret, various provisions (which pertain to the legal characterization of official action or inaction in relation to such transactions) of the Articles of Agreement of the International Monetary Fund.

    As used in this Manual, the term travel is synonymous with the term tourism used in the SNA and by the World Tourism Organization (WTO).

    The term traveler is broadly synonymous with the term visitor used by the WTO.

    The relationship of the classifications of balance of payments services to the CPC is detailed in Appendix 3.

    Insurance technical reserves cover actuarial reserves against outstanding risks and reserves for with-profits insurance, prepayments of premiums, and reserves against unsettled claims.

    In the SNA, in addition to the explicit commissions and fees noted previously, there is an item for financial intermediation services indirectly measured. These reflect financial service charges that, while not explicit, may be imputed or derived from the differences between appropriate reference interest rates and rates actually applied to loans, debt securities, or deposits. Such imputations are equivalent to reclassifying a portion of interest as financial services. As a reflection of the views of national balance of payments compilers, this procedure is not recommended in this Manual. As a result, these implicit services are reported indistinguishably under investment income (interest).

    The conversion (into equities) option may be considered a tradable derivative (i.e., an asset separate from the underlying security). See paragraph 392. Separation of the value of a transaction into the value of the bond and the value of the option may be effected by reference to transactions in similar bonds traded without options.

    As defined in this Manual, monetary gold is generally construed to be at least 995/1000 pure.

    Countries participating in the European Monetary System were issued ECUs against deposits of gold and U.S. dollars with the European Monetary Cooperation Fund. Those reserves that were deposited are excluded from gold and foreign exchange holdings as published by the Fund, but the equivalent holdings of ECUs are included in foreign exchange.

    LCFARs are any liabilities that are considered, from the viewpoint of the creditor, to be reserve assets—even though the debtor (compiling economy) may not consider such liabilities to be offsets to its reserves or to be financing its payments imbalance.

    Market price may have to be approximated in some instances. For example, for direct investment branches and most subsidiaries, the market valuation of the parent enterprise’s equity is approximated as the net asset value of the resident enterprise; that is, the difference between the market value of assets and liabilities to third parties (including the market value of shares held by minority or portfolio investors) and nonequity liabilities to shareholders.

    Gross external debt is the amount, at any specific time, of disbursed and outstanding contractual liabilities of residents of a country to repay principal, with or without interest, or to pay interest, with or without principal, to nonresidents.

    See the Guide for a full discussion of the allocation aspects of trade in goods—in particular those aspects related to country of shipment versus country of origin for imports and country shipped to versus country of ultimate destination for exports.

    As an example, if a resident in country A sells a domestic security (issued by country A) to a country B intermediary acting on behalf of a buyer resident in country C, compilers in country A (the debtor) generally would not know that the creditor (buyer) is a resident of country C. Only if that information were provided by country B or C to country A could the debtor/creditor principle be implemented, and that is usually not the case. In practice, the sale of the security would most often be recorded by country A as a transaction, equivalent to one made on a debtor/transactor basis, with country B.

    For instance, if a resident in country A sells or buys a foreign security issued by country C to or from a resident of country B, the transaction, which is based on the debtor/creditor principle, could be allocated by country A to country C because the identity of country C as the debtor is known to country A.

    There will be a discrepancy, in terms of domestic currency, between the value of the financial instrument received by the investor and [he value at which he acquired the debt instrument from the original creditor when the debt instrument is converted into domestic currency at the market exchange rate. This discrepancy should be viewed as a favorable exchange rate involving an implicit subsidy granted by the authorities to the equity investor.

    This perspective includes the assumption that there are no controls on international capital flows. As such controls are not typically applied in the same manner to transactions involving residents and to those undertaken by nonresidents, the presence of such controls implies that the same factors are likely to affect residents and nonresidents in different ways.

    Balance of payments presentations sometimes show an overall balance, which has been variously defined according to the perspectives of the analyst. This measure involves distinguishing transactions recorded above the line from those recorded below the line. This procedure is linked to the double-entry system of recording balance of payments entries because the two groups must be numerically equal with opposite signs. Drawing the line involves making certain analytical distinctions. In many instances, the overall balance is equal, with the exclusion of transactions in reserve assets and exceptional financing, to the sum of current and capital and financial account transactions. According to this definition of the overall balance, below-the-line transactions are considered to be accommodating or financing the net result of above-the-line transactions, which are considered autonomous. In other balance of payments presentations, the overall balance is equal, with the exclusion of transactions (including those in reserve assets) of the domestic banking sector, to the sum of current and capital and financial account transactions. In such a presentation, the below-the-line transactions correspond to the net foreign assets of the banking system (including the central bank). This presentation may be helpful in analyzing the impact of such transactions on the creation of domestic liquidity.

    Of course, for the world as a whole, the balance of payments positions of all countries are equal to zero. Nonetheless, the recorded balance of payments position for the world, which is equal to the sum of the positions of all countries, is not equal to zero because of measurement problems. For a discussion of this issue, see the International Monetary Fund’s Report on the World Current Account Discrepancy, September 1987, and Report on the Measurement of International Capital Flows, September 1992.

    Countries that are large exporters of nonrenewable resources, such as oil, may have limited domestic investment opportunities. In such cases, the buildup of foreign assets can be viewed not so much as an accumulation of reserve assets for balance-of-payments financing purposes but rather as a diversification of the country’s stock of wealth. Also, there may be a case for the accumulation of reserve assets in the instance of a country subject to Dutch disease if the effects are expected to be transitory.

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