Chapter

Appendix IV. Relationship Between the National Accounts and the International Investment Position (IIP)

Author(s):
International Monetary Fund
Published Date:
June 2003
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1. In the Guide, linkages between external debt statistics, the IIP, and the national accounts have been developed and explained. This appendix goes further and explains the relationship between the national accounts and the IIP, such that data on the IIP can be incorporated into the external account components of the rest of the world account of the national accounts system, bringing compilation and collection efficiency gains as well as analytical benefits.

2. There is virtually complete concordance between the 1993 SNA and BPM5 with respect to such issues as the delineation of resident units, valuation of transactions and of the stock of external assets and liabilities, time of recording of transactions in goods and services, income flows, current transfers, capital transfers, external assets and liabilities, and coverage of the IIP. There are, however, differences in classification between the rest of the world account and BPM5. These reflect, inter alia, differences in analytical requirements and the need in the 1993 SNA to adopt a uniform classification scheme for all sectors of the economy. In this appendix, the financial account element of the national accounts is examined, followed by a detailed comparison between the financial accounts and the IIP.

Financial Accounts

Features of Financial Accounts

3. The key features of financial accounts are that (1) they identify the liabilities that net borrowing institutional sectors use to finance their deficits, and the financial assets that net lending sectors use to allocate their surpluses; (2) they facilitate analysis of the flow of funds between different institutional sectors of the economy; (3) they place emphasis on stock variables such as financial assets and debt; and (4) they are developed from detailed information on the various institutional sectors and their activities in financial assets/liabilities.

4. The complete system of financial accounts, including flow of funds accounts,1 has considerable analytical power. For instance, corporate sector gross debt-equity ratios can be calculated; related shifts by households or companies into financial deficit (defined relative to GDP) can be observed; and increases in income gearing (interest payments as a proportion of income), shifts in the pattern of intermediation toward or away from the banking sector (as shown by the total assets of banks relative to nonbank financial institutions), and rapid growth of lending in any individual market to a given sector can be monitored. Furthermore, information on investment patterns of institutional investors, the balance between sources of corporate debt finance in banking and bond markets (to assess vulnerability to crises in different institutions or markets), and the maturity of debt (on an original maturity basis) is also available.

Financial Assets

5. Financial accounts deal with stocks of financial assets owned by institutional sectors and transactions in these assets through financial markets. In the 1993 SNA and the European System of Accounts 1995 (ESA95),2 financial assets are defined as entities over which ownership rights are enforced and from which economic benefits may be derived by their owners by holding them or using them, over a period of time (paragraph 11.16 of the 1993 SNA). In short, financial assets are stores of economic value. Most financial assets differ from other assets in that there are counterpart liabilities on behalf of another institutional unit.

6. The 1993 SNA distinguishes eight types of financial assets:

  • Monetary gold and special drawing rights (SDRs) (AF.1);

  • Currency and deposits (AF.2);

  • Securities other than shares (AF.3);

  • Loans (AF.4);

  • Shares and other equity (AF.5);

  • Insurance technical reserves (AF.6);

  • Financial derivatives (AF.7); and

  • Other accounts receivable/payable (AF.8).

Most financial assets are further disaggregated, in particular according to maturity and market type. Thus, transferable deposits and other deposits (for example, nontransferable savings deposits) are included within currency and deposits, while within securities other than shares, a distinction is made between short-term and long-term securities.

Institutional Sectors

7. The 1993 SNA groups the institutional units of a national economy into five mutually exclusive institutional sectors: nonfinancial corporations, financial corporations, general government, households, and nonprofit institutions serving households (NPISH) (Table A4.1). With regard to financial corporations, a distinction is made between the central bank, other depository corporations (other monetary financial institutions in the ESA95), other financial institutions (except insurance corporations and pension funds), financial auxiliaries, and insurance corporations and pension funds. The general government is also divided in four subsectors: central government, state government, local government, and social security funds. In the ESA95 (paragraph 2.49) the central bank and other financial corporations are grouped together in the monetary financial institutions (MFIs) sector. Also, the ESA95 divides the rest of the world sector into European Union (EU), and nonmember countries and international organizations.

Table A4.1.Classification by Sector in 1993 SNA
Nonfinancial corporations (S.11)
Financial corporations (S.12)
• Central bank (S.121)
• Other depository corporations (S.122)
• Other financial intermediaries (except insurance corporations and pension funds) (S.123)
• Financial auxiliaries (S.124)
• Insurance corporations and pension funds (S.125)
General government (S.13)1
• Central government (S.1311)
• State government (S.1312)
• Local government (S.1313)
• Social security funds (S.1314)
Households (S.14)
Nonprofit institutions serving households (S.15)
Rest of the world (S.2)
Note: The abbreviations given in brackets are the sectors as they are numbered in the 1993 SNA.

The Link Between the Accounts

8. Changes in stocks of financial assets and liabilities from one accounting point to another are the consequence of a combination of economic flows. These include financial transactions, valuation changes, and other changes, such as write-offs and transfers of assets/liabilities resulting from, say, an institutional unit changing sectors. In the 1993 SNA flows and stocks are completely integrated—that is, changes in the stock or balance sheet positions3 of the institutional units can be fully explained by recorded flows (Table A4.2).

Table A4.2.Link Between the Accounts
Flows (change to financial assets and liabilities)
Financial account transactions
Other changes in volume of assets account
Revaluation account
Stocks (stocks of financial assets and liabilities)

A Simplified Version of Financial Account Balance Sheets

9. As mentioned above, the economy consists of five resident sectors—nonfinancial and financial corporations, general government, households, and NPISH—all of which have relationships with the rest of the world sector. Figure A4.1 is a matrix of various balance sheets that shows nonfinancial as well as financial assets and liabilities by sector and instrument; for example, households hold fixed assets of 1,423 as well as shares and other equity of 411. For each financial asset/liability, the rows show total holdings and issues by sector, and the matching of asset and liability positions.4 For each sector, the columns show financial assets owned or liabilities incurred, and also the net worth of the sector. The need for consistency among the rows and columns helps to minimize errors in the data.

Figure A4.1.Simplified Version of Balance Sheet Accounts1

Note: Shaded areas indicate cells that are not applicable; codes from the 1993 SNA balance sheets are shown in the center column. Data are derived from the 1993 SNATable 13.1: Balance sheets—a line for financial derivatives has been added to reflect the 1999 revision to the 1993 SNA. In addition, data differ slightly due to small errors in the 1993 SNA table.

1In the 1993 SNA, other accounts receivable/payable are accorded the code AF.7, but following the revision to the 1993 SNA in 1999, financial derivatives are accorded the code AF.7, while other accounts receivable/payable are accorded AF.8.

2Monetary gold and SDRs are external assets of the total economy, but there are no counterpart liabilities for the rest of the world sector.

10. The financial accounts in a simplified form can be derived from the second part of Figure A4.1 because financial assets and liabilities are shown for all institutional sectors involved. Net financial assets may be derived as the balancing item between financial assets and liabilities.

11. Figure A4.1 may be further simplified to show only the balance sheets of the total economy and the rest of the world sector. In Figure A4.2, the net worth of the total economy—its national wealth—equals the sum of a country’s nonfinancial assets (9,922) plus its net financial claims on the rest of the world. In the balance sheet for the total economy, all financial assets and liabilities between residents are netted out in the consolidation to leave only the net financial assets position (positive or negative) on the rest of the world. For the rest of the world balance sheet, only financial assets and liabilities are shown.

Figure A4.2.Balance Sheets of the Total Economy and the Rest of the World

Note: Shaded areas indicate cells that are not applicable; codes from the 1993 SNA balance sheets are shown in center column.

Data are derived from 1993 SNA, Table 13.1: Balance sheets—a line for financial derivatives has been added to reflect the 1999 revision to the 1993 SNA. Data differ slightly due to small errors in the 1993 SNA table.

A More Detailed Version of Financial Account Balance Sheets

12. Financial accounts may be expanded into three dimensions to track each instrument category, the financial claims of each sector on each other sector. By indicating who has lent to whom and with what instrument, such a matrix lends considerable analytical power to financial accounts. As with the two-dimensional approach described above, the interlocking row and column constraints of the three-dimensional matrix provide an important check on the consistency of data. This is because for each sector, each transaction involves at least, and usually, two balance sheet changes,5 and similarly for each instrument, each transaction involves two balance sheet changes. For example, the issue of a new debt security by a nonfinancial corporation that is purchased by a nonresident results in the following entries: the non-financial corporation reports the increase in securities other than shares liabilities, and an increase in currency and deposit assets; while the nonresident reports an increase in securities other than shares assets, and a reduction in currency and deposits.

13. The full three-dimensional matrix is an important analytical tool but, because of the cost and/or the conceptual complexity, relatively few countries have full flow of funds data. Figure A4.3 provides the three-dimensional financial asset matrix taken from the 1993 SNA (Table 13.3a, page 302). As can be seen, across the top of the matrix the columns show the financial assets owned by the five mutually exclusive institutional sectors, with subsector detail for the financial corporations sector. The rows show the type of claim disaggregated by institutional sector. While a detailed breakdown of the sector of debtor is shown for securities other than shares, for loans, and for trade credit and advances, only a resident/nonresident breakdown is shown for shares and other equity and for currency and deposits. The matrix on financial liabilities in the 1993 SNA (Table 13.3b, page 303), not shown here, is similar to the financial assets matrix, although the columns show the institutional sector of debtor and the rows show the institutional sector of creditor. Using both matrixes, all asset, liability, and counterpart combinations can be found. Compilers can adjust the sectors and instrument classifications in either matrix, in order to reflect national conditions and needs of users.

Figure A4.3.Detailed Version of Balance Sheet Accounts

14. Table A4.3 is derived from the matrix in Figure A4.3 but includes only the balance sheet of the rest of the world. In comparison to the approach in Figure A4.3, financial assets and liabilities of the rest of the world account are shown by counterpart institutional sector. Compared with the 1993 SNA, Table A4.3 includes additional counterpart sector information on the following instruments: currency, transferable deposits, other deposits, quoted shares, and nonquoted shares. In some countries this additional sectoral information is available.

Table A4.3.Rest of the World Balance Sheet by Counterpart Sector
Financial Assets of Rest of WorldLiabilities of Rest of World
2. Currency and deposits2. Currency and deposits
a. Currencya. Currency
i. Nationali. National currency
ii. Foreigni. Nonfinancial corporations
b. Transferable depositsii. Financial corporations
i. National currencyiii. Central government
ii. Foreign currencyiv. State and local governments
c. Other depositsv. Other resident sectors
i. National currencyii. Foreign currency
ii. Foreign currencyi. Nonfinancial corporations
ii. Financial corporations
iii. Central government
iv. State and local governments
v. Other resident sectors
b. Transferable deposits
i. National currency
i. Nonfinancial corporations
ii. Financial corporations
iii. Central government
iv. State and local governments
v. Other resident sectors
ii. Foreign currency
i. Nonfinancial corporations
ii. Financial corporations
iii. Central government
iv. State and local governments
v. Other resident sectors
c. Other deposits
i. National currency
i. Nonfinancial corporations
ii. Financial corporations
iii. Central government
iv. State and local governments
v. Other resident sectors
ii. Foreign currency
i. Nonfinancial corporations
ii. Financial corporations
iii. Central government
iv. State and local governments
v. Other resident sectors
3. Securities other than shares3. Securities other than shares
a. Short-terma. Short-term
i. Nonfinancial corporationsi. Nonfinancial corporations
ii. Financial corporationsii. Financial corporations
iii. Central governmentiii. Central government
iv. State and local governmentsiv. State and local governments
v. Other resident sectorsv. Other resident sectors
b. Long-termb. Long-term
i. Nonfinancial corporationsi. Nonfinancial corporations
ii. Financial corporationsii. Financial corporations
iii. Central governmentiii. Central government
iv. State and local governmentsiv. State and local governments
v. Other resident sectorsv. Other resident sectors
4. Loans4. Loans
a. Short-terma. Short-term
i. Nonfinancial corporationsi. Nonfinancial corporations
ii. Financial corporationsii. Financial corporations
iii. Central governmentiii. Central government
iv. State and local governmentsiv. State and local governments
v. Other resident sectorsv. Other resident sectors
b. Long-termb. Long-term
i. Nonfinancial corporationsi. Nonfinancial corporations
ii. Financial corporationsii. Financial corporations
iii. Central governmentiii. Central government
iv. State and local governmentsiv. State and local governments
v. Other resident sectorsv. Other resident sectors
5. Shares and other equity5. Shares and other equity
a. Resident enterprisesi. Quoted
i. Quotedi. Nonfinancial corporations
ii. Not quotedii. Financial corporations
iii. Central government
iv. State and local governments
v. Other resident sectors
ii. Not quoted
i. Nonfinancial corporations
ii. Financial corporations
iii. Central government
iv. State and local governments
v. Other resident sectors
6. Insurance technical reserves6. Insurance technical reserves
6.1 Net equity of nonresident households in life insurance reserves and in pension funds6.1 Net equity of resident households in life insurance reserves and in pension funds
6.2 Prepayments of premiums and reserves against outstanding claims6.2 Prepayments of premiums and reserves against outstanding claims
7. Financial derivatives7. Financial derivatives
i. Nonfinancial corporationsi. Nonfinancial corporations
ii. Householdsii. Households
iii. Central governmentiii. Central government
iv. State and local governmentsiv. State and local governments
v. Other resident sectorsv. Other resident sectors
8. Other accounts receivable8. Other accounts payable
8.1 Trade credit and advances8.1 Trade credit and advances
a. Nonfinancial corporationsa. Nonfinancial corporations
b. Householdsb. Households
c. Central governmentc. Central government
d. State and local governmentsd. State and local governments
e. Other resident sectorse. Other resident sectors
8.2 Other8.2 Other
a. Resident sectorsa. Nonresident sectors

International Investment Position (IIP)

15. The IIP is described in Chapter 17, and so only a brief summary is provided here. The instrument classification required by the BPM5 in respect of the IIP and the financial account of the balance of payments consists of equity instruments (which include equity securities, equity in unincorporated enterprises, and reinvested earnings), debt instruments (which include bonds and notes, money market instruments, trade credits, use of IMF credit and loans, other loans, currency and deposits, and other accounts such as arrears), and financial derivatives. Two other financial assets—monetary gold and SDRs—are identified as part of reserve assets.

16. The institutional sector of the resident creditor, for assets, and that of the resident debtor, for liabilities, is of analytical value. Accordingly, for portfolio investment, financial derivatives and other investment, the IIP distinguishes four sectors: general government, monetary authorities, banks, and other. For direct investment, however, the domestic sector is a less significant factor. For this reason, the IIP does not classify direct investment by sector. Also, because by definition reserve assets can be owned or controlled only by the monetary authorities, no sectoral classification is required for this item.

17. Classification of balance of payments transactions by institutional sector plays a significant role in linking balance of payments statistics with other statistical systems, such as the system of national accounts, money and banking statistics, and government finance statistics. While the institutional sector attribution in the IIP is not the same as in the 1993 SNA, because of the differing analytical needs, there is a significant degree of concordance. This is described in more detail below.

Comparison Summary of the Rest of the World Balance Sheet Account and the IIP

Similarities Between the Rest of the World Balance Sheet Account and the IIP

18. As a consequence of an explicit decision by the drafters of the 1993 SNA and BPM5, there is considerable homogeneity between the conceptual framework for the rest of the world balance sheet account and the IIP. The degree of homogeneity may be demonstrated by comparing their respective approaches to the coverage of financial instruments, and the application of principles such as residence, market valuation, accrual accounting, and maturity.

Coverage of Financial Instruments

19. The financial instruments recognized as financial assets and liabilities in the 1993 SNA are identical with those recognized in BPM5 and included in the IIP. However, the presentation of these financial assets and liabilities is not identical in the two accounts, primarily because for analytical purposes the IIP groups financial instruments into functional categories. This makes reconciliation between the two accounts difficult. Table A4.4 provides a concordance between the eight categories of financial instruments in the 1993 SNA and their attribution in the IIP. The extent to which instruments are separately identified in the two accounts varies, as is evident from the table. However, the balance of payments transaction data provide a greater degree of detail than the IIP and so greater subdetail concordance with the 1993 SNA flow accounts than there is between the stock measures. (See Table A4.5 of this appendix. The detailed presentation of balance of payments transactions is provided on pages 132–40 of BPM5.)

Table A4.4.Comparison of Breakdowns by Financial Instrument
1993 SNA Classification of Financial Instruments1993 SNA CodeBPM5 Classification of Financial InstrumentsIIP Code1
Monetary gold and special drawing rightsAF.1
Monetary gold

Special drawing rights (SDRs)
5.1 (RA)

5.2 (RA)
Currency and depositsAF.2Currency and deposits4.3 (OI)
CurrencyAF.215.4.1 (RA, foreign exchange)
Transferable depositsAF.225.3. (RA, RPF)
Other depositsAF.295.5 (part of RA, other claims)
Securities other than sharesAF.3Debt securities1.2 (part of DI, other capital)
Securities other than sharesMoney market instruments2.2.1 (PI, debt securities)
Short-termAF.31Bonds and notes2.2.2 (PI, debt securities)
Long-termAF.325.4.2.2 (RA, foreign exch.)
5.4.2.3 (RA, foreign exch.)
5.5 (part of RA, other claims)
LoansAF.4Loans4.2.1.2 (OI)
Short-termAF.41Short-term loans4.2.2.2 (OI)
Long-termAF.424.2.3.2 (OI)
4.2.4.2 (OI)
Long-term loans4.2.1.1 (OI)
4.2.2.1 (OI
4.2.3.1 (OI)
4.2.4.1 (OI)
5.3 (part of RA, RPF)
Shares and other equityAF.5
Reinvested earnings1.1 (part of DI)
Equity capital1.1 (part of DI)
Equity securities2.1 (PI)
Equities5.4.2.1 (RA, for. exchange)
5.5 (part of RA, other claims)
Insurance technical reservesAF.64.4.1.1 (part of OI, other assets/liabilities, long term)
Net equity of households in life insurance reserves and in pension funds reservesAF.61Net equity of households in life insurance reserves and inpension funds
Net equity of households in life insurance reservesAF.6114.4.2.1 (part of OI, other assets/liabilities, long term)
Net equity of households in pension funds reservesAF.612Prepayments of premiums and reserves against outstandingclaims4.4.3.1 (part of OI, other assets/liabilities, long term)
Prepayments of insurance premiums and reserves for outstanding claimsF.624.4.4.1 (part of OI, other assets/liabilities, long term)
Financial derivativesAF.7Financial derivatives3 (FD)

5.4.3 (RA)
Other accounts receivable/payableAF.8
Trade credits and advancesAF.81Other claims on affiliated enterprises/other liabilities to affiliated enterprises1.2 (part of DI other capital)
OtherAF.89
Other claims on direct investors/other liabilities to direct investors1.2 (part of DI other capital)
Trade credits (short- and long-term)4.1 (OI)
Other4.4 (part of OI, other assets/liabilities)
Short-term
Long-term
Memorandum item
Direct investmentAF.m
Note: DI, direct investment; PI, portfolio investment; FD, financial derivatives; OI, other investment; RA, reserve assets; RPF, reserve position in the Fund.
Table A4.5.Correspondence of 1993 SNA Tables with BPM5 and IIP Components:1 Account V—Rest of the World Account, V.III—External Accumulation Accounts
V.III.1: Capital Account
1993 SNA categoriesCorrespondence to balance of payments standard components [items], additional details and aggregates
Changes in assetsTransactions in liabilities
K.2 Acquisitions less disposals of nonproduced nonfinancial assetsItem 2.A.2 acquisition/disposal of nonproduced nonfinancial assets
B.9 Net lending (+)/net borrowing (−)Sum of items
1. Current account balance; and
2.A. Capital account balance
Changes in liabilities and net worthTransactions in assets
B.12 Current external balanceItem 1. Current account
D.9 Capital transfers receivableItem 2.A.1 Capital transfers
D.9 Capital transfers payableItem 2.A.1 Capital transfers
B.10.1 Changes in net worth due to saving and net capital transfersSum of items
1. Current account balance; and
2.A.1 Net capital transfers
V.III.2: Financial Account2
Changes in assetsTransactions in liabilities
F.1 Monetary gold and SDRsSum of items
2.B.5.1 monetary gold; and
2.B.5.2 special drawing rights (with sign reversed3)
F.2 Currency and depositsItem
2.B.4.2.3 currency and deposits
F.3 Securities other than sharesSum of items
2.B.1.1.3.2.1 debt securities issued by direct investor;
2.B.1.2.3.2.1 debt securities issued by affiliated enterprises;
2.B.2.2.2 debt securities (part of portfolio investment)
F.4 LoansItem
2.B.4.2.2 loans
F.5 Shares and other equitySum of items
2.B.1.1.1.2 equity capital: liabilities to affiliated enterprises (part of direct investment abroad);
2.B.1.2.1.2 equity capital: liabilities to direct investors (part of direct investment in the reporting economy);
2.B.1.2.2 reinvested earnings (part of direct investment in the reporting economy); and
2.B.2.2.1 equity securities (part of portfolio investment)
F.6 Insurance technical reservesSum of items
2.B.4.2.4.4.1.1 net equity of households in life insurance reserves and in pension funds; and
2.B.4.2.4.1.1.2 prepayments of premiums and reserves against outstanding claims
F.7 Financial derivatives2.B.3.2 liabilities (financial derivatives)
F.8 Other accounts receivableSum 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);
2.B.4.2.1 trade credits (part of other investment);
2.B.4.2.4 other liabilities;
Minus items
2.B.4.2.4.4.1.1 net equity of households in life insurance reserves and in pension funds; and
2.B.4.2.4.4.1.2 prepayments of premiums and reserves against outstanding claims (all part of other investment)
Changes in liabilities and net worthTransactions in assets
F.2 Currency and depositsSum of items
2.B.4.1.3 currency and deposits (part of other investment);
2.B.5.3.1 deposits (part of reserve position in the Fund);
2.B.5.4.1 currency and deposits (part of foreign exchange); and
2.B.5.5.1 currency and deposits (part of other reserve claims)
F.3 Securities other than sharesSum of items
2.B.1.1.3.1.1 debt securities issued by affiliated enterprises (part of direct investment abroad);
2.B.1.2.3.1.1 debt securities issued by direct investors (part of direct investment in the reporting economy);
2.B.2.1.2 debt securities (part of portfolio investment);
2.B.5.4.2.2 bonds and notes (part of foreign exchange);
2.B.5.4.2.3 money market instruments and financial derivatives (part of foreign exchange); and
2.B.5.5.2.2 debt securities (part of other reserve claims)
F.4 LoansSum of items
2.B.4.1.2 loans (part of other investment); and
2.B.5.3.2 loans (part of reserve position in the Fund)
F.5 Shares 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.5.4.2.1 and 2.B.5.5.2.1 equities (part of reserve assets, foreign exchange, and other claims)
F.6 Insurance technical reservesSum of items
2.B.4.1.4.4.1.1 net equity of households in life insurance reserves and in pension funds;
2.B.4.1.4.1.1.1; 2.B.4.1.4.2.1.1; 2.B.4.1.4.3.1.1; and
2.B.4.1.4.4.1.2 prepayments of premiums and reserves against outstanding claims (all part of other investment)
F.7 Financial derivativesSum of items
2.B.3.1 assets (financial derivatives), and
2.B.5.4.3 financial derivatives (part of foreign exchange)
F.8 Other accounts payableSum 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.4.1.1 trade credits (part of other investment);
2.B.4.1.4 other assets;
Minus tems
2.B.4.1.4.4.1.1 net equity of households in life insurance reserves and in pension funds;
2.B.4.1.4.1.1.1; 2.B.4.1.4.2.1.1; 2.B.4.1.4.3.1.1; and
2.B.4.1.4.4.1.2 prepayments of premiums and reserves against outstanding claims (all part of other investment)
B.9 Net lending (+)/net borrowing (−)
V.III.3: Other Changes in Assets Accounts, V.III.3.1: Other Changes in Volume of Assets Account
Changes in assetsChanges in liabilities
K.7 Catastrophic lossesCatastrophic losses (part of other adjustments)
K.8 Uncompensated seizuresUncompensated seizures (part of other adjustments)
K.10 Other volume changes in financial assets and liabilities, n.e.c.Other volume changes (part of other adjustments)
K.12 Changes in classifications and structureChange in classifications and structure (part of other adjustments)
Changes in liabilities and net worthChanges in assets
K.7 Catastrophic lossesCatastrophic losses (part of other adjustments)
K.8 Uncompensated seizuresUncompensated seizures (part of other adjustments)
K.10 Other volume changes in financial assets and liabilities, n.e.c.Other volume changes (part of other adjustments)
K.12 Changes in classifications and structureChange in classifications and structure (part of other adjustments)
B.10.2 Changes in net worth due to other changes in volume of assets
Changes in assetsChanges in liabilities
K.11 Nominal holding gains/losses in financial assetsSum of entries in the columns for price and exchange rate changes
K.11.1 Neutral holding gains/losses in financial assetsSum of entries in the columns for neutral holding gains/losses
K.11.2 Real holding gains/losses in financial assetsSum of entries in the columns for real holding gains/losses
Changes in liabilities and net worthChanges in assets
K.11 Nominal holding gains/losses in liabilitiesSum of entries in the columns for price and exchange rate changes
K.11.1 Neutral holding gains/losses in liabilitiesSum of entries in the columns for neutral holding gains/losses
K.11.2 Real holding gains/losses in liabilitiesSum of entries in the columns for real holding gains/losses
B.10.3 Changes in net worth due to nominal holding gains/lossesPrice and exchange rate changes in assets less price and exchange rate changes in liabilities
B.10.31 Changes in net worth due to neutral holding gains/lossesNeutral holding gains/losses in assets less neutral holding gains/losses in liabilities
B.10.32 Changes in net worth due to real holding gains/lossesReal holding gains/losses in assets less real holding gains/losses in liabilities

Monetary gold and SDRs

20. The 1993 SNA does not separately identify monetary gold from SDRs (see Table A4.4), unlike the IIP, which separately identifies these financial assets within reserve assets. Gold is a component of reserve assets if owned by the authorities (or by others who are subject to the effective control of the authorities) and held as a reserve asset. SDRs are international reserve assets created by the IMF to supplement other reserve assets. In the rest of the world balance sheet, monetary gold and SDRs are not regarded as liabilities of the rest of the world sector, although they are regarded as external assets of the domestic economy.

Currency and deposits

21. In the 1993 SNA category, the currency and deposits category is subcategorized into currency, transferable deposits, and other deposits (see Table A4.4). Such a subcategorization is not provided in the IIP. However, for all sectors except the monetary authorities, for whom currency and deposit data are in reserve assets, the 1993 SNA category may be derived from 4.3 in other investment.

Securities other than shares

22. The 1993 SNA subcategorizes securities other than shares into short- and long-term (see Table A4.4). The same principle applies to the subcategorization in the IIP, although the subcategories are entitled money market instruments, and bonds and notes. However, the IIP allocates securities other than shares to direct investment and reserve assets if they meet the criteria to be included in those functional categories. For direct investment, a breakdown of securities other than shares by subcategories is not available.

Loans

23. In both accounts, data on loans are subcategorized into short- and long-term on the basis of original maturity (see Table A4.4). Within reserve assets, loans to the IMF are included.

Shares and other equity

24. The 1993 SNA does not subcategorize shares and other equity, while the IIP provides information on reinvested earnings, equity capital, equity securities, and equities (see Table A4.4). As elsewhere, the IIP attribution is primarily on a functional category basis, so if shares and other equity meet the definition of direct investment or reserve assets they are included in these functional categories. Otherwise these instruments are included in portfolio investment.

Insurance technical reserves

25. In the 1993 SNA the insurance technical reserves category is subcategorized into net equity of households in life insurance reserves and in pension funds and prepayments of insurance premiums and reserves for outstanding claims (see Table A4.4). There is no subcategorization included in the IIP, and indeed the whole category is indistinguishably included in the other assets, other investment category in the IIP. The different approach in the two accounts reflects the relative analytical importance of this category to the domestic sectors compared with the rest of the world sector: much insurance and pension fund activity is within an economy.

Financial derivatives

26. Following the 1999 revisions, both the 1993 SNA and the IIP show separate categories for financial derivatives (see Table A4.4). However, the IIP also allocates financial derivatives to reserve assets if they meet the criteria to be included in this functional category.

Other accounts receivable/payable

27. In the 1993 SNA, the category other accounts receivable or payable has two subcategories—trade credits and advances and other (see Table A4.4). In the IIP, trade credit is separately identified within other investment, with a breakdown between short-and long-term trade credits, on an original maturity basis. The other subcategory from the 1993 SNA is included within the other assets subcategory of other investment, which has a breakdown between short-and long-term. Trade credit and other assets that meet the criteria are included within direct investment.

Core Principles

28. The core principles of the 1993 SNA, the IIP, and this Guide are the same. The concepts of residence and valuation are identical. A resident is an institutional unit that has its center of economic interest in the economic territory of a country, while valuation of the position data is to be at prices current on the day to which the balance sheet refers—that is, the market price.6 Both the 1993 SNA and BPM5 provide specific as well as general guidance on valuation.7

29. The 1993 SNA and IIP, as well as this Guide, follow the principle of accrual accounting in that transactions are recorded when economic value is created, transformed, exchanged, transferred, or extinguished. Claims and liabilities are deemed to arise when there is a change in ownership (that is, when both the creditor and debtor enter the claim and liability, respectively, on their books). By contrast, under the cash basis of recording, transactions are recorded only when payment is made or received. Under the due-for-payment basis of recording, a variation of the cash basis, transactions are recorded when receipts or payments arising from the transactions fall due.

30. The 1993 SNA and BPM5 recommend the same method for converting positions denominated in foreign currencies into the national currency or a single foreign currency, such as U.S. dollars: the use of the market exchange rates prevailing on the date to which the balance sheet relates—the midpoint between buying and selling spot rates—is recommended. The maturity concept used in both the 1993 SNA and for the IIP is that of original maturity breakdown, albeit as a secondary classification criterion. Short-term financial assets are usually defined as those with an original maturity of one year or less, and in exceptional cases two years at maximum. Long-term financial assets are defined as having an original maturity of normally more than one year and in exceptional cases more than two years at maximum.

Discrepancies Between the Rest of the World Balance Sheet Account and the IIP

31. The main discrepancies between the rest of the world balance sheet in the 1993 SNA and the IIP are in presentation, reflecting different analytical needs. As mentioned above, the IIP gives primacy in presentation to functional categories—such as direct investment—whereas the 1993 SNA gives primacy to instrument and sector. In addition, the 1993 SNA recommends the presentation of a broader range of institutional sectors than is recommended by BPM5 for the IIP. Whereas the IIP presents data for up to four institutional sectors—monetary authorities, general government, banks, and other—the 1993 SNA recommends that data be presented for five institutional sectors in the economy. In addition, the 1993 SNA recommends the collection of subsector detail, unlike BPM5. The broad reconciliation between the 1993 SNA and BPM5 institutional sectors is presented in Figure A4.4.

Figure A4.4.Sectoral Breakdown in 1993 SNA and in IIP 1993 SNA IIP

32. As shown in the figure, two subsectors of financial corporations (central bank (S.121) and other depository corporations (S.122)) are related to the BPM5 sectors monetary authorities and banks. However, the monetary authorities sector in the IIP includes not only the central bank but also the operations of other government institutions or commercial banks when these operations are usually attributed to the central bank. As a consequence, the delimitation of the sector general government in the IIP is not necessarily identical to the 1993 SNA definition, which recommends a further breakdown into the subsectors central, state, and local government, and social security funds.8 The other sector in the IIP comprises nonfinancial corporations (S.11), some subsectors of financial corporations such as other financial intermediaries (S.123), financial auxiliaries (S.124), as well as insurance corporations and pension funds (S.125), households (S.14), and NPISH (S.15).

Detailed Examination of the Classification Linkages Among the Rest of the World Account, the Balance of Payments Accounts, and the IIP

33. Although harmonization in concepts has been attained between both systems, differences in presentation 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 accounts. Nonetheless, bridges can be constructed to derive relevant national accounting flows and stocks from balance of payments accounts and the international investment position.

34. In terms of transactions, the 1993 SNA distinguishes the following accounts in respect of the rest of the world account of goods and services:

  • Account V.I: External account of goods and services (page 316 of the 1993 SNA);

  • Account V.II: External account of primary incomes and current transfers (page 316);

  • Account V.III.1: Capital account (page 316) and V.III.2: Financial account (page 317), which are components of V.III: External accumulation accounts (page 316).

In BPM5, the transactions reflected in Accounts V.I and V.II are those in the current account component of the balance of payments accounts, while those reflected in Account V.III.1 are contained in the capital account component of the capital and financial account of the balance of payments. The flows reflected in V.III.2 are shown in the financial account component of the capital and financial account. Account V.III.3.1: Other changes in volume of assets (page 317) and Account V.III.3.2: Revaluation account (page 317) are included within the IIP statement in BPM5, in order to reconcile the transactions between reporting dates with the change in positions. Thus, Account V.III.3.1 corresponds to the column for “other adjustments” in the IIP statement, while Account V.III.3.2 corresponds to the columns for “price changes” and “exchange rate changes” in the IIP statement. Account V.IV: External assets and liabilities account (page 318) is equivalent to the IIP statement in BPM5.

35. Tables A4.5 and A4.6 (on preceeding page) provide reconciliation between the categories shown in the relevant capital and financial accounts for the external sector of the 1993 SNA and corresponding items in balance of payments accounts and the IIP. The major elements of the 1993 SNA capital account of the external accumulation accounts (Table A4.5, Account V.III.1) are identical with the capital account component of the capital and financial account of the balance of payments. Although the balancing item, net lending/net borrowing, in the capital account of the 1993 SNA is not explicitly identified in the balance of payments, it nonetheless can be derived by adding the current account balance and the balance of transactions reflected in the capital account of BPM5.

Table A4.6.Correspondence of 1993 SNA Tables with BPM5 and IIP Components: Account V—Rest of the World Account, V.IV—External Assets and Liabilities Account
V.IV.1: Opening Balance Sheet
1993 SNA categoriesCorrespondence to international investment position standard components and additional details
AF Financial assetsSum of items
B.1.1.2 liabilities (equity capital and reinvested earnings) to direct investors (part of direct investment in the reporting economy);
B.1.2.2 liabilities (other capital) to direct investors (part of direct investment in the reporting economy);
A.1.1.2 liabilities (equity capital and reinvested earnings) to affiliated enterprises (part of direct investment abroad);
A.1.2.2 liabilities (other capital) to affiliated enterprises (part of direct investment abroad);
B.2 portfolio investment; and
B.3 financial derivatives; and
B.4 other investment.
AF LiabilitiesSum 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) (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 financial derivatives; and
A.4 other investment; and
A.5 reserve assets.1
B.90 Net worth
V.IV.2: Changes in Balance Sheet
AF Total changes in financial assetsSum of transactions, price and exchange rate changes, and other adjustments in respect of the corresponding international investment position items identified in account V.IV.1.
AF Total changes in liabilitiesSum of transactions, price and exchange rate changes, and other adjustments in respect of the corresponding international investment position items identified in account V.IV.1.
B.10 Changes in net worth, totalTotal changes in assets − total changes in liabilities.
V.IV.3: Closing Balance Sheet
AF Financial assetsSum of end of period values of corresponding items in the international investment position and identified in Account V.IV.1.
AF LiabilitiesSum of end of period values of corresponding items in the international investment position and identified in Account V.IV.1.
B.90 Net worth

36. Coverage of the 1993 SNA financial account (Table A4.5, Account V.III.2) is identical with the coverage of the financial account of the capital and financial account in the balance of payments, although the level of detail is different. As noted above, in the 1993 SNA the primary focus is on financial instruments, whereas in the balance of payments the primary focus is on functional categorization (that is, direct investment, portfolio investment, financial derivatives, other investment, and reserve assets). In addition to identifying types of financial instruments (insurance technical reserves being an exception), the balance of payments includes an abbreviated sector breakdown (that is, monetary authorities, general government, banks, and other). Furthermore, to conform with the 1993 SNA, BPM5 states that entries in the credit and debit sides of the financial account of the balance of payments are recorded, in principle, on a net basis (that is, increases less decreases in assets or liabilities). However, gross recording is recommended as supplementary information, such as in the case of drawings and repayments on long-term loans.

Flow of funds accounts provide information on financial transactions among institutional sectors (for more details, see paragraphs 11.103–11.111 and Table 11.3a of the 1993 SNA).

The ESA95 (Eurostat, 1996) is the system of national accounts used by member states of the European Union. Unless otherwise stated, the ESA95 treatment is consistent in all aspects with the 1993 SNA.

Balance sheets are statements, at a particular point in time, of the value of the stock of nonfinancial assets and financial assets and liabilities of an economy, sector, or institutional unit. For an economy, gross assets less gross liabilities, the balancing item for a balance sheet, equals the “net worth” of the economy.

Total financial assets and liabilities do not match because monetary gold and SDRs are financial assets that have no counterparty liability.

An example of the need for more than two entries is the settlement of a foreign currency financial derivatives contract under which the currency and deposits exchanged do not equal each other in value, with the difference recorded as a redemption of a financial derivative contract.

The Guide also defines nominal value (Chapter 2) and regards this method of valuation as central to debt analysis.

For instance, see paragraphs 14.48–14.52 of the 1993 SNA. Chapter V of BPM5 notes the need to apply market price proxies or equivalents in situations in which a market price in its literal sense cannot be determined (for example, the possible case of transfer pricing that significantly distorts measurement in resource transfers between affiliated enterprises).

Although, as noted above, the 1993 SNA also recommends an alternative presentation of the subcategories of general government.

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