Quota Formula Review - Data Update and Further Considerations - Statistical Appendix

This appendix discusses the required data, the selection of the database, and the derivation of the data series used for the quota calculations

Abstract

This appendix discusses the required data, the selection of the database, and the derivation of the data series used for the quota calculations

Selection of the Database and Other Issues1

1. This appendix discusses the required data, the selection of the database, and the derivation of the data series used for the quota calculations.

Required Data

2. The quantification of existing and new quota variables used in this paper requires the following data for 188 member countries (converted into SDRs as the common denominator):2

  • GDP at market prices for three years (2008-10).

  • PPP GDP (GDP at purchasing power parity) for three years (2008-10). PPP GDP for a given economy is the volume of goods and services produced for final uses by that economy relative to other economies. It is calculated by deflating GDP at market prices by the PPP price level index, allowing comparisons across countries for a given period.

  • Current receipts (goods, services, income, and transfers3) for 13 years (1998-2010). Current receipts are defined as the credit component of all economic transactions between resident and nonresident entities other than those relating to financial transactions and reserves.

  • Current payments (goods, services, income, and transfers4) for five years (2006-10). Current payments are defined as the debit component of all economic transactions between resident and nonresident entities other than those relating to financial account transactions and reserves.

  • Net capital flows for 13 years (1998-2010). Net capital flows relate to cross-border transactions of the financial account in all external financial assets and liabilities except reserve assets, credit and loans from the Fund, and exceptional financing. This measures net financial flows.5

  • Official reserves (average over the 12 months of 2010), defined as the sum of foreign exchange, SDR holdings, reserve position in the Fund, and monetary gold valued at SDR 35 per fine troy ounce.

  • International investment position (IIP) for 2010. This stock variable is the absolute sum of a member's external financial asset and liability positions.

  • Investment income for five years (2006-10). This variable is defined as the absolute sum of investment income credits and debits in the current account.

  • Financial flows for five years (2006-10). This variable is the sum of the absolute value of cross-border transactions in the financial account in all external assets and liabilities (direct investment, portfolio investment, financial derivatives, and other investment), except reserve assets. This measure is a proxy for “gross” financial flows.

3. Errors and omissions have not been included in the measure of variability of current receipts and net capital flows. Errors and omissions are, by definition, a residual item, which reflects recording errors that cannot be ascribed to any particular balance of payments category. Consistent with past practice, these recording errors are not incorporated into the variables of the quota data base.

4. Credit and loans from the Fund, and exceptional financing have been excluded from the variability measure for the same reason that reserve asset changes have been excluded. Such transactions, including borrowing from the Fund, payment arrears, and debt forgiveness or rescheduling, represent exceptional measures undertaken to finance balance of payments needs. Exceptional financing flows are normally shown “below the line” because they are not autonomous balance of payments transactions. For these reasons, and consistent with past practice, these transactions are not included in the variability measure.

5. Along the same lines, transactions in both reserve assets and reserve-related liabilities should be excluded from net financial flows (referred to as “net capital flows”) so that only autonomous, and not financing, flows are captured. Data on transactions in reserve assets are available for most members in IFS and have been excluded from net capital flows. However, because of the continuing lack of data on reserve-related liabilities for many members (reserve-related liabilities are not a standard component in BPM5), changes in reserve-related liabilities have not been excluded from the measure of net capital flows in this data base.

Selection of the Database

6. The database containing the variables used in the quota calculations would ideally have the following attributes: it should be comprehensive; i.e., contain all required data— compiled in line with internationally accepted concepts and definitions—for all members; the data would be from official sources (central banks and national statistical agencies); and the data would be comparable (consistent and coherent) across time and countries. This would ensure similar treatment for all countries' data and facilitate the comparability of results in a transparent manner.

7. As in past quota updates, the main source of data used in the quota calculations was the Fund's central macroeconomic database of country, regional, and global statistics. STA manages this database (using a data processing system known as the Data Management for Excel DMXplus) for international statistical cooperation and publication purposes, and to support the Fund's surveillance and use of Fund resources functions.6 The database, which encompasses a number of component databases, embodies, to the extent possible, the application of international statistical methodologies for the compilation of economic and financial data.

8. The IFS data are reported to STA by central banks and national statistical agencies, and are mostly based on internationally consistent definitions, such as the BPM5 and the 1993 System of National Accounts (1993 SNA). STA makes an effort to compile these data into long time series that are consistent across time and countries. However, data gaps exist. For instance, there are some missing data for GDP and current account transactions for recent years.

9. Missing observations were largely supplemented using the WEO database. Although WEO data should reflect a presentation of the balance of payments that is consistent with the BPM5, the definition of balance of payments variables does not necessarily conform to BPM5 unless (a) national compilers have updated the respective country's balance of payments accounts according to BPM5 or (b) the staff report for the country reflects the BPM5 definitions.

10. At the outset of the development of the database for the quota calculations, STA was aware that for some member countries there were large differences between the IFS and the WEO data sets. These data discrepancies between the two data sources may also have been influenced by the varying institutional, legal, and accounting contexts of data compilation across member countries (Box A1).

Methodological Issues

With regard to GDP data, the 1993 SNA extended the scope of GDP slightly, adding production of goods for own final use to output and mineral exploration, computer software, and artistic originals to capital formation. This has resulted in an increase in reported GDP levels of up to 5 percent. Most IMF members have adopted the 1993 SNA for reporting GDP data to the IFS with some of them having revised historical data. By now, the size of data inconsistencies across countries due to the revisions related to the 1993 SNA is likely to be smaller than other differences related to known measurement problems with GDP (e.g., under-coverage of surveys or differing adjustment methods for the size of the non-observed economic activity).

Further changes introduced by the System of National Accounts 2008 (2008 SNA) will have an impact on GDP and other macro-economic aggregates for member countries. Some of the noteworthy changes brought out by the 2008 SNA are: including research and development expenditures in gross capital formation rather than in intermediate consumption and including depreciation of research and development assets in consumption of fixed capital including net acquisitions of weapon systems in gross capital formation rather than in government final consumption, and including depreciation of military assets in consumption of fixed capital; making refinements to the calculation of Financial Intermediation Services Indirectly Measured for loans and deposits using a reference rate and requiring implementation the reference rate method rather than treating it as an option; calculation of non-life insurance output using the adjusted claims and the adjusted premium supplements, etc. Where they are relevant, these changes are expected to increase GDP. Some countries, e.g., Australia, have already moved to the 2008 SNA, others are in the process of implementing it.

The BPM5 introduced changes in the conceptual presentation of balance of payments accounts. It introduced a distinction between current and capital transfers, with current transfers remaining in the “current account” and capital transfers reclassified in the “capital account.” The capital account also includes acquisitions/disposals of non-produced non-financial assets but excludes financial account transactions, which were reclassified in a newly named “financial account.” Data are taken as reported by member countries and the changes in methodology may have contributed to slight breaks in some series.

With regard to quota calculations, the current receipts and payments cover goods, services, income, current transfers, and BPM5's capital account. While BPM5 has been widely adopted by members, helping to ensure comparability with previous quota calculations, both current and capital transfers—excluding exceptional financing—are included here in current transactions.

With regard to financial account transactions, the accuracy of financial account data in many countries, including those in the IFS database, is uneven and the data are generally less comprehensive than the other data used for the quota formulas. This reflects classification and practical difficulties encountered by countries in compiling the data. Financial account data, particularly on the private nonbank sector, are generally difficult and resource intensive to compile. The switch from data collection systems based predominantly on government and balance sheet records to systems (particularly surveys) incorporating large nonbank private sector transactions has been slow. Many countries are still in the midst of adapting their collection and recording systems to take account of changes in the composition and magnitude of financial transactions, including new instruments such as financial derivatives. Institutional and accounting requirements for data compilation may differ across countries and data availability on the private nonbank sector varies. In the IFS, in some instances, only aggregates and not component series are reported.

With regard to official reserves, BPM5 is the standard that virtually all IMF members followed in reporting their data for dissemination in the Fund's main statistical publications, the International Financial Statistics (IFS) and the monthly on-line Balance of Payments Statistics database. Beginning in August 2012, the Fund will begin disseminating data in these publications on a BPM6 presentational basis. BPM6 contains a number of clarifications for the reporting of reserve assets, such as for members of currency unions, but does not fundamentally change the treatment (see Box A2, Forthcoming changes with BPM6). In addition, SDDS subscribers disseminate data in the Data Template on International Reserves and Foreign Currency Liquidity. The Data Template groups some reserves-related data items differently than BPM5, and integrates data on reserves and foreign currency liquidity in a single framework. A pre-publication draft of the updated Guidelines that is consistent with BPM6 is available on the IMF website at http://www.imf.org/external/np/sta/ir/IRProcessWeb/dataguide.htm.

Forthcoming Changes with BPM6

BPM6 (Balance of Payments and International Investment Position Manual, sixth edition) will introduce a number of changes to data underlying the variables which are included and have been considered for inclusion in the quota formula. The IFS will begin publishing data using the BPM6 presentation exclusively starting in 2012. Implementation of BPM6 will take a number of years, and as a result, there will be a mixture of BPM5 and BPM6 reporting that will affect future quota updates, including the 15th General Review. The main changes affecting quota data are:

  • Treatment of goods for processing: BPM6 captures in trade flows (as services) only the explicit fees that are paid to the goods processor, rather than the full value of the goods entering and leaving the processing economy, in the case where the goods do not change ownership. This change will particularly affect those countries for which goods for processing are important in its trade; and will take longer for some countries to implement since it requires additional data collection. This modification will reduce openness for those countries where goods for processing is a significant component of their trade; variability could also be affected, especially, if revisions do not cover the full 13 year period used to estimate this variable. This change aims to reduce the “double counting” of trade, which has been a concern in previous discussions on quota variables

  • IIP coverage: The IIP is more prominent in BPM6 than in BPM5. Partly as a result of this increase in emphasis, efforts are underway to strengthen coverage of the IIP, which has been considered as a measure of financial openness. Official coverage has been improving in recent years and it is expected to continue to do so. In terms of increasing the number of IIP reporters, STA has continued its efforts to increase the number of countries reporting IIP data through its IIP Pipeline Project, an initiative to assist a subset of countries in compiling IIP statistics, notably those countries that STA considers could potentially develop such data in the near future.

  • Recording of foreign direct investment: FDI is included in gross financial flows and the IIP data, which have been discussed as alternative measures of financial openness in previous quota papers. Under the BPM5 methodology, some components of the direct investment account are netted out. Starting with BPM6, direct investment components will be reported on a gross basis. All of the components of FDI needed to construct the BPM5 measure of FDI are collected separately (as standard components) under BPM6, and so this is a presentational change and not a change in data collection.

  • SDR allocations: Since last year's quota round, the inclusion of the 2009 SDR allocations as liabilities in the financial account impacted net capital (financial) flows and the calculation of gross financial flows. IIP stocks were similarly impacted on the liability side while on the asset side there was an increase in Holdings of SDRs in reserve assets.

The implementation of BPM6 entails that the IMF will start publishing BOP/IIP data exclusively using BPM6 presentation as of August 2012, going back several years to 2005. In 2012, a number of countries, including the United States, Russia, and Australia, will have adopted BPM6. Some countries are currently reporting select BOP data compiled according to BPM6—for example the United States-but reported under the current BPM5 presentation. However, STA does not maintain records of which countries have adopted select series in BPM6.

To ensure comparison across countries, STA developed bridging tables that allowed a rearrangement of data items from a BPM5 presentational basis to a BPM6 presentational basis. STA prepared a “generic” conversion of BPM5 data to a BPM6 basis and sent the converted data to countries for review. Countries had three choices: (i) accept the generic conversion; (ii) customize the generic conversion; or (iii) provide their own BPM6 data. The majority of countries have opted for the generic conversion. For those countries that have opted for a customized conversion of their BPM5 data, STA is consulting with them on the resulting presentation. Some countries chose the option to provide their own BPM6 data. STA publications will clearly indicate whether the underlying data were supplied on a BPM5 or BPM6 basis by a given country. Finally, new report forms have been designed to collect BPM6 data. Although these new forms, by themselves, should not have an impact on quota calculations, there is some chance that, due to changes in terms and concepts, there will be an impact, such as on the calculation of exceptional financing.

Data Availability and Adjustments

11. The bulk of Fund members that report balance of payments statistics to STA still provides it on the basis of the BPM5 (see Box A2 on forthcoming changes with BPM6). Data were prepared for current receipts and payments and net capital flows (as defined above). Where members reported balance of payments statistics to STA, the data stored in the IFS database were used as reported. Of the 188 members, the number reporting data to IFS for at least some of the years are as follows: 169 for the period 1998-2010; and 164 for the period 2006-10. When data were not available for some members for the timeframe required for the quota calculations, estimates were made, largely on the basis of the WEO.7 For members where neither IFS nor WEO data were available, FIN obtained data from staff reports, country desks and, in one case (see below), Eleventh Review data.

12. The data source breakdown for the period 1998-2010 is as follows: of the 169 members reporting data for IFS—135 are derived entirely from IFS reported data, 29 are derived from a combination of IFS and WEO estimates, and 5 are derived from IFS and WEO but have missing data for some years; for the 19 members not reporting any data to IFS—11 are derived entirely from WEO estimates, 2 are derived from WEO estimates but have missing data for some years, and 6 have neither IFS nor WEO data available.

13. The data source breakdown for the period 2006-10 is as follows: of the 164 members reporting data for IFS—146 are derived entirely from IFS reported data and 18 are obtained from a combination of IFS and WEO estimates; for the 24 members not reporting any data for IFS—18 are derived entirely from WEO estimates, and 6 have neither IFS nor WEO data available.

14. The following sections describe for each of the data categories the general procedures employed by STA to construct the required database for the quota calculations.

Goods and services transactions

15. Data reported by members and maintained in IFS were used for each country. Where there were data gaps after the latest year of reporting to STA, estimates were made by applying the growth rates derived from the WEO for the missing year(s) to the latest reported annual data (credits and debits). When the data gaps were in respect of years prior to the latest reported data to STA, the WEO data were inserted for those years to complete the series. For countries where no data were reported to STA, available WEO data were used. For China, P.R., Hong Kong, SAR, and Macao, SAR, goods data were adjusted for trade among the mainland, Hong Kong, SAR, and Macau, SAR based on the Direction of Trade database.

Income, transfers, and the capital account

16. Data reported on income and current transfers by members and maintained in IFS were used for each country. Where there were data gaps, estimates were derived using WEO data series. The adjustment procedure consisted of the followings: (1) if the gap was in the leading year of the series (1998), then WEO data were inserted for all years where data were missing, either as credits if WEO showed a net credit balance or as debits if a net debit balance was shown in WEO; (2) if the gap was after a reported observation, then the change in the balance on transactions from the WEO data was added to the STA data of the previous year—generally, credits if WEO showed a net credit balance or debits if a net debit balance was shown in WEO.

17. The primary source for data on the capital account as per BPM5 is the IFS data provided by member countries. In a few cases, countries reported only “net” capital account data and STA derived credit and debit values. When no data are reported for IFS, the WEO net capital account value, depending on its sign, was used to derive an estimate.

Net capital flows 8

18. The primary source for data on net capital flows is the IFS financial account data provided by member countries to STA. When no data are reported for IFS, a WEO value was used to fill the gaps, to the extent possible.

Official reserves

19. The stock data on official reserves—comprising monetary gold, SDR holdings, reserve position in the Fund, and foreign exchange holdings—were obtained from IFS.9

Monetary gold was valued at SDR 35 per fine troy ounce. In deriving annual average holdings of official reserves for 2010, the data for the 12 months of 2010 were summed and then divided by 12. SDR holdings and reserve position in the Fund are based on Fund accounts and data are available for the entire period. However, data for foreign exchange may not be reported for the entire 12 month period. If this is the case, the number of months for which data were reported was used to calculate the average. If a country did not report its foreign exchange and/or monetary gold holdings data to STA for publication in IFS, staff reports are used to gap fill this information (please see Missing data series, below).

GDP

20. The IFS and WEO databases provided GDP data for 183 members. The IFS database is the source of data for 117 members, WEO data were used for 20 members, and WEO growth rates were applied to the latest IFS data to estimate missing data for 4610 members. When IFS data were missing for a long period of time (i.e., most recent data are for 2005 or earlier), these have been directly replaced by WEO estimates, otherwise WEO growth rates were applied to the last available IFS observations.

PPP GDP

21. The PPP-based GDP data were downloaded from the WEO database for 182 countries. The WEO PPP-based GDP is calculated by dividing a country's nominal GDP in domestic currency by its PPP price index relative to the United States11 and then converting it into SDR units, using the SDR-USD exchange rate. The WEO PPP price indexes are based on the data from the International Comparison Program (ICP) for 2003-05 that were published in December 2007. These data were then extended in the WEO data base by using the growth in relative GDP deflators (the deflator of a country divided by the deflator of the United States). The data for the remaining countries were estimated using their share in global PPP GDP in 2005 based on the ICP data published in December 2007 (Box A3).

The International Comparison Program: The PPP GDP1

Worldwide PPP-based comparisons of GDP require a comprehensive data collection of price levels of comparable items across countries and summary crosscountry relative price comparison. This has been the work of the International Comparison Program (ICP), which began in 1968 as a modest research project jointly conducted by the United Nations Statistical Division and the International Comparisons Unit of the University of Pennsylvania. The first round of the ICP in 1970 included only 10 countries but this grew to 146 countries for the 2005 round.

Regionalization of the effort began after the 1975 comparison and the EurostatOECD PPP Program became part of the ICP in the early 1980s. The first time all regions of the world were covered was inl993. Since 1993, the World Bank has been the global coordinator for the ICP. The last round of the ICP was the 2005 comparison, but work on a 20ll round is near completion. The IMF Statistics Department contributes to this work by building capacity in the Asia-Pacific on GDP estimates, used for ICP weights, under a three-year project funded by the Japan Government. This is in addition to Fund technical assistance real sector statistics and Fund staff serving on the ICP Technical Advisory Committee.

The 2005 round of the ICP was an unprecedented global statistical effort and represented a major overhaul of methods used. The number of participating economies far exceeded that of any previous ICP survey. Work was done in six “regions” of the world (Africa, Asia, CIS, OECD-Eurostat, South America, and West Asia), overseen by the ICP Global Office in the World Bank. National agencies were responsible for conducting surveys and regional agencies worked on regional comparisons. Regional estimates of PPPs were linked into a global data set so that economic activity and price levels could be compared between economies in different regions. The improvements made in this round of the ICP made it feasible to include PPP GDP estimates into the IMF quota formula as part of the 2008 reform. The forthcoming 20ll round of the ICP seeks to make further headway in strengthening the PPP data, and the results are expected to become available at end-2013.

In addition to being included in the IMF's quota formula, the PPP data are widely used. These data are used by researchers as well as a large number of international and regional organizations, including for poverty headcounts (World Bank), WEO (IMF), allocation of structural and cohesion funds (European Commission), Human Development Index (UNDP), Health inequality assessment (WHO), and assessing per capita expenditures in education (UNESCO).

1 Comprehensive information on the ICP can be found at the following website: http://web.worldbank.org/WBSITE/EXTERNAL/DATASTATISTICS/ICPEXT/0„contentMDK:22377ll9~menuPK:6782247~pagePK:60002244~piPK:62002388~theSitePK:270065,00.html.

IIP

22. This variable is calculated as the sum of the absolute values of assets and liabilities, year-end 2010. One hundred and nine countries (nearly three fifths of the membership) reported 2010 IIP data to IFS on the asset and liability sides,12 up from 102 countries reporting 2009 data last year.

Investment income

23. Investment income is the sum of the absolute values of credits and debits, averaged over 2006-10. One hundred and forty-six of the 188 members reported data to IFS for the entire 2006-10 period, where IFS data were incomplete, data from WEO or staff reports have been used to fill these gaps to the extent possible. In cases where there is no breakdown between compensation of employees and investment income, the data for income have been used as a proxy. Further gap filling by FIN reduced the number of countries with missing investment income data to 3.

Financial flows

24. It is the sum of the absolute values of transactions in assets and liabilities for direct investment, portfolio investment, financial derivatives and other investment, averaged over 2006-10; 146 of the 188 members reported data to IFS for the entire 2006-10 period, where IFS data were incomplete, data from WEO or staff reports were used to fill these gaps to the extent possible. After this gap fill, there were still 4 countries for which data were missing.

Conversion to SDRS

25. The balance of payments and the GDP data series in U.S. dollars were converted to SDRs using period-average exchange rates. The IIP data series in U.S. dollars were converted to SDRs using end-of-period exchange rates.

Missing data series

26. Data that were missing from IFS and WEO were obtained almost entirely from recent staff reports. The only country for which no data for recent years were available was Somalia (except reserves). In this case, data for the various series were assumed unchanged from the Eleventh Review. Countries for which data for all variables were derived from recent staff reports were Marshall Islands, Palau, and South Sudan.

27. Countries for which only official reserves data were derived from staff reports include Afghanistan, Bahrain, Ethiopia, Ghana, Guinea, Iran, Kiribati, Lesotho, Myanmar, Tajikistan, Turkmenistan, Tuvalu, and Uzbekistan. For Micronesia and San Marino, all variables except official reserves were derived from staff reports.

Gaps in data for current receipts for the following countries were filled using staff reports: Afghanistan (2001), Iraq (1998-2004), Kosovo (2000-03), Liberia (1998-99), Montenegro (1998- 2002), Timor-Leste (1998-2005), Tonga (1998-2000), and Tuvalu (1998-2010).

Gaps in data for current payments for Tuvalu (2006-10) were filled using staff reports.

Gaps in data for net capital flows for the following countries were filled using staff reports or previously reported data: Brunei (1998-2000), Kosovo (2000-03), Timor-Leste (1999-2005), and Tuvalu (1998-2010).

Table A1.

Distribution of Quotas and Calculated Quotas—by Member

(In percent)

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Source: Finance Department.n.a. - not available.

Based on the following formula: CQS = (0.50*GDP + 0.30*Openness +0.15*Variability + 0.05*Reserves)^K. GDP blended using 60 percent market and 40 percent PPP exchange rates. K is a compression factor of 0.95.

The “post second round” reflects the ad hoc quota increases for 54 members under the 2008 reform, which became effective in March 2011. Includes South Sudan which became a member on April 18, 2012. For the two countries that have not yet consented to and paid for their quota increases, 11th Review proposed quotas are used.

Includes South Sudan which became a member on April 18, 2012; reflects the proposed doubling of its quota after the 14th Review becomes effective.

Based on IFS data through 2010.

Based on IFS data through 2009.

Based on IFS data through 2008.

Based on IFS data through 2005. Reflects the impact of adjustments to current receipts and payments for re-exports, international banking interest, and non-monetary gold.

Including China, P.R., Hong Kong SAR, and Macao SAR.

Table A2.

Distribution of Quotas and Updated Quota Variables—by Member

(In percent)

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Source: Finance Department.n.a. -- not available.

Includes South Sudan which became a member on April 18, 2012; reflects the proposed doubling of its quota after the 14th Review becomes effective.

GDP blended using 60 percent market and 40 percent PPP exchange rates.

Based on IFS data through 2010.

Based on IFS data through 2009.

Variability of current receipts plus net capital flows.

Including China, P.R., Hong Kong SAR, and Macao SAR.