Chapter

6. Consistency and Validation of CDIS Data

Author(s):
Rita Mesias
Published Date:
October 2015
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The purpose of this chapter is to assist compilers in improving the quality of direct investment data by using some recommended self-assessment tools for compiling and reporting data, by assessing consistency between International Investment Position (IIP) and CDIS data, and by assessing data reported by counterpart economies (mirror data).

CDIS Self-Assessment Tools

6.1 Before reporting CDIS data to the IMF, compilers are encouraged to perform the following recommended steps:

  • Confirm with survey respondents significant increases or decreases in amounts reported. The CDIS collects data on positions and these positions should reflect underlying development.
  • Check data reported for unlikely counterpart economies.
  • Check negative amounts of net equity. Net equity positions could be negative in the following cases:
    • ❍ When reverse equity investment is greater than the equity investment of the direct investor (DI) in direct investment enterprise (DIENT). Net equity positions record the value of the equity owned by the DI in the DIENT minus the value of the equity owned by the DIENT in the DI (reverse equity investment). The value of the reverse equity investment is generally smaller than the value of DI’s equity investment, and, as a result, net equity positions are usually a positive amount.
    • ❍ When cumulated reinvested earnings are negative due to operating losses or holding losses. Negative overall equity positions generally should not persist for many years (possibly eliminated through equity injections from DIs to their DIENTs).
  • When the survey respondent is a resident financial intermediary, and it reports large debt instrument positions, check the institutional sector of the nonresident affiliated corporation. If the nonresident is also a financial intermediary, debt instrument positions should be excluded from direct investment, unless the position involves an insurance corporation or pension fund (see paragraphs 2.21-2.24). These debt instrument positions should be included in portfolios or other investments in the International Investment Position (IIP).
    • ❍ Net debt instrument of resident financial intermediaries (column 4) should record the following data:
      • ■ Net debt instruments of resident insurance corporations and pension funds with nonresident affiliated corporations (financial and nonfinancial).
      • ■ Net debt instruments of other resident financial intermediaries with nonresident affiliated corporations. (In the case where both the resident and nonresident are a selected type of financial intermediary, such debt positions should be zero – see paragraphs 2.21-2.24 of this Guide).
  • When you report a debt instruments position for an individual counterpart economy, check that an equity position is also reported. An exception may be for positions with fellow enterprises abroad.
  • Verify large revisions in historical data reported for any of the components of the CDIS.

Data Reporting Template: Embedded Validations Tools

6.2 The CDIS data reporting templates (see Appendix I) include two types of validations tools: (1) horizontal-checks, which are shown at the far right column, and (2) vertical-checks, which are presented by region (vertical- regional-checks) and also at the bottom of the template (vertical-global-checks).

Horizontal-checks

6.3 They are generally used to verify that CDIS components add up totals reported. Thus,

  • Total inward (or outward) direct investment positions (column 1) should be equal to net equity positions (column 2) plus net debt instruments positions (column 3).
  • Net debt instruments (column 3) should be equal to net debt instruments of resident financial intermediaries (column 4) plus net debt instruments of all other resident enterprises (column 5).
  • Net debt instruments (column 3) should be equal to the difference between gross debt instruments assets and liabilities (column 6 – column 7).
  • Net direct investment (inward/outward) with fellow enterprises abroad (column 8) should be equal to the difference between direct investment liabilities and assets with fellow enterprises abroad (column 9 – column 10).
  • The “residual disclosure” check tests to see whether confidential data (marked with “C”) can be derived as a residual from reported data.

6.4 Horizontal-checks also include these additional validation tools:

  • In general, gross debt instruments (columns 6 and 7) should be recorded as positive amounts. Negative amounts reported in these columns should be explained.
  • The last three columns of the data reporting template (under the heading of “Of which total Inward/Outward, DI with fellow enterprises abroad”) collect detailed data with fellow enterprises abroad. Three sets of information are to be provided for fellow enterprises:
    • (1) Net inward/outward direct investment with fellow enterprises abroad
    • (2) Equity plus debt instruments with fellow enterprises abroad, assets
    • (3) Equity plus debt instruments with fellow enterprises abroad, liabilities.
  • Total assets and liabilities with fellow enterprises abroad mainly include debt instrument positions (equity positions between fellow enterprises are usually very small or nonexistent), such as in general, the amounts recorded under total assets and liabilities with fellow enterprises abroad (columns 9 and 10):
    • ❍ Should be equal to or smaller than the total gross debt assets and liabilities (columns 6 and 7), respectively
    • ❍ Should be positive amounts.1
  • No amounts should be reported against the reporting economy (itself).

Vertical-checks

6.5 Vertical-checks are included to check (1) that when data for an economy are confidential, then either an amount or “C” is shown in “Not specified (including confidential) by region” category, and (2) at the global level, that an amount is shown in the global category named “Total not specified (including confidential)” if any economy’s data are confidential.

6.6 These rules apply to all 10 columns of data in the data reporting template.

Consistency with IIP Data

6.7 Direct investment inward and outward data collected through the CDIS should be consistent with data compiled for direct investment in the IIP. Both datasets follow the statistical framework for direct investment established in Balance of Payments and International Investment Position Manual (BPM6), and both the IIP and CDIS include only position data.

Box 6.1Possible Explanations of the Discrepancies between IIP and CDIS Data

  • Institutional arrangements (e.g., different compiling agencies or compiling systems)
  • Methodological reasons, for instance:
    • ❍ Different valuation methods for unlisted equity. Unlisted equity should be valued at own funds at book value (OFBV) in the CDIS; however, the BPM6 describes six methods to value positions for unlisted equity when actual market prices are not available.
    • ❍ Different treatment of direct investment positions between fellow enterprises (for example, positions between fellow enterprises may not be included in the direct investment functional category in the IIP, even though they may be reported in the CDIS, if an economy has not fully applied BPM6 for IIP data compilation).
  • Different timing in compiling CDIS and IIP
    • ❍ CDIS covers end-year positions and updated data may not be immediately incorporated in IIP (or vice versa).
  • Different coverage, for instance:
    • ❍ Special purpose entities (SPEs) are not included in one of the data sets.1
  • Different vintages of CDIS and IIP data (e.g., IIP data may have been revised, while CDIS data may have not been revised, or vice-versa)
1 The IIP and CDIS metadata should clearly specify if flexible corporate structures with little or no physical presence are covered (or the extent to which they are covered).

6.8 Direct investment data are compiled under the Asset/Liability basis in the IIP, and under the Directional Principle basis in the CDIS. The IIP and CDIS data should be provided with enough detail so as to facilitate the conversion from the Asset/Liability basis to the Directional Principle basis in order to allow an accurate reconciliation between these two datasets. Direct investment on a Directional Principle basis can be derived from the direct investment in IIP presented on a gross Asset/Liability basis, or vice versa. See Table 6.1 for this derivation.2

Table 6.1Assets/Liabilities Presentation Compared to Directional Principle
Asset/liability presentation in IIPDirectional principle presentation in CDIS
Direct investment assetsTotal outward direct investment
Equity and investment fund sharesEquity (Net) = (a) + (c) + (e) − (g) − (h)
  • DIs in DIENTs (a)
  • DIENTs in DIs (reverse investment) (b)
  • Between follow enterprises


if ultimate controlling parent is resident (c) if ultimate controlling parent is nonresident (d) if ultimate controlling parent is unknown (e)
Debt instrumentsDebt instruments (Net) = (1) - (2) or (3) + (4)
  • DIs in DIENTs (k)
  • DIENTs in DIs (reverse investment) (I)
  • Between fellow enterprises


if ultimate controlling parent is resident (m)

if ultimate controlling parent is nonresident (n)

if ultimate controlling parent is unknown (o)
Broken down by:

(1) Debt instruments assets of DIs in DIENT and with non resident fellow enterprises = (k) + (m) + (o)

(2) Debt instruments liabilities of DIENTs in DIs (reverse investment) and with non resident fellow enterprises = (q) + (r) And by

(3) Debt instruments (net) of resident financial intermediaries

(4) Debt instruments (net) of all other resident enterprises
Of which total outward, Dl with nonresident fellow enterprises (Net) = (5) – (6)

(5) Total equity and debt instrument assets with fellow enterprises = (c) + (e) + (m) + (o)

(6) Total equity and debt instrument liabilities with fellow enterprises = (h) + (r)
Direct investment liabilitiesTotal inward direct investment
Equity and investment fund sharesEquity (Net) = (f) + (i) + (j) - (b) - (d)
  • DIs in DIENTs (f)
  • DIENTs in DIs (reverse investment) (g)
  • Between fellow enterprises


if ultimate controlling parent is resident (h)

if ultimate controlling parent is nonresident (i)

if ultimate controlling parent is unknown (j)
Debt instrumentsDebt instruments (Net) = (1) - (2) or (3) + (4)
  • DIs in DIENTs (p)
  • DIENTs in DIs (reverse investment) (q)
  • Between fellow enterprises


if ultimate controlling parent is resident (r)

if ultimate controlling parent is nonresident (s)

if ultimate controlling parent is unknown (t)
Broken down by:

(1) Debt instruments assets of DIs in DIENT and with non resident fellow enterprises = (p) + (s) + (t)

(2) Debt instruments liabilities of DIENTs in DIs (reverse investment) and with non resident fellow enterprises = (l) + (n)

And by:

(3) Debt instruments (net) of resident financial intermediaries

(4) Debt instruments (net) of all other resident enterprises
Of which total outward, Dl with nonresident fellow enterprises (Net) = (5) – (6)

(5) Total equity and debt instrument assets with fellow enterprises = (i) + (j) + (s) + (t)

(6) Total equity and debt instrument liabilities with fellow enterprises = (d) + (n)
Source: IMF staff.
Source: IMF staff.

Box 6.2Selected Good Practices

  • Use the same data sources to collect data on direct investment for the CDIS and IIP.
  • Reconcile CDIS with direct investment data in the IIP.
  • If there are significant discrepancies between direct investment in IIP and CDIS, compilers should seek to determine the main reasons behind these discrepancies. These differences should be explained in the CDIS metadata questionnaire (questions 17 and 18).
  • If two or more agencies are responsible for the compilation of CDIS and IIP, they should coordinate and communicate with one another.
  • Check valuation methods for unlisted equity and specify valuation method used for IIP and CDIS in their respective metadata.
  • Make efforts for fully implementing recommendation of BPM6 for direct investment; (e.g., with all the standard components and encouraged breakdowns for direct investment in the IIP, particularly where data are significant).

6.9 Discrepancies between these two bases of compiling direct investment data (i.e., Directional Principle basis and Asset/Liability basis) should be understood and explained to data users. Some possible explanations of these discrepancies are identified in Box 6.1.

6.10 In order to improve the consistency of data on direct investment in the CDIS and in the IIP, certain good practices could be carried out by CDIS reporting economies (Box 6.2).

Mirror Data

6.11 The CDIS database contains tables that present “mirror” data. Data on inward direct investment positions reported by an economy are shown side-by-side against data on outward direct investment positions reported by the counterpart economy (i.e., mirror data for inward data reported). Similarly, data on outward positions reported by an economy are shown side-by-side against data on inward positions reported by the counterpart economy. This allows data to be easily compared by direct investment partner economies and to identify inconsistencies.

6.12 Mirror data can be useful in various ways. For economies that do not participate in the CDIS, since they do not collect direct investment positions (or the breakdown by counterpart economy of direct investment positions is not available), mirror data as reported by their counterparts can provide insights on their total inward and outward positions.3 These data can be used as an indicator until data from direct investment surveys are available. For economies that participate in the CDIS, mirror data could be used to cross-check and verify their own estimates and may also be very useful in highlighting data gaps or errors at the counterpart economy level.

Box 6.3Example of the Use of Mirror Data to Improve the Quality of Direct Investment Statistics

As of December 2014, Economy A reported direct investment assets in the IIP for 2013 amounting to U.S. $173.5 million. Outward direct investment data (direct investment abroad) calculated from the 2013 IIP amounted to U.S. $142.5 million.1

Economy A did not report preliminary CDIS data for 2013; however, by looking at mirror information obtained from the CDIS (Table 3-o: Outward Direct Investment Positions as Reported by Economy A and Inward Direct Investment Positions as Reported by Counterpart Economy as of end-2013), compilers could observe that the total for “Inward Reported by Counterpart Economy” amounted to U.S. $529 million.

This mirror information indicates that Economy A’s “derived” outward investment is around U.S. $529 million, whereas their outward investment based on IIP data are U.S. $142. 5 million, suggesting that there might be misreporting. It’s possible that the counterpart estimates are incorrect (perhaps they include financial intermediary positions in direct investment that actually should be reclassified to other investment), or that Economy A’s estimates are incorrect. Thus, the existence of the discrepancy in mirror data should be viewed as an indicator of a potential estimation problem that should be explored where material or relevant.

1 IIP data presented in Asset/Liability basis have been converted to the Directional Principle basis (debt instruments assets of DIENT to DI (reverse investment) amounting to U.S. $31 million have been deducted from the total figure for direct investment assets U.S. $173.5 million, resulting in U.S. $142.5 million of outward direct investment).

Box 6.4Analysis of Bilateral Asymmetries

Background

A total of 28 CDIS participating economies were contacted in October 20131 to bring information to their attention on large bilateral asymmetries between CDIS data reported by them and mirror CDIS data reported by their main counterpart economies for end-2011.

These economies received an economy-specific Excel file, identifying asymmetries that exceeded U.S.$25 billion and represented at least 25 percent of the total reported bilateral direct investment position with the counterpart economy, for inward and/or outward direct investment, as applicable. They were encouraged to consider the asymmetries and review their estimation techniques, or contact their counterpart economies, as a way to explain or address the asymmetries and to assure that their estimates were robust. To this end, economies were reminded that the CDIS metadata questionnaires provide detailed information on collection and compilation practices adopted by CDIS reporting economies, and include information on contact persons.2

The exercise proved to be effective and more than half of the economies approached provided feedback on the specific reasons for asymmetries or indicated that efforts are under way to confirm their data. Furthermore, some economies identified specific actions to address the asymmetries.3

1 The selected economies included: Australia, Austria, Barbados, Belgium, Brazil, Canada, China P.R. Hong Kong, China P.R. Mainland, Cyprus, France, Germany, Hungary, India, Ireland, Italy, Japan, Luxembourg, Mauritius, Mexico, Netherlands, Russian Federation, Singapore, South Africa, Spain, Sweden, Switzerland, United Kingdom, and the United States.2 STA offered to provide methodological assistance in identifying and/or resolving data inconsistencies. However, it was recognized that the CDIS participating economies (and not STA) had primary responsibility for resolving the asymmetries to the extent that they considered appropriate.3 In response to STA’s pilot project, the U.S. Bureau of Economic Analysis (BEA) examined its largest bilateral asymmetries for end-2011. The BEA identified specific actions to further improve data quality. Its explorations focused on five primary areas: (1) inherent inconsistencies in the recommended treatment of fellow enterprises, (2) features of BEA’s surveys to collect direct investment statistics that prevent the identification of debt positions between some fellow enterprises, (3) uncertainty regarding the treatment of positions involving SPEs, (4) differences in the bases for valuing direct investment positions, such as market value versus historical cost valuation, and (5) differences in geographic definitions. For more details, see www.imf.org/external/pubs/ft/bop/2014/pdf/14-19.pdf.

6.13 Mirror data should be used with caution as they have limitations. For example, some relevant counterparts of the compiling economy may not participate in the CDIS, or may not provide information because of confidentiality reasons or because the data fall below a reporting threshold. Total mirror data could be lower or higher than CDIS data reported by the compiling economy. In circumstances where reported data and mirror data substantially differ, compilers should look into the reasons that could explain the differences.

Bilateral Asymmetries4

6.14 As part of ongoing efforts to enhance CDIS data quality, the IMF’s Statistics Department initiated in 2013 a project to raise awareness of, and to address to the extent feasible, large bilateral asymmetries. Please see Box 6.4 for details about this project.

6.15 The bilateral asymmetries exercise provided insights into the reasons for asymmetries and confirmed that methodological differences are a main reason, as well as differences in coverage and confidentiality. In particular the main reasons are identified in Box 6.5.

6.16 Furthermore, the exercise helped some economies to detect errors and to consider taking actions to further improve the quality of their direct investment data. As a result of this work, the Statistics Department, IMF (STA) posted a paper: Coordinated Direct Investment Survey (CDIS): Project on Bilateral Asymmetries: June 2014, (see http://data.imf.org/?sk=D732FC6E-D8C3-44D1-BFEB-F70BA9E13211cdis,imf.org).

Box 6.5Main Identified Reasons for CDIS Bilateral Asymmetries

Counterpart economies may use different methods in estimating the value of listed and/or unlisted equity.

The application of the directional principle may result in asymmetries in mirror estimates. More specifically, one economy’s outward direct investment might be shown in the counterpart economy’s data either as inward direct investment or as negative outward direct investment. For example, debt positions between fellow enterprises may result in bilateral asymmetries. As shown in Figure 4.2, and Table 4.4 a loan of U.S. $250 from an affiliate Enterprise C in Economy 3 to its fellow enterprise B in the economy 2 will be recorded by Enterprise B as positive inward direct investment of U.S. $250 with economy 3. Economy 3 will record this loan as negative inward direct investment with the economy 2 of –U.S. $250 rather than as a mirror position in its outward investment statistics of U.S. $250. In this case, even though both economies are following established guidelines, a bilateral asymmetry results (i.e., outward direct investment by a given economy would not be mirrored in inward direct investment of its counterpart economy).

Different data collection methods from enterprises versus LEGs.

Different geographic allocation by counterpart economy based on ultimate counterpart rather than immediate counterpart.

Differences in definitions of economy or geographic territory.

Use of different vintages of methodological standards. For example, some economies might include permanent debt between selected financial intermediaries in direct investment (consistent with BPM5), and others exclude such debt (consistent with BPM6).

Some economies indicated that data for SPEs are reported without economy allocation (unallocated), partly due to confidentiality reasons.

Lack of data coverage, or partial coverage, of data for fellow companies and/or SPEs was mentioned as a factor contributing to asymmetries by some economies.

1Unusually, they could be negative since they also include equity between fellows that, as it is explained in paragraph 6.1, could be negative.
2In processing CDIS reported data, STA has included tools to assess consistency of the derived IIP data against reported CDIS data. When discrepancies are relevant, STA staff may contact the authorities to request review and revision, if it is needed. Explanations of these discrepancies are sometimes also requested. This assessment is performed only for economies that report direct investment in both the IIP and CDIS.
3Estimates for all economies (including data reported by each CDIS participant and mirror data reported by each of its direct investment partner economies) are available in CDIS Table 3 at http://data.imf.org/CDIS.
4Some other initiatives fostered by international organizations, such as the European FDI Network, sponsored by the European Central Bank (ECB) and the Statistical Office of the European Union (Eurostat), or by individual economies to reconcile direct investment data bilaterally, are in place. The FDI Network was launched in June 2009 to reduce asymmetries and increase the internal consistency of the EU and euro area balance of payments statistics. The FDI Network is a secure tool for direct investment compilers to exchange information (micro data) on direct investment transactions and (since 2012) positions. Since its implementation, 27 member states of the EU have joined the FDI Network. For more details, go to: www.imf.org/external/pubs/ft/bop/2014/pdf/14-20.pdf.

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