Abstract

404. Previous chapters have focused on various data sources that may be used to compile a BOP statement. This chapter examines the compilation process itself. The BOP worksheet is discussed, and broad issues associated with estimation and projection are described. Introduction of a BOP coding system is followed by a discussion of the relationship between the BPM and the SNA. Selection of the unit of account for the BOP and treatment of multiple exchange rates are then described. The remainder of the chapter addresses compilation issues (including treatments of mobile equipment, construction activity, household transactions, and wealthy individuals) that could have significant impacts on a number of BOP components.

Introduction

404. Previous chapters have focused on various data sources that may be used to compile a BOP statement. This chapter examines the compilation process itself. The BOP worksheet is discussed, and broad issues associated with estimation and projection are described. Introduction of a BOP coding system is followed by a discussion of the relationship between the BPM and the SNA. Selection of the unit of account for the BOP and treatment of multiple exchange rates are then described. The remainder of the chapter addresses compilation issues (including treatments of mobile equipment, construction activity, household transactions, and wealthy individuals) that could have significant impacts on a number of BOP components.

405. Chapters 11 through 17 of this Guide deal with compilation issues pertaining to particular components of the BOP. However, many transactions affect more than one component, and cross references are made when appropriate.

The BOP Worksheet

406. As described in chapter 1, the BOP is a statistical statement designed to provide a record of an economy’s economic transactions with the rest of the world. This statistical statement can be presented in a number of ways and with varying levels of detail. The most detailed level is the BOP worksheet, wherein the compiler assembles various source data (including estimates) in a manner consistent with the conceptual framework and classifications.

407. The BOP worksheet can be thought of as a document that records the BOP. However, in most cases, this worksheet will take the form of a computer database. Regardless of the form that the BOP worksheet takes, factors influencing its design will be similar. These factors are discussed in this chapter and in chapters 18 and 20.

408. Selection of items to be included in the BOP worksheet and methods of measuring them should be based upon the objectives and constraints of the BOP compilation process. The objective of the BOP process is to present, to users (such as economic analysts), meaningful economic data on an economy’s external economic activity. Data should be presented so that the analyst can see links between the BOP and other important bodies of statistics—such as the national accounts, money and banking statistics, and government finance statistics. As both domestic and international users may wish to compare one country’s activity and performance with that of other countries, the compiler should provide internationally comparable data. The compiler should ensure that statistics meet user requirements in terms of quality, detail, and timeliness. In all cases, the compiler should take into account the quantity and quality of the staff and other resources available to undertake this work.

Estimation and Projection

Estimation

409. Often, data that come from sources available to the BOP compiler can be entered directly into the BOP worksheet to compile the series included therein. However, in certain situations, the compiler may have to manipulate data before entering them into the worksheet. Illustration 10.1 highlights this point. It shows that data from various sources may be used directly in the worksheet or in estimation procedures that, in turn, provide input for the worksheet. Illustration 10.1 distinguishes four broad forms of estimation undertaken by the BOP compiler: (1) simple estimation, (2) sample expansion, (3) data model, and (4) extrapolation and interpolation.

Illustration 10.1
Illustration 10.1

Relationship of Data Sources, BOP Worksheet, and Estimation Procedures

410. Simple estimation involves relatively simple formulae or procedures that may be used to adjust or estimate source series. For example, certain source series may suffer from undercoverage, and the compiler may, for BOP compilation purposes, apply a ratio or add some amount to the source series. Also, a BOP series may be estimated by using an assumed ratio between that series and other BOP or economic statistical series. For example, freight and insurance on imports may be considered to be fixed ratios of imports c.i.f.

411. Sample expansion is the process of expanding results from a selection of respondents to measure the population as a whole. The use of sampling techniques in BOP collections is discussed in chapter 18, paragraphs 888-890.

412. A third type of estimation involves bringing data from different sources together in a data model; the output of the model is a particular BOP item. For example, estimates of nonresident traveler expenditure in an economy could be derived by obtaining, from migration statistics, the number of short-term visitors and multiplying this number by estimates, which were derived from a survey of travelers and other sources, of expenditure per capita. Selection and inclusion of some data model elements depend on the compiler’s judgment.

413. Data from some sources may not be available on a sufficiently timely basis for compilation of the BOP statement. Therefore, the compiler may extrapolate certain BOP series from earlier periods. Extrapolation also covers adjustments made to preliminary results from a collection source providing less than complete data. If the data source or data model used by the compiler provides data on a less frequent basis than the periodicity of BOP compilation, it will be necessary to interpolate data between measurement periods to obtain sufficiently frequent estimates for the BOP.

414. Many compilers consider all BOP statistics to be estimates—a perception that emphasizes how compilation of BOP accounts is subject to a range of processes and individual subjective judgments at different levels of compilation. However, estimation should not be seen as a substitute for collecting reliable data.

Projection

415. Apart from compiling BOP series for historical periods, many compilers project BOP series for future periods if, for example, they are members of official committees that provide national accounts (including BOP) projections for government economic policy purposes. Compilers who have a good understanding of BOP compilation methodology and BOP series can play valuable roles on such committees. In turn, compilers develop greater understanding of the use of BOP series and insight essential for various data analyses and validation functions that compilers are expected to perform. Alternative sets of projections, each of which is predicated on different assumptions, may be produced.

416. In the Guide, the term estimates refers to derivation of series for historical periods and the term projections refers to compilation of BOP series for future periods. Subsequent chapters include some illustrative information on projection methodologies.

417. It is important that compilers involved in projecting the BOP be aware of projections—particularly official projections—of items related to the BOP and that these other projections be given appropriate consideration when BOP items are projected. It would not be proper, for example, for BOP compilers to project imports of goods on the basis of national income projections that differ from official national accounts projections.76

418. BOP projections can be developed via a “bottom up” or “top down” approach. In the former, individual items are projected and broad aggregates are derived by summing these items. Derivations of broad aggregates should be verified in terms of appropriateness to expected economic circumstances. The “top down” approach is the reverse. Broad aggregates are projected first, and individual items are then projected to fit in with broad aggregates. In this case, projected individual items should be checked to ensure that each, per se, is sensible.

419. Econometric equations are often a useful tool for developing projections as such equations provide a systematic and objective framework. However, they should be used with caution. Historical data of high quality are required to establish the equations; specialized technical skills are required to develop them; and changes (particularly structural changes) in economic circumstances can have an impact on the quality of results. Also, “the real world” is significantly more complex than even the most sophisticated econometric equation or set of equations.

420. Econometric equations are generally more reliable for projecting some BOP items than others. Such equations often provide useful starting points for discussion. However, a result from an econometric equation should never be accepted unless it can be supported by reasonable economic argument.

421. Regardless of the techniques used to project BOP items, compilers should perform ongoing reviews to assess effectiveness and make necessary adjustments.

BOP Coding System

422. The coding (reference number) system used in the Guide is one that has been agreed upon by the IMF, the OECD, and the European Union as the international standard for coding BOP and IIP data. Objectives underlying system design include completeness of coverage, simplicity, stability, and adaptability to automation.

423. The coding system consists of two parts: a four-digit topic code and a tag code that may contain any number of digits. The topic code is required; the tag code is optional. Topic codes have been completely defined at the international level; tag codes have typically not been defined. The purpose of the tag code is to enable compilers in particular countries, or groups of countries, to adapt the coding system to their requirements and preferences. The tag code could be used, for example, to show levels of detail that exceed the international level or to show a commodity breakdown of trade in goods or additional details on services transactions.

424. When topic codes were determined, criteria were predicated on ease of use. Limiting the codes to numbers would ensure that codes would be acceptable to a wide range of computer software. Limiting the length to short numbers, which could be read and memorized easily, would also reduce computer storage and data entry costs.

425. It is useful to structure any group of codes so that components can be related to each other in a comprehensive way. For example, in BOP codes, it might be advantageous if the fourth digit always represented the domestic sector. However, the brevity criterion for topic codes limited incorporation of information. Only the first and second digits of topic codes have particular meanings.

426. The first digit of the topic code describes the position of the item in the IIP/BOP accounts as:

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427. The second digit of the topic code identifies the section of the accounts as:

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428. The third and fourth digits of the topic code relate to specific items in the accounts and have generally been assigned sequentially.

429. Table 10.1 shows the relationship between the coding system and standard components set out in the BPM for the current account. Some items, which are shown with asterisks, contained in the coding system are not standard components of the BPM. These items have been included because of their potential analytical interest to a large number of countries. Tables 10.2, 10.3, and 10.4 (on pages 76-84) show the relationships between the coding system and the standard components set out in the BPM for the capital account, financial account, and IIP, respectively. Table 10.5 (on pages 85-86) shows—except for supplementary items included in table 10.1—the relationship between the coding system and supplementary classifications of the BPM.

Table 10.1

Standard Components of the Current Account

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Items shown with asterisks are not standard components. These items have been included because they may be of analytical interest to many countries.

Table 10.2

Standard Components of the Capital Account

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Table 10.3

Standard Components of the Financial Account

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These items, which are not BOP standard components, are necessary to reconcile HOP and IIP standard components.

This item is not part of the financial account; it has been included for convenience only.

Table 10.4

Standard Components of the International Investment Position

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