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Balance of Payments (BOP) Statistics. By SHAMSUL ARIFEEN SENIOR JOINT DIRECTOR STATISTICS & DWH DEPARTMENT. Definition of BOP as per IMF’s Manual on Balance of Payments 5 th Edition(BPM5).

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Balance of payments bop statistics

Balance of Payments (BOP) Statistics

By

SHAMSUL ARIFEEN

SENIOR JOINT DIRECTOR

STATISTICS & DWH DEPARTMENT


Definition of bop as per imf s manual on balance of payments 5 th edition bpm5
Definition of BOPas per IMF’s Manual on Balance of Payments 5th Edition(BPM5)

“ Balance of Payments in a statistical statement that systematically summarizes for a specific time period, economic transactions of an economy with the rest of the world ”

It helps monitor all international monetary transactions for a specific time period.

In the increasingly interdependent world economy,aspects such as payments imbalances and inward and outward foreign investment play leading roles in economic and other policy decisions.


The bop records transactions between residents nonresidents
The BOP records transactions between Residents & Nonresidents

The BOP is concerned with transactions and thus deals with flows rather than with stocks

A transaction involves two parties or transactors. Sometimes, it is not clear if there are actually two parties. (Transactions involving branches and head offices, migrants transfers etc.)

A transaction is a economic flow that reflects the creation, exchange, transfer, extinction of economic value or changes in ownership of goods / financial assets.


Exceptions in bop transactions
Exceptions in BOP transactions Nonresidents

Transactions involving

External financial assets and two resident parties &

External financial liabilities and two nonresident parties are included in the BOP.


Double entry accounting system 1
Double Entry Accounting System Nonresidents(1)

The basic accounting convention for a BOP statement is that every recorded transaction has two entries with exactly same values.

Each recorded transaction has as a Credit (+) and a Debit (-) entry.

In BOP Credit entry is used to denote an increase in liabilities or a reduction in assets

And

Debit entry is used to denote an increase in assets or a decrease in liabilities

Sum of all transactions is Zero.


Double entry accounting system 2
Double Entry Accounting System Nonresidents(2)

In the compiling economy

Credit entry is recorded for

Exports of goods and services

Financial items reflecting a reduction in economy’s external assets or an increase in external liabilities

And

Debit entry is recorded for

Imports of goods and services

Financial items reflecting an increase in assets or a reduction in liabilities


Residency and center of economic interest 1
Residency and Center of Economic Interest Nonresidents(1)

  • Residence is an important attribute in BOP

    because the identification of transactions between residents and nonresidents underpins the system

  • Identical concepts of residence are used in BPM5 and the 1993 Systems of National Accounts (SNA)


Residency and center of economic interest 2
Residency and Center of Economic Interest Nonresidents(2)

Concepts of residence:

  • Economic connection of a unit to an economic territory

    • Not based on nationality or legal criteria

    • Not based on currency used

  • Expressed as an economic unit’s Center of economic interest


Residency and center of economic interest 3
Residency and Center of Economic Interest Nonresidents(3)

Three Questions:

  • What is the institutional unit?

  • What is the economic territory?

  • Which territory is the unit closely connected with?


Residency and center of economic interest 4
Residency and Center of Economic Interest Nonresidents(4)

The residents of an economy comprise the following

types of institutional units:

  • Households

    • Includes the individuals who make up a household

  • Enterprises

    • Financial and non-financial corporations

    • Unincorporated businesses

  • Non - profit institutions serving the households

  • Government


Residency and center of economic interest 5
Residency and Center of Economic Interest Nonresidents(5)

The economic territory of a country is the

relevant geographical area to which the concept

of residence is applied.

  • A territory administrated by a Government within this, persons, goods, and capital circulate freely.

  • Free trade zones

  • Usually a country, but not necessarily

    • Economic and monetary unions

    • International organizations like IMF and UN


Residency and center of economic interest 6
Residency and Center of Economic Interest Nonresidents(6)

Center of economic interest

“Dwelling, place of production, or other premises, within the economic territory of the country on, or from, which the unit engages, or intends to engage, in economic activities and transactions on a significant scale, for an indefinite or long period of time”


Residency and center of economic interest 7
Residency and Center of Economic Interest Nonresidents(7)

  • Households and Individuals

    • The BPM5 guidelines to be used for determining residence:

      “ The presence or the intention to be present for a period of one year or more”

  • Exceptions

    • Diplomatic representatives

    • Member of the armed forces

    • Students

    • Medical patients

    • Crew members


Residency and center of economic interest 8
Residency and Center of Economic Interest Nonresidents(8)

  • Enterprises

    • An enterprise has a center of economic interest and is a resident unit of a territory when the unit is engaged in a significant amount of production and plans to do so over an indefinite or long period of time.

    • One year guideline by BPM5


Residency and center of economic interest 9
Residency and Center of Economic Interest Nonresidents(9)

Particular types of enterprises

  • Operator of mobile equipment

    • The residency of airlines, railway, trucking and shipping will be based on the residence of the operating unit.

  • An enterprise operating in more than one economy

    • Divide operations-identify “unincorporated branch” as separate institutional unit

    • Criteria used:

      • Separate account

      • Subject to income tax

      • Substantial physical unit

      • Receive funds on its own account (not as an agent)


Principles for valuation time for recording and unit of account
Principles for Valuation, Time for recording and Unit of account

All transactions in BOP are based on Actual Market prices agreed by willing, independent parties.

Both in the BOP and (System of National Accounts) SNA, the principle of Accrual Accounting governs the time for recoding.

Data on BOP is normally expressed in Domestic Currency or in a stable Unit of account if domestic currency undergoes major changes.


Coverage of balance of payments
Coverage of Balance of Payments account

A number of transactions recorded in BOP do not involve payments of money.

The inclusion of transactions other than those involving money forms the principal difference between a BOP statement and Exchange record.


Categories of transactions 1
Categories of Transactions account(1)

1.Exchanges

Exchanges of goods and services for financial item.

Payments for, or receipt of income on, the factors of production.

Barter (exchange of goods and services for other goods and services).

Exchanges of financial items for other financial items.


Categories of transactions 2
Categories of Transactions account(2)

2. Transfers

These transactions differ from exchanges in a sense that one transactor provides an economic value to other transactor but does not receive an equivalent value in return.

The lack of economic value on one side must be balanced by an entry referred to as a “Transfer ” in BOP and National Accounts.


Categories of transactions 3
Categories of Transactions account(3)

3.Other Imputed Transactions

Attribution of reinvested earning to foreign direct investors:

The earnings, whether distributed or reinvested in the enterprise, are recorded as a part of direct investment income.

An offsetting entry, with the opposite sign, is made in the financial account under direct investment.


Bop standard presentation
BOP-Standard Presentation account

I. Current Account

Goods

Services

Income

Current transfers

II. Capital and Financial Account

Capital Account

Financial Account

Direct investment

Portfolio investment

Financial derivatives

Other investment

Reserve Assets

III. Errors and omissions

BOP Statement SBP Website


Classification of goods
Classification of Goods account

General merchandise

Goods for processing

Repairs on goods

Goods procured in ports by carriers

Nonmonetary gold


Classification of services
Classification of Services account

Services organized by production

Transportation services

Communication services

Construction services

Insurance services

Financial services

Computer and information services

Royalties and license fees

Other business services

Personal, cultural and recreation services


Classification of services1
Classification of Services account

Services organized by function

Travel services

Government services n.i.e.


Classification of income
Classification of Income account

Compensation of Employees

Investment Income

Direct Investment Income

On equity

On debt

Portfolio Investment Income

On equity

On debt

Other Investment Income


Classification of current transfers
Classification of Current Transfers account

General Government

Other Sectors

Workers’ remittances

Other current transfers


Classification of capital account
Classification of Capital Account account

Capital Transfers

General government

Debt forgiveness

Other

Other Sectors

Migrants’ transfers

Debt forgiveness

Other

Acquisition / Disposal of non-produced non- financial assets


Classification in the financial account 1
Classification in the Financial Account account(1)

Functional Subdivision:

Direct Investment

Portfolio Investment

Financial derivatives

Other Investment &

Reserve Assets

Direction of Investment

Outward Investment

Inward Investment


Classification in the financial account 2
Classification in the Financial Account account(2)

Type on Instrument:

Equity

Debt Instruments

Institutional Sector:

Monetary Sector

General Government

Banks

Other sectors

Maturity

Short-term

Long-term


Classification of direct investment
Classification of Direct Investment account

Direct Investment Abroad:

Equity Capital

Reinvested Earnings

Other Capital

Direct Investment in the Reporting Economy:

Equity Capital

Reinvested Earnings

Other Capital


Classification of portfolio investment
Classification of Portfolio Investment account

Assets

Equity Securities

Debt Securities

Bonds and notes

Money Market Instruments

Liabilities

Equity Securities

Debt Securities

Bonds and notes

Money Market Instruments


Classification of financial derivatives
Classification of Financial Derivatives account

Assets

Monetary Authorities

General Government

Banks

Other Sectors

Liabilities

Monetary Authorities

General Government

Banks

Other Sectors


Classification of other investment assets liabilities
Classification of Other Investment: Assets / Liabilities account

Trade Credits

Loans

Currency and Deposits

Other Assets


Reserve assets
Reserve Assets account

Monetary Gold

Special Drawing Rights (SDRs)

Reserve Position in the Fund

Foreign Exchange

Currency and Deposits

Securities

Other claims


Net errors and omissions
Net errors and omissions account

They arise because unlike business accounting, the two sides of the transactions are measured independently.

It is a balancing item.

It reflects under / overestimation of recorded transaction and / or the existence of unrecorded transactions.

The size of the net errors and omissions is an indicator of the quality.

If the size is large, BOP analysis is limited


Recent developments
Recent Developments account

  • Following release of sixth edition of the IMF’s Manual on Balance of Payments and International Investment Position (BPM6) in 2009 &

  • Submission of implementation plan survey by IMF’s member countries ,where some advanced economies are expected to implement BPM6 in 2012.Majority of European countries would however, convert their presentations to BPM6 by 2014.

  • Statistics and DWH of State Bank of Pakistan has planned to implement BPM6 in three phases starting from fiscal year 2011 and by 2013.


Thank you
Thank You account


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