Abstract

631. Transfers are offset items required to balance unilateral transactions in which one economic entity provides a real resource, such as goods or services, or a financial item to another entity without receiving any real resource or financial item in exchange. Transfers, according to the BPM, should be classified as current or capital. Current transfers, which are the subject of this chapter, are all transfers that are not capital.135 Therefore, current transfers are those that:

Introduction

631. Transfers are offset items required to balance unilateral transactions in which one economic entity provides a real resource, such as goods or services, or a financial item to another entity without receiving any real resource or financial item in exchange. Transfers, according to the BPM, should be classified as current or capital. Current transfers, which are the subject of this chapter, are all transfers that are not capital.135 Therefore, current transfers are those that:

  • do not transfer ownership of a fixed (capital) asset;

  • are not linked to acquisition or disposal of a fixed asset;

  • do not involve forgiveness of a liability by a creditor.

Capital transfers, which are part of the BOP capital account, are discussed in chapter 15 of this Guide.

632. Current transfers are classified as those involving the compiling country’s general government and those involving other domestic sectors. The latter are subdivided into workers’ remittances and other transfers.

633. Table 14.1 shows the main types of current transfers and summarizes sources and methods that could be used to compile appropriate entries in the BOP.

Table 14.1

Compilation of Investment Income Items

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Data Sources and Methods

International Transactions Reporting System

634. An ITRS is often an effective means for measuring transfers that involve cash payments. However, an ITRS does not always measure noncash transactions adequately; data from other sources may be required to provide comprehensive coverage of transfer transactions. Also, many reporters may net certain transfers against related BOP items. (For example, income payments may be recorded after withholding taxes are deducted.) In addition, misreporting may occur because the distinction between transfers and other BOP items, such as some services, is not always straightforward. Clear rules are therefore necessary to ensure that reporters provide data according to BOP requirements.

Other Sources

635. Surveys of employers and employment recruitment agencies may provide information on workers’ remittances. Enterprise surveys could be used to measure withholding taxes payable to nonresident governments and to gather data necessary to estimate the transfer element of insurance transactions. An enterprise survey of banks could be used to obtain data on remittances made by workers. To measure private aid flows, it may be necessary to approach private development aid agencies.

636. Official sector sources—such as government accounts, official development assistance (both donor and recipient accounts), and tax records—could be used to measure current transfers associated with the compiling country’s government. These should provide comprehensive information; however, care should be exercised in using these accounts to ensure that coverage of transactions is complete.

637. A survey of foreign embassies and international institutions could be used to measure certain transfers, including official development assistance and private transfers. Surveys of households might be a possible source of information on workers’ remittances, pensions paid by foreign governments, and personal gifts.

Estimation in the Absence of Data

638. While it is difficult—in the absence of data—to estimate many current transfer items, estimates for some items may be developed via data models.

639. For example, if the compiler knows the number of foreign workers136 in the compiling economy and can develop (perhaps from a survey of a sample of such workers) an estimate of average remittances per worker, he or she could then estimate worker remittance credits by multiplying the number of workers by average remittances.

640. The number of foreign workers could be estimated by using migration statistics. For any period, net arrivals of foreign workers—that is, the number of immigrants less the number of resident workers returning to countries of origin—would be a good indicator of the change in the number of foreign workers in the compiling economy. Allowance should be made for foreign workers who retire from the workforce but remain in the host country. A similar approach could be used to estimate the number of nationals working abroad.137 Alternatively, a government agency (such as the ministry of labor) or a private employment agency could provide estimates on the number of foreign workers in the compiling country or on the number of nationals working abroad.

641. A model for estimating technical assistance credits could be developed on the basis of the number of technical assistance personnel (experts) in the compiling country and on information about the average cost per expert. Information on numbers of experts could come from the country’s ministry of external affairs. Information on average cost could come from a partial survey of nonresident institutions providing technical assistance or from other sources investigated by the compiler. (For a discussion on the treatment of technical assistance in the BOP, see paragraphs 645–647.)

642. Withholding taxes, by nature, are often closely related to investment income. If the relationships are known, withholding taxes could be estimated on the basis of investment income. For example, if a country imposes withholding taxes of 5 percent on dividends payable to nonresidents, withholding tax credits could be estimated as 5 percent of dividend debits. Withholding tax credit data models increase in complexity if different rates of withholding taxes are levied (1) on different types of income or (2) on income payable to residents of different countries. However, the general approach would remain the same. An indication of the relationship of withholding tax debits to income credits could be obtained by approaching a sample of enterprises with external financial assets.

Extrapolations and Projections

643. When timely data are not available, estimates of transfer items will have to be extrapolated on the basis of historical trends and any other relevant information that may be available. For example, changes in the number of technical assistance personnel working in a country could be used to extrapolate estimates of technical assistance credits; changes in investment income could be used to extrapolate withholding taxes; and changes in numbers of foreign workers and nationals working abroad could be used to extrapolate worker remittance debits and credits, respectively.138

644. Similar techniques could be used to project estimates of current transfer items. Additionally, the compiler should consider budgetary forecasts for projections of certain components of official transfers, such as grants to foreign government budgets and payments to international organizations. Also, changes in government policy that may affect transfer items—for example, a decision to restrict the number of foreign workers in a country—should be considered when projections are developed.

Treatment of Technical Assistance in the BOP

645. For compilation of the technical assistance element of current transfers, it is not relevant whether technical assistance experts are residents or nonresidents of the host country. The important issue is whether the salaries of these experts are financed by a country other than the host country because BOP transfer entries relating to technical assistance reflect the source of funds. All technical assistance experts are considered to work for the host country, regardless of whether their salaries are actually paid by the donor organization or by the host country.

646. However, the residency of experts is important for determination of offset and other entries related to current transfer entries. If experts are considered nonresidents, their salaries should—to be consistent with the concept that they are employed by the host country—be recorded as part of compensation of employees. Any expenditures of nonresident experts in the host country should be recorded as part of the travel item. On the other hand, if experts are considered residents of the host country, any salaries paid to them are resident-resident transactions and thus outside the scope of the BOP. In these cases, offset entries to current transfers will be reflected in financial account items—typically as increases in the host country’s deposits with nonresident banks. Likewise, expenditures of resident experts in the host economy are excluded from the BOP. Any remittances made by these experts to other countries should be shown as workers’ remittances in the BOP.

647.The cost of technical assistance activity includes experts’ wages and salaries financed by the donor country and any other associated costs, such as the transportation and accommodation of experts, financed by the donor country.

Treatment of Food Aid in the BOP

648. Many countries receiving food aid have a centralized government agency responsible for distributing the food. Such agencies are often a good source of information on this type of aid. The compiler should ensure that food imports and offsetting transfer entries in the BOP are valued at market prices. The market price could be established by reference to international commodity prices or the value of comparable, non-aid imports.139 If the donor pays transportation costs, as is typically the case, information on these services should also be collected. In the recipient country’s BOP, these services should be shown as a debit to the appropriate transport item and offset by a transfer credit. The services could be measured on the basis of actual costs incurred by the donor or by applying average freight rates on non-aid goods imported from the donor country.

Reconciliation with Rest of the World Accounts

649. The BOP classification of current transfers covers several components of the rest of the world segment of national accounts. These components, which are shown in Table 10.6, are:

  • current taxes on income, wealth, etc.;

  • other taxes on production;

  • subsidies on production;

  • social contributions;

  • social benefits;

  • other current transfers.

650. From the BOP point of view, many of these components will be nil or negligible. Nevertheless, the BOP compiler should work closely with the national accounts compiler to ensure a consistent treatment for the two sets of accounts.