2. Contents
Foreword ix
Preface xi
CONCEPTUAL FRAMEWORK
I. Introduction 3
Purposes of the Balance of Payments Manual 3
Changes from the Fourth Edition 3
Uses of Balance of Payments and International Investment Position Data 4
Structure of the Manual 5
II. Conceptual Framework of the Balance of Payments and International
Investment Position 6
Definitions 6
Principles and Concepts 6
Double-entry System 6
Concepts of Economic Territory, Residence, and Center of Economic Interest 7
Principles for Valuation and Time of Recording 7
Concept and Types of Transactions 8
Changes Other Than Transactions 9
III. Balance of Payments and National Accounts 10
Introduction 10
Relationship Between the SNA and Principles Underlying the Balance of Payments 10
Classification 11
Integrated Economic Accounts 11
IV. Resident Units of an Economy 20
Concept and Definition of Residence 20
Economic Territory of a Country 20
Center of Economic Interest 20
Resident Institutional Units 21
Residence of Households and Individuals 21
Residence of Enterprises 22
Residence of Nonprofit Institutions 24
General Government 24
Regional Central Banks 25
iv
3. CONTENTS
V. Valuation of Transactions and of Stocks of Assets and Liabilities 26
Concept of Market Price 26
Transactions and Market Price 26
Valuing Transactions in the Absence of Market Price 26
Market Price Equivalents 26
Affiliated Enterprises 27
Noncommercial Transactions 28
Financial Items 28
Valuation of Stocks of Assets and Liabilities 28
VI. Time of Recording 30
Principle of Timing 30
Application to Goods 30
Exceptions to the Change of Ownership Principle 31
Applications to Other Transactions 31
Other Timing Adjustments 32
VII. Unit of Account and Conversion 33
Unit of Account 33
Conversion Principles and Practices 33
Multiple Official Exchange Rates and Conversion 34
Black or Parallel Market Rates 34
STRUCTURE AND CLASSIFICATION
VIII. Classification and Standard Components of the Balance of Payments 37
Structure and Classification 37
Standard Components 37
Net Errors and Omissions 38
Major Classifications 38
Detailed Classifications 38
Balance of Payments: Standard Components Table 43
Selected Supplementary Information Table 49
IX. Structure and Characteristics of the Current Account 51
Characteristics and Classification 51
Gross Recording, Valuation, and Time of Recording 52
X. Goods 54
Coverage and Principles 54
Definitions 54
Change of Ownership 55
Goods Classified Under Other Categories 57
Special Types of Goods 57
Time of Recording 58
Valuation 58
v
4. CONTENTS
XI. Transportation 61
Definition and Coverage 61
Passenger Services 61
Freight Services and Conventions for Recording 61
Rentals of Transportation Equipment with Crew 62
Supporting and Auxiliary Services 62
XII. Travel 64
Nature of Travel Services 64
Definition 64
Types of Travel 64
Goods and Services Covered 65
XIII. Other Services 66
Coverage 66
Definitions 66
XIV. Income 70
Coverage 70
Definition and Classification 70
Time of Recording of Investment Income 72
Measurement and Recording of Direct Investment Earnings 72
Stock Dividends, Bonus Shares, and Liquidating Dividends 73
XV. Current Transfers 74
Definition and Coverage 74
Distinction Between Current and Capital Transfers 74
Classification 75
Valuation and Timing 76
XVI. Structure and Characteristics of the Capital and Financial Account 77
Coverage 77
Capital Account 77
Financial Account 78
Liabilities Constituting Foreign Authorities’ Reserves 82
Valuation and Timing 82
XVII. Capital Transfers and Acquisition or Disposal of Nonproduced,
Nonfinancial Assets 83
Coverage 83
Capital Transfers 83
Classification 83
Acquisition or Disposal of Nonproduced, Nonfinancial Assets 84
vi
5. CONTENTS
XVIII. Direct Investment 86
Concept and Characteristics 86
Direct Investment Enterprises 86
Direct Investors 87
Direct Investment Capital 87
Extent of Net Recording 88
Valuation of Flows and Stocks 89
Other Special Cases of Direct Investment Enterprises 89
Selected Supplementary Information 89
XIX. Portfolio Investment 91
Coverage 91
Classification and Definitions 91
Selected Recording Issues 92
Valuation 94
XX. Other Investment 95
Coverage 95
Classification 95
Definitions and Recording 95
XXI. Reserve Assets 97
Concept and Coverage 97
Identification of Reserve Assets 97
Exclusion of Valuation Changes and Other Adjustments 99
Classification 99
Valuation 100
Interpretation of Changes in Reserve Assets 100
XXII. Supplementary Financial Account Information 101
Coverage 101
Liabilities Constituting Foreign Authorities’ Reserves 101
Exceptional Financing and the Balance of Payments 102
Balance of Payments Accounting for Selected Exceptional Financing Transactions 102
Foreign Sources of Financing 103
XXIII. International Investment Position 104
Concept and Coverage 104
Classification 104
Valuation of Components 105
Relationship of the International Investment Position to External Debt 106
Investment Income, Rates of Return, and the International Investment Position 106
International Investment Position: Standard Components Table 108
vii
6. CONTENTS
REGIONAL ALLOCATION
XXIV. Regional Statements 115
Regional Allocation Principles 115
Problems and Limitations 116
Analytical Implications 117
Selection of Regions 117
APPENDICES
I. Relationship of the Rest of the World Account to the Balance of Payments
Accounts and the International Investment Position 121
II. A Note on Sectors 145
III. Balance of Payments Classification of International Services and the Central
Product Classification 146
IV. Accounting for Exceptional Financing Transactions 150
V. Selected Issues in Balance of Payments Analysis 158
INDEX
viii
7. Foreword
Measurement of the external positions of member The revised Manual has been prepared by the Fund’s
countries has been a central feature of International Statistics Department in close consultation with balance
Monetary Fund operations since inception. Such of payments experts in member countries and
measurement is conducted in the dual context of Fund international and regional organizations (including the
responsibility for surveillance of countries’ economic Statistical Office of the European Communities, the
policies and provision of financial assistance in support Organisation for Economic Cooperation and
of adjustment measures to correct balance of payments Development, the United Nations, and the World
disequilibria. Consequently, the Fund has a compelling Bank). The process underlying the revision of the
interest in developing and promulgating appropriate Manual demonstrates the spirit of international
international guidelines for the compilation of sound collaboration and cooperation, and I would like to
and timely balance of payments statistics. Such thank all of the national and international experts
guidelines, which have evolved to meet changing involved for their invaluable assistance. In this regard, I
circumstances, have been embodied in successive am particularly grateful to Mr. Pierre Esteva, chairman
editions of the Balance of Payments Manual (the of the Fund’s Working Party on the Statistical
Manual) since the first edition was published in 1948. Discrepancy in World Current Account Balances, and to
Because of the important relationship between external Baron Jean Godeaux, chairman of the Working Party on
and domestic economic developments, timely, reliable, the Measurement of International Capital Flows. Their
and comprehensive balance of payments statistics assessments of the effects of the unprecedented
based on an appropriate and analytically oriented changes in the conduct of international transactions
methodology are an indispensable tool for economic contributed significantly to the revision of the structure
analysis and policy making. Indeed, with the growing and classification of the international accounts.
interdependence of the world’s economies, the need
I would like to commend the Manual to compilers
for such statistics—which reflects in part the underlying
and users around the world and to urge member
movement towards greater liberalization and integration
countries to adopt the conceptual guidelines of the fifth
of markets—has increased over time.
edition as the basis for compiling balance of payments
I am particularly pleased to introduce the fifth edition and international investment position statistics and for
of the Manual, which addresses the many important reporting this information to the Fund.
changes and innovations that have occurred in
international transactions since the fourth edition was
published in 1977. The fifth edition of the Manual also
addresses, for the first time, the important area of ?X-W
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international investment position statistics. In addition,
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concepts in the Manual have been harmonized, as
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National Accounts 1993 and with the Fund’s Michel Camdessus
methodologies pertaining to money and banking and Managing Director
government finance statistics. International Monetary Fund
ix
8. Preface
The fifth edition of the Balance of Payments Manual orientation from the fourth to the fifth edition. The fifth
(the Manual) continues the series of international edition also differs from its predecessor in other impor-
standards that have been issued by the International tant respects. First, the current account of the balance of
Monetary Fund (IMF) for providing guidance to member payments is redefined to exclude capital transfers,
countries in the compilation of balance of payments and which are included in an expanded and renamed capital
related data on the international investment position. and financial account. This change provides for a
greater degree of harmonization and integration with
Since the fourth edition of the Manual was published
the SNA in terms of the underlying concepts and the
in 1977, important changes have occurred in the man-
identification of major aggregates. Second, within the
ner in which international transactions are conducted.
current account, clear distinctions are made among
These changes are, in particular, a result of the liberal-
goods, services, income, and current transfers. As a
ization of financial markets, innovations in the creation
reflection of the heightened analytical and policy
and packaging of financial instruments, and new
interest in data on international trade in services
approaches to the restructuring of external debt. In
(particularly in the context of the General Agreement on
addition, there has been unprecedented growth in the
Tariffs and Trade negotiations on services) considerable
volume of international trade in services. All these
disaggregation is introduced in the classification of
developments have necessitated changes in the treat-
international services transactions.
ment and classification of such transactions within the
structure of the balance of payments accounts. Further- The classification of the financial account follows a
more, since publication of the fourth edition, experience hierarchical structure for functional categories, asset or
with application of that edition has brought to light a liability distinctions, instrument specification, sectoriza-
number of instances in which guidelines could usefully tion, and the distinction between long- and short-term
be augmented and recommendations clarified. An instruments. In addition, the classifications underlying
additional impetus to the preparation of the fifth edition the income components of the current and financial
of the Manual was the work undertaken to revise the accounts and the international investment position are
system of economic and financial statistics encompassed closely aligned to enhance analytic potential.
in the System of National Accounts 1993 (SNA). There
was the need to achieve, to the maximum extent Despite the extensive revision of the Manual, IMF
possible, harmonization between the two systems and recommendations for balance of payments compilation
with IMF statistical systems pertaining to money and maintain a high degree of continuity. Thus, compilers
banking statistics and government finance statistics. who have been producing statistics that conform
reasonably well to the standards established in previous
The fifth edition of the Manual provides international editions should not experience great difficulty in adapt-
guidelines for the compilation of data for an articulated ing procedures for data collection or in reporting
set of international accounts encompassing the measure- according to the recommendations of the fifth edition.
ment of external transactions (balance of payments), on The basic concepts and principles in the Manual remain
the one hand, and the stock of external financial assets generally valid and any necessary adjustments may be
and liabilities (the international investment position) on readily effected within a largely unchanged theoretical
the other. This edition of the Manual provides explicit framework.
links between the outstanding stock of external financial
assets and liabilities and corresponding changes that The fifth edition of the Manual was produced by the
occur, during specified periods, in these external finan- IMF Statistics Department—primarily through the work
cial instruments. The changes reflect transactions, of a consultant, Mr. Jack Bame (formerly the associate
valuation changes, and other adjustments in the relevant director for international economics at the Bureau of
financial instruments. The delineation of an articulated Economic Analysis, U.S. Department of Commerce), and
set of international accounts represents a major shift in through close consultation with national compilers of
xi
9. PREFACE
balance of payments statistics and experts from national balance of payments offices and to represen-
interested international and regional organizations. The tatives from regional and international organizations who
reports of the IMF working parties on the Statistical participated in the meeting and contributed to the
Discrepancy in World Current Account Balances and on preparation of the Manual.
the Measurement of International Capital Flows also
Australia Ms. Barbara Dunlop
contributed to the development of the Manual. In
Brazil Ms. Maria Oliveira Nabao
addition, an advisory group of IMF staff provided
Canada Ms. Lucie Laliberté
assistance in articulating IMF operational and analytic
Chile Mrs. Teresa Cornejo Black
needs in the area of balance of payments statistics. The
China Ms. Wang Lingfen
members of the group were Mr. Bruce Smith, senior
France Mr. Jacques Cuny
advisor in the Southeast Asia and Pacific Department;
Dr. Marc Auboin
Mr. Peter Clark, assistant director in the Research
Germany Dr. Rudolf Seiler
Department; and Mr. Michael Kuhn, division chief in the
Hungary Mrs. P. Horvath
Policy Development and Review Department. The
Iran Mrs. Mehrangiz Tavassoli
project was supervised by Mr. Mahinder S. Gill, assistant
Italy Dr. Antonello Biagioli
director for the Balance of Payments and External Debt
Japan Mr. Shinichi Yoshikuni
Division in the IMF Statistics Department. Most of the
Mr. Takashi Kori
original drafting was done by Mr. Bame. He also was
Kenya Mr. Pius P. Kallaa
responsible for subsequent redrafting undertaken to
Libya Mr. Ali Ramadan Shnebesh
reflect comments received from national compilers and
Mexico Mr. Jorge Carriles
concerned international and regional organizations and
Netherlands, The Dr. Marius van Nieuwkerk
to incorporate conclusions that were reached at the
Saudi Arabia Mr. Mohammed Al-Hakami
meeting of balance of payments experts held at IMF
Mr. Mohanna Al-Mohanna
headquarters in March 1992. Through comments on
Sweden Mr. Gunnar Blomberg
earlier drafts or through drafting of selected chapters
United Kingdom Mr. John E. Kidgell
and appendices, staff of the Balance of Payments and
Mr. Bruce Buckingham
External Debt Division made specific contributions: Mr.
United States Dr. J. Steven Landefeld
Gill (Chapter 3 and Appendix 1), Mr. Jan Bové and Mrs.
Zaire Ms. Nkobafily Marie
Florencia Frantischek (Appendix 4), and Mr. Abul
Marthe Lebughe
Siddique (Appendix 3). Mr. Clark of the Research
EUROSTAT Mr. J. C. Roman
Department made a particularly valuable contribution by
OECD Mr. Erwin Veil
preparing Appendix V, which addresses selected issues
UN Mr. Jan van Tongeren
in balance of payments analysis. Ms. Nancy Basham,
World Bank Datuk Ramesh Chander
Statistics Department, edited and coordinated print
production and Ms. Suzanna Persaud, administrative
staff of the Balance of Payments and External Debt
Division, typed the various drafts and the final version
of the Manual.
The IMF benefitted immensely from the contributions ?X6@2O
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and comments made by experts who participated in the
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March 1992 meeting of balance of payments experts.
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that, coupled with further consultation through corre-
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spondence, formed the basis for redrafting and finalizing John B. McLenaghan
the fifth edition. The IMF staff wishes to acknowledge, Director, Statistics Department
with thanks, indebtedness to the following experts in International Monetary Fund
xii
11. I. Introduction
Purposes of the Balance of Payments Manual are not included among transactions in the balance of
payments accounts but as adjustment items affecting
1. Like editions issued in 1948, 1950, 1961, and 1977,
the international investment position.
this 1993 edition of the Balance of Payments Manual
(the Manual) serves as an international standard for the 4. Additionally, linkage of the international investment
conceptual framework underlying balance of payments position and balance of payments accounts to the rest
statistics. The Manual also functions as a guide for of the world account in the System of National
member countries submitting regular balance of Accounts (SNA) is strengthened and harmonized to the
payments reports to the International Monetary Fund maximum extent possible. Cases in point are identical
(the IMF or the Fund). In preparing this fifth edition, treatments, in the two systems, of residence, valuation,
the IMF made every effort to ascertain the needs and to timing, and reinvested earnings on direct investment.
reflect the viewpoints of national compilers and various Also, to increase harmonization with the SNA, a
users of balance of payments statistics and international distinction between current and capital transfers is
investment position data. introduced in the Manual. As a result of the change,
the former balance of payments capital account is
2. The primary purposes of the Manual are
redesignated as the capital and financial account.
(i) to provide standards for concepts, definitions,
These and other changes reflect the efforts of
classifications, and conventions and (ii) to facilitate the
international experts and coordinating groups, including
systematic national and international collection, organi-
national accountants and balance of payments
zation, and comparability of balance of payments and
compilers. Their efforts also serve to integrate the
international investment position statistics. A companion
balance or payments more effectively with other IMF
volume, the Balance of Payments Compilation Guide
statistical systems such as money and banking,
(the Guide), provides practical guidance to national
government finance, and international banking.
compilers on the collection, presentation, and
systematization of external statistics. The Guide is 5. There are also changes in the treatments of
particularly useful for countries in which statistical international services, income, and certain financial
systems are in the early stages of development or in transactions. First, in contrast to the fourth edition, the
transition. fifth edition makes a clear distinction in the current
account between international transactions in services
and transactions in income. In the fourth edition, labor
Changes from the Fourth Edition
and nonfinancial property income were grouped
3. The scope and orientation of this Manual differ together with services other than shipment, travel, and
from those of the fourth edition in a number of transportation, and investment income was covered
respects. One important change is the expansion of the separately. In the fifth edition, the two main
conceptual framework to encompass balance of components of income flows between residents and
payments flows (transactions) and stocks of external nonresidents—compensation of employees and
financial assets and liabilities (the international investment income—are separately identified as compo-
investment position). A clear distinction is made nents of the current account. This treatment
between (i) transactions and (ii) other changes in the harmonizes with the concept of income presented in
accounts—valuation, reclassification, and other the System of National Accounts 1993 (SNA) and
adjustments. Transactions or other changes may result strengthens the links between the balance of payments
in changes in stocks, but only transactions are reflected income account and financial account and between
in balance of payments accounts. For example, in the balance of payments flows and the stocks of assets and
fifth edition, the allocation or cancellation of special liabilities comprising the international investment
drawing rights (SDRs) and the monetization or position. Second, the component list of transactions in
demonetization of gold (each with counterpart entry) services is expanded to reflect the growing importance
3
12. CONCEPTUAL FRAMEWORK
of services and the contributions of various inter- international trade in services; international banking
national fora to the development of a codified list that flows and stocks; asset securitization and principal
satisfies the requirements and provides links between market developments; external debt problems, income
separate statistical systems. payments, and growth; and links between exchange
rates and current account and financial account flows.
6. In the fifth edition, coverage of financial flows and
In addition, external data are utilized extensively, along
stocks is significantly expanded and restructured. The
with other variables, for balance of payments
modification reflects, first, an orientation towards
projections and the relationship of these projections to
compatibility with other IMF statistical systems and the
changes in countries’ stocks of external assets and
SNA and, second, widespread alterations in the nature
liabilities. Finally, balance of payments and
and composition of international financial transactions
international investment position data constitute an
since publication of the fourth edition in 1977. These
indispensable link in the compilation of data for
changes include the emergence of financial innovations,
various components of the national accounts (e.g.,
new instruments, and transactors that are partly
production accounts, income accounts, capital and
associated with a trend towards increased asset securi-
financial accounts, and the related measurement of
tization. Such developments tend, in many instances, to
national wealth).
blur the distinction between long- and short-term
maturities and to make it more difficult to identify 8. Previous brief references to changes in coverage,
resident/nonresident transactions, especially when such classification, and orientation do not represent an
transactions involve a number of currencies and a all-inclusive list of differences between the fourth and
variety of actual and contingent financial instruments or fifth editions of the Manual. Other modifications in the
arrangements. Together with the easing or abolition of treatment of specific components will be evident—and
exchange controls in many countries and the progres- thoroughly covered—in appropriate chapters. In direct
sive deregulation of national financial markets, these investment, for example, changes are effected in criteria
developments create new challenges and problems for for flows between affiliated banks (and related stock
compilers and data users. Further complications arise as positions) and in the distinction between long- and
a result of external debt problems experienced by a short-term intercompany transactions. Aspects of
number of countries (e.g., accounting for arrears, debt regional presentation, covered in an appendix in the
forgiveness or debt reduction schemes, and associated fourth edition, comprise a chapter in this Manual to
innovative financial arrangements). Partly in response reflect growing international interest in this area. To
to such developments, classification of the financial address the expanded conceptual framework that
account is re-oriented. To cover new financial encompasses stocks of external assets and liabilities,
instruments, coverage of nonequity portfolio investment the fifth edition presents a new chapter on the
is broadened to include long- and short-term securities, international investment position and a full exposition
and supplementary classifications covering exceptional of the classification, components, and links to balance
financing transactions (with selected arrears-related of payments accounts and balance sheet aspects of the
entries for balance of payments accounts) and other SNA.
items of analytical interest are introduced.
9. In contrast to a rather central position in the fourth
edition, the discussion of selected issues in balance of
payments analysis is presented in Appendix 5 of the
Uses of Balance of Payments and International
fifth edition. Such issues and the nature and limitations
Investment Position Data
of various presentations can be better understood after
7. Balance of payments and international investment the concepts, structure, and classification of standard
position data are most important, of course, for national components have been covered. A thorough treatment
and international policy formulation. External aspects of analytic material requires more extensive coverage
(such as payments imbalances and inward and outward than would be appropriate in this Manual. Therefore,
foreign investment) play a leading role in economic only selected issues are highlighted to help identify
and other policy decisions in the increasingly inter- causes of payments imbalances, to determine financing
dependent world economy. Such data are also used for requirements, and to focus on appropriate adjustment
analytical studies; that is, to determine the causes of measures.
payments imbalances and the necessity for implement-
ing adjustment measures; relationships between 10. Although there are significant differences between
merchandise trade and direct investment; aspects of the fourth and fifth editions of the Manual, the latter
4
13. CHAPTER I
preserves the continuity of the data collection framework respect. The former group may provide limited data on
and IMF reports. Every effort has been made to selected components—and subsequently add to these, if
delineate principles and concepts clearly; to relate these possible—and the latter group may be encouraged to
appropriately to practical considerations and limitations; provide supplementary data.
and to establish conventions that may be applied, when
data sources allow, within a consistent framework.
Structure of the Manual
Because the development of statistical systems varies,
standard components and classification schemes 11. Part one of the Manual covers the conceptual
presented in the Manual may be excessively detailed for framework of international accounts. Part two deals
many IMF member countries and inadequately detailed with the structure and classification of accounts, and
for others. The framework provides flexibility in this part three is concerned with regional allocation.
5
14. Conceptual Framework of the Balance of Payments and
II. International Investment Position
Definitions provide a measure of the net position, and the measure
12. Part one of this Manual deals with the conceptual would be equivalent to that portion of an economy’s
framework of balance of payments accounts and the net worth attributable to, or derived from, its
international investment position. Part one covers the relationship with the rest of the world. A change in
framework’s relationship to national accounts; to stocks during any defined period can be attributable to
concepts of residence, valuation, and time of recording; transactions (flows); to valuation changes reflecting
and to the unit of account and conversion. changes in exchange rates, prices, etc.; or to other
adjustments (e.g., uncompensated seizures). By
13. The balance of payments is a statistical statement contrast, balance of payments accounts reflect only
that systematically summarizes, for a specific time transactions.
period, the economic transactions of an economy with
the rest of the world. Transactions, for the most part
between residents and nonresidents,1 consist of those Principles and Concepts
involving goods, services, and income; those involving
15. The remainder of this chapter deals with the
financial claims on, and liabilities to, the rest of the
conceptual framework of international accounts; that is,
world; and those (such as gifts) classified as transfers,
the set of underlying principles and conventions that
which involve offsetting entries to balance—in an
ensure the systematized and coherent recording of
accounting sense—one-sided transactions. (See
international transactions and stocks of foreign assets
paragraph 28.)2 A transaction itself is defined as an
and liabilities. Relevant aspects of these principles,
economic flow that reflects the creation, transformation,
together with practical considerations and limitations,
exchange, transfer, or extinction of economic value and
are thoroughly discussed in subsequent chapters.
involves changes in ownership of goods and/or
financial assets, the provision of services, or the
provision of labor and capital. Double-entry System
14. Closely related to the flow-oriented balance of 16. The basic convention applied in constructing a
payments framework is the stock-oriented international balance of payments statement is that every recorded
investment position. Compiled at a specified date such transaction is represented by two entries with equal
as year end, this investment position is a statistical values. One of these entries is designated a credit with
statement of (i) the value and composition of the stock a positive arithmetic sign; the other is designated a
of an economy’s financial assets, or the economy’s debit with a negative sign. In principle, the sum of all
claims on the rest of the world, and (ii) the value and credit entries is identical to the sum of all debit entries,
composition of the stock of an economy’s liabilities to and the net balance of all entries in the statement is
the rest of the world. In some instances, it may be of zero.
analytic interest to compute the difference between the
two sides of the balance sheet. The calculation would 17. In practice, however, the accounts frequently do
not balance. Data for balance of payments estimates
often are derived independently from different sources;
1The exceptions to the resident/nonresident basis of the balance of payments as a result, there may be a summary net credit or net
are the exchange of transferable foreign financial assets between resident debit (i.e., net errors and omissions in the accounts).
sectors and, to a lesser extent, the exchange of transferable foreign financial
liabilities between nonresidents. (See paragraph 318.) A separate entry, equal to that amount with the sign
2The definitions and classifications of international accounts presented in this reversed, is then made to balance the accounts.
Manual are intended to facilitate reporting of data on international transactions Because inaccurate or missing estimates may be
to the Fund. These definitions and classifications do not purport to give effect offsetting, the size of the net residual cannot be taken
to, or interpret, various provisions (which pertain to the legal characterization of
official action or inaction in relation to such transactions) of the Articles of as an indicator of the relative accuracy of the balance
Agreement of the International Monetary Fund. of payments statement. Nonetheless, a large, persistent
6
15. CHAPTER II
residual that is not reversed should cause concern. be identical with boundaries recognized for political
Such a residual impedes analysis or interpretation of purposes. A country’s economic territory consists of a
estimates and diminishes the credibility of both. A large geographic territory administered by a government;
net residual may also have implications for interpreta- within this geographic territory, persons, goods, and
tion of the investment position statement (See the capital circulate freely. For maritime countries,
discussion in Chapter 23.) geographic territory includes any islands subject to
the same fiscal and monetary authorities as the
18. Most entries in the balance of payments refer to
mainland.
transactions in which economic values are provided or
received in exchange for other economic values. These 22. An institutional unit has a center of economic
values consist of real resources (goods, services, and interest and is a resident unit of a country when, from
income) and financial items. Therefore, the offsetting some location (dwelling, place of production, or other
credit and debit entries called for by the recording premises) within the economic territory of the country,
system are often the result of equal amounts having the unit engages and intends to continue engaging
been entered for the two items exchanged. When items (indefinitely or for a finite period) in economic
are given away rather than exchanged, or when a activities and transactions on a significant scale. (One
recording is one-sided for other reasons, special types year or more may be used as a guideline but not as an
of entries—referred to as transfers—are made as the inflexible rule.)
required offsets. (The various kinds of entries that may
be made in the balance of payments are discussed in
Principles for Valuation and Time
paragraphs 26 through 31.)
of Recording
19. Under the conventions of the system, a compiling
23. A uniform basis of valuation for the international
economy records credit entries (i) for real resources
accounts (both real resources and financial claims and
denoting exports and (ii) for financial items reflecting
liabilities) is necessary for compiling, on a consistent
reductions in an economy’s foreign assets or increases
basis, any aggregate of individual transactions and
in an economy’s foreign liabilities. Conversely, a
an asset/liability position consistent with such
compiling economy records debit entries (i) for real
transactions. In this Manual, the basis of transaction
resources denoting imports and (ii) for financial items
valuations is generally actual market prices agreed
reflecting increases in assets or decreases in liabilities.
upon by transactors. (This practice is consistent with
In other words, for assets—real or financial—a
that of the SNA.) Conceptually, all stocks of assets
positive figure (credit) represents a decrease in
and liabilities are valued at market prices prevailing at
holdings, and a negative figure (debit) represents an
the time to which the international investment position
increase. In contrast, for liabilities, a positive figure
relates. A full exposition of valuation principles;
shows an increase, and a negative figure shows a
recommended practices; limitations; and the valuation
decrease. Transfers are shown as credits when the
of transfers, financial items, and stocks of assets and
entries to which the transfers provide the offsets are
liabilities appears in Chapter 5. (The exposition
debits and as debits when those entries are credits.
includes cases in which conditions may not allow for
20. The content or coverage of a balance of payments the existence or assumption of market prices.)
statement depends somewhat on whether transactions
24. In the Manual and the SNA, the principle of accrual
are treated on a gross or on a net basis. The Manual
accounting governs the time of recording for transac-
contains recommendations on which transactions
tions. Therefore, transactions are recorded when
should be recorded gross or net. The recommendations
economic value is created, transformed, exchanged,
are appropriately reflected in the list of standard
transferred, or extinguished. Claims and liabilities arise
components and in suggested supplementary
when there is a change in ownership. The change may
presentations.
be legal or physical (economic). In practice, when a
change in ownership is not obvious, the change may be
proxied by the time that parties to a transaction record
Concepts of Economic Territory, Residence,
it in their books or accounts. (The recommended timing
and Center of Economic Interest
and conventions for various balance of payments
21. Identical concepts of economic territory, residence, entries, together with exceptions to and departures from
and center of economic interest are used in this the change of ownership principle, are covered in
Manual and in the SNA. Economic territory may not Chapter 6.)
7
16. CONCEPTUAL FRAMEWORK
Concept and Types of Transactions This absence of value on one side is represented by an
entry referred to as a transfer. Such transfers (economic
25. Broadly speaking, changes in economic
value provided and received without a quid pro quo)
relationships registered by the balance of payments
are shown in the balance of payments. Current
stem primarily from dealings between two parties.
transfers are included in the current account (see
These parties are, with one exception (see footnote 1),
Chapter 15) and capital transfers appear in the capital
a resident and a nonresident, and all dealings of this
account. (See Chapter 17.)
kind are covered in the balance of payments.
Recommendations for specific entries are embodied in
the list of standard components (see Chapter 8) and are Migration
spelled out in detail from Chapter 9 onward.
29. Because an economy is defined in terms of the
26. Despite the connotation, the balance of payments economic entities associated with its territory, the scope
is not concerned with payments, as that term is of an economy is likely to be affected by changes in
generally understood, but with transactions. A number entities associated with the economy.
of international transactions that are of interest in a
balance of payments context may not involve the 30. Migration occurs when the residence of an
payment of money, and some are not paid for in any individual changes from one economy to another
sense. The inclusion of these transactions, in addition because the person moves his or her abode. Certain
to those matched by actual payments, constitutes a movable, tangible assets owned by the migrant are, in
principal difference between a balance of payments effect, imported into the new economy. The migrant’s
statement and a record of foreign payments. immovable assets and certain movable, tangible assets
located in the old economy become claims of the new
economy on the old economy. The migrant’s claims on,
Exchanges or liabilities to, residents of an economy other than the
27. The most numerous and important transactions new economy become foreign claims or liabilities of
found in the balance of payments may be characterized the new economy. The migrant’s claims on, or liabilities
as exchanges. A transactor (economic entity) provides to, residents of the new economy cease to be claims
an economic value to another transactor and receives on, or liabilities to, the rest of the world for any
in return an equal value. The economic values economy. The net sum of all these shifts is equal to the
provided by one economy to another may be net worth of the migrant, and his or her net worth must
categorized broadly as real resources (goods, services, also be recorded as an offset if the other shifts are
income) and financial items. The parties that engage in recorded. These entries are made in the balance of
the exchange are residents of different economies, payments where the offset is conventionally included
except in the case of an exchange of foreign financial with transfers.
items between resident sectors. The provision of a
financial item may involve not only a change in the
Other imputed transactions
ownership of an existing claim or liability but also the
creation of a new claim or liability or the cancellation 31. In some instances, transactions may be imputed
of existing ones. Moreover, the terms of a contract and entries may be made in balance of payments
pertaining to a financial item (e.g., contractual maturity) accounts when no actual flows occur. Attribution of
may be altered by agreement between the parties. Such reinvested earnings to foreign direct investors is an
a case is equivalent to fulfillment of the original example. The earnings of a foreign subsidiary or
contract and replacement by a contract with different branch include earnings attributable to a direct
terms. All exchanges of these kinds are covered in the investor. The earnings, whether distributed or
balance of payments. reinvested in the enterprise, are proportionate to the
direct investor’s equity share in the enterprise.
Reinvested earnings are recorded as part of direct
Transfers
investment income. An offsetting entry with opposite
28. Transactions involving transfers differ from sign is made in the financial account under direct
exchanges in that one transactor provides an economic investment-reinvested earnings to reflect the direct
value to another transactor but does not receive a quid investor’s increased investment in the foreign
pro quo on which, according to the conventions and subsidiary or branch. (Reinvested earnings are
rules adopted for the system, economic value is placed. discussed in chapters 14 and 18.)
8
17. CHAPTER II
Changes Other Than Transactions position but not in the balance of payments. Similarly,
claims on nonresidents can come under, or be released
Reclassification of claims and liabilities from, the control of resident monetary authorities. In
such cases, there are reclassifications between reserve
32. The classification of financial items presented in
assets and assets other than reserves.
this Manual is designed to reveal the motivation of
creditor or debtor. Financial items are subject to
reclassification in accordance with changes in
Valuation changes
motivation. A case in point is the distinction between
direct investment and other types of investment. For 33. The values of real resources and financial items are
example, several independent holders of portfolio constantly subject to changes stemming from either or
investment (in the form of corporate equities issued by both of two causes. (i) The price at which transactions
a single enterprise located abroad) may form an in a certain type of item customarily take place may
associated group to have a lasting, effective voice in undergo alteration in terms of the currency in which
the management of the enterprise. Their holdings will that price is quoted. (ii) The exchange rate for the
then meet the criteria for direct investment, and the currency in which the price is quoted may change in
change in the status of the investment could be relation to the unit of account that is being used.
recorded as a reclassification. Such a reclassification Valuation changes are not included in the balance of
would be reflected, at the end of the period during payments but are included in the international
which it occurred, in the international investment investment position.
9
18. III. Balance of Payments and National Accounts
Introduction 37. In this chapter, the balance of payments and the
international investment position are described in
34. Conceptually, balance of payments accounts and relation to the SNA and links between those inter-
related data on the international investment position national accounts and relevant segments of the SNA
are closely linked to a broader system of national are discussed.
accounts that provides a comprehensive and systematic
framework for the collection and presentation of the
economic statistics of an economy. The international Relationship Between the SNA and Principles
standard for this framework is the System of National Underlying the Balance of Payments
Accounts (SNA), which encompasses transactions, 38. As the balance of payments and the international
other flows, stocks, and other changes affecting the investment position are integral parts of the SNA, there
level of assets and liabilities from one accounting is virtually complete concordance—between the Manual
period to another. Linkage of the balance of and the SNA—on such issues as the delineation of
payments and the SNA is reinforced by the fact that, resident units (producers or consumers), valuation of
in almost all countries, balance of payments and transactions and the stock of external assets and
international investment position data are compiled liabilities, time of recording transactions and stocks,
first and subsequently incorporated into national conversion procedures, coverage of international
accounts. transactions in real resources (goods, services and
35. The SNA is a closed system in that both ends of income), and transfers (current and capital). There is
every transaction are recorded; that is, each transaction concordance, as well, on external financial assets and
is shown as a use for one part of the system and as a liabilities and coverage of the international investment
resource for another part. Stocks of assets affected by position.
transactions are covered as of the beginnings and ends
of appropriate periods. Stocks of assets also are Resident units
affected by valuation and other volume changes (such
as uncompensated seizures or destruction of assets) 39. The SNA and the Manual identify resident
that occur during the period and cause additional producers and consumers in identical fashion. Both
differences in stock value. invoke the concepts of economic territory and the
center of economic interest to identify resident units.
36. In the SNA, transactors and holders of stocks are (These concepts are elaborated in Chapter 4.)
the resident economic entities of a particular economy.
For the SNA to be closed, there must be a segment to
Valuation
capture flows that involve uses or resources for
nonresident entities. That segment is known as the rest 40. In the Manual and the SNA, market price is the
of the world account. The segment for resident entities primary concept for valuation of transaction accounts
or sectors consists of accounts for production, income and balance sheet accounts. (The market price concept
generation, primary and secondary distribution of is defined and elaborated in Chapter 5.)
income, redistribution of income, consumption, and
accumulation. Since the system is closed, the rest of the
Time of recording
world account is constructed from the perspective of
the rest of the world rather than that of the compiling 41. Balance of payments and national accounts are
economy. Consequently, entries in the balance of constructed, in principle, on an accrual basis. The two
payments and the international investment position are systems employ essentially identical applications of the
reversed in the presentation of rest of the world accrual basis in specific categories of transactions.
accounts. (Chapter 6 provides a full discussion on application of
10
19. CHAPTER III
the accrual basis underlying balance of payments separately in these accounts. Resources, stocks of
accounts.) liabilities, and net worth (and changes thereof) are
shown on the right side of the accounts; uses and
Conversion procedures stocks of assets (and changes thereof) are shown on
the left side in the tabular presentation. However, in
42. Both systems employ consistent procedures for the account for goods and services, the sources of
converting transactions denominated in a variety of supply (resources) from the economy’s output and
currencies or units of account into the unit of account imports are shown on the left side, and the distribution
(usually the domestic currency) adopted for compiling of that supply (uses such as exports, intermediate
the balance of payments statement or the national consumption, and final consumption by the economy)
accounts. (See Chapter 7.) There also is concordance is shown on the right side. For each category of
between the two systems on conversion procedures transactions, the sum of the entries on the right side of
used in constructing balance sheet accounts. the accounts is equal to the sum of the entries on the
left side. Because the SNA is closed, external flows are
Classification portrayed or measured from the perspective of the rest
of the world to achieve this equality. Thus, for example,
43. It would be convenient, for some purposes, if the payments of compensation to employees (uses) by
classification of transactions in the balance of payments various institutional sectors may exceed receipts
and the rest of the world account of the SNA were (resources) for the household sector because some
identical in all respects. Differences are justifiable, payments are made to nonresidents (resources for the
however, because the two statements have different rest of the world). The inclusion of payments to
uses. Whereas the classification scheme of the rest of nonresidents on the resources side (for the rest of the
the world account maintains the basic, fundamental world sector) ensures that both sides of the account are
distinction between production flows, income flows, equal.
and accumulation flows, that subclassification is of
lesser importance in the context of balance of 46. SNA current (transactions) accounts—the first set of
payments analysis. Congruence of underlying principles integrated economic accounts—portray (i) output,
makes the balance of payments consistent with the SNA intermediate consumption, and value added for each
framework and permits the balance of payments to be sector and the total economy, as well as the
described in the context of the SNA. This overall disposition of domestic production and imports of
congruence is more important than exact, detailed goods and services; (ii) distributive, from the
concordance between the balance of payments and viewpoint of producers, transactions that are directly
SNA accounts pertaining to relationships of resident linked to the process of production or, alternatively,
units with the rest of the world. the composition of value added; (iii) primary income
distribution showing how gross value added is
44. Before examining the relationship between the SNA distributed to factors of labor, capital, and government
rest of the world account and the balance of payments and, when appropriate, reflects flows to and from the
accounts and international investment position, readers rest of the world; (iv) secondary income distribution;
may find it useful to consider how the broad elements (v) income redistribution covering, in principle,
of the latter two statements relate to integrated current taxes on income, wealth, and other current
economic accounts for the economy as a whole, as transfers and allowing for the derivation of disposable
well as to institutional sectors of the economy. income and adjusted disposable income; and (vi) use
of income. Saving is a balancing item for all
transactions accounts and provides a link to
Integrated Economic Accounts
accumulation accounts.
45. Integrated economic accounts (see pages 14–19)
in the form of T-accounts provide an overview of 47. Accumulation accounts of the SNA show changes
structural elements of the SNA by depicting various in assets and liabilities and net worth (the difference,
facets of economic phenomena (e.g., production, for any sector or for the total economy, between assets
income, consumption, accumulation, and wealth) in and liabilities) and follow a presentation similar to
three types of accounts: current accounts, accumulation balance sheets. A first group of accounts covers
accounts, and balance sheets. Details for the total transactions that would correspond to all changes in
economy and various institutional sectors are presented assets, liabilities, and net worth if saving and voluntary
11
