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Balance of Payments Statistics

Prof. Tarun Das,


IILM, New Delhi
Presently with
Min of Finance,
Govt. of Mongolia,
as ADB Expert

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V. BOP Analytical
Framework
2. BOP Accounting
Principles
3. BOP Accounting
System
4. Rest of the World
(ROW) Account

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V.V BOP Accounting- Analytical Framework
GDP = C + G + I + XƊM (V)
CAB = X Ɗ M + NY+NCT (2)
where
GDP = gross domestic product
C = private consumption exp
G = govt consumption expenditure
I = gross domestic investment
S = gross saving
X = exports of goods and services
M = imports of goods and services
CAB = current account balance in the
balance of payments
NY = net income from abroad
NCT = net current transfers

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V.2 BOP Accounting- Analytical Framework
GNDY = C + G + I + CAB (3)
GNDY = C + G + S (4)
GNDY = gross national disposable income
Equating (3) and (4) we get:
S = I + CAB
S ƛ I = CAB
S ƛ I +(NKT ƛ NPNNA) = CAB +(NKTƛNPNNA)
= NFI
NKT ƛ NPNNA = balance on the capital account
of the BOP
NKT = net capital transfers
NPNNA = net purchases of nonproduced,
nonfinancial assets
NFI = net foreign investment or net lending/net
borrowing vis-à-vis the rest of the world
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V.3 BOP Accounting- Analytical Framework
SƊI = Sp+SgƊIpƊIg (5)
mse of the definition of the current account
from equation (1) gives:
CAB = (SpƊIp) + (SgƊIg) = SƊI (6)
Where
Sp = Private savings
Ip = Private investment
Sg = Government savings
Ig = Government investment
Above equation implies that current
account balance on the external account
equals resource gap (savings-investment
gap) on the domestic account.
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V.4 BOP Accounting- Analytical Framework
We also know that
CAB = NKA+RT = SƊI (7)
Where
NKA = net capital and financial account (i.e.,
all capital and financial transactions
excluding reserve assets)
RT = reserve asset transactions
This equation shows that the current account
balance equals:
(a) the net capital and financial account
balance plus reserve asset transactions
and
(b) the resource gap on domestic account.

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V.5 Balance of Payments Accounting
Equation (7) can be
rewritten as:
SƊI = CAB
=TB+SIB+TRANB
=NKA+RT (8)
Where
TB = trade balance
SIB = service and
income balance
TRANB = current
transfer balance
NKA = net capital A/C
RT = reserve assets,
net

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2.V BOP Basic Concepts
- Entries in the international accounts are either
flows or stocks.
- In international accounts, stocks are called
positions.
- Flows refer to economic actions and effects of
events within an accounting period.
- Positions refer to the value of assets or liabilities
at a point in time.
- Flows are classified into (i) transactions and
(ii) other flows.
_______________________________
Consult GFS lectures V-2 for detailed
discussions on flows, transactions,
transfers, other flows, other economic
values, which are not repeated here.
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2.2 BOP Accounting Principals
- Transactions in the international accounts are
always interactions between a resident
and a nonresident institutional unit.
- In international accounts, internal or intra-
unit transactions are not recorded.
- Each transaction involves two entries, a debit
entry and a credit entry, for each party to the
transaction. In contrast, Ơother flowsơ involve
only one entry for each party.
- Transactions are classified as exchanges
or transfers, monetary or non-monetary,
and can be reported through rerouting,
reassigning and partitioning.

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2.3 BOP Accounting Principals
- Some transactions are not recorded in the
form in which they appear to take place.
Instead they are modified to bring out their
underlying economic relationships. Following
techniques are used:
- erouting
- Partitioning
- eassigning
- Imputing
_______________________________
Consult GFS Sessions V-2 for detailed
discussions on these and other
concepts which are not repeated here.

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2.4 Other flows
- Other flows are changes in the
volume or value of an asset or
liability that does not result from a
transaction or revaluations.
- Examples are unilateral write offs of
claims by creditors, reclassification
of assets, monetization,
demonetization of gold, and other
events.

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2.5 Other flows

- Changes in financial claims/liabilities


arising from the change in residence
of individuals are treated as other
changes in the volume of assets.
- evaluations of an asset or liability
that arise from changes in their
prices and/or the exchange rates that
affect the domestic currency values
of assets and liabilities denominated
in foreign currency.
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2.6 Positions
-  refer  he level   

e r
b
e   p   e.
- Geer

y, p re h   he


begg d ed    ug
perd.
w = w+ F or F = w - w
- here  = v
ue   e  
 he begg    ug erd
- = v
ue   e    he
ed    ug erd
-  = Ne v
ue  


  durg he
erd h e ed h r u
r
.
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2.7 Financial Assets

- Financial assets include financial


claims and, by convention,
monetary gold.
- A financial claim is a financial
instrument that has a counterpart
liability.
- Gold bullion is not a claim and does
not have corresponding liability.
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3.V BOP Accounting System
(a)Vertical double-entry
bookkeeping:

A Each transaction leads to t o entries,


a credit and a debit entry.
A This ensures that the total of all credits
equals that of all debit entries.
A This acts as a consistency check and
ensures the fundamental identity of a
balance sheet i.e., the total value of
assets equals the total value of
liabilities plus net worth.
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3.2 BOP Accounting System
(b) Horizontal double-entry booking:

A If unit A provides something to unit B, the


accounts of both A and B sho the
transaction for the same amount: as a
payment in Aƞs account and as a receipt in
Bƞs account.
A This ensures the consistency of recording
for each transaction of each item by
counterparties. For example, at the
global worldwide level, dividends
payable by all economies is equal to
the dividends receivable by all
economies.
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3.3 BOP Accounting System
 Quadruple-entry bookkeeping:
- It means simultaneous application of
both the vertical and horizontal
double entry bookkeeping results.
- A single transaction bet een t o
counterparties thus gives rise to four
entries.
- In contrast to business bookkeeping,
international accounts deal ith
interactions among a multitude of
units in parallel, and thus requires
special care for consistencyá
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3.4 BOP Accounting System
 The quadruple property is used for
bilateral comparisons and global
integrated data.
- As a liability of one unit is mirrored in a
financial asset of another unit, they are
identically valued, allocated in time, and
classified uniformly to avoid
inconsistencies in aggregating balance
sheets of units into regional or global
totals.
- Thus, definitions and accounting
principles in the international accounts are
derived to ensure symmetry and
uniformity in concepts and reporting.

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3.5 Credits and Debits
- In the current and capital accounts, a
credit denotes receivables from
exports of good and services,
incomes, transfers, and disposals of
nonproduced nonfinancial assets.

-  debit implies payables for imports of


goods and services, incomes,
transfers, and acquisitions of
nonproduced nonfinancial assets.

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3.6 Net changes in assets
- In the case of the flo s in financial
assets and liabilities, the terms Ơnet
changes in assetsơ and Ơnet changes
in liabilitiesơ are used to reflect the
nature of the financial flo s, ic
are recorded on a net basis separately
for eac financial asset and liability.
- For bot assets and liabilities, a
positive cange indicates an increase
in positions and a negative cange
indicates a decrease in positions.

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3.7 Time of Recording of Flows
- Once a flo is identified, te time at ic
it occurred must be determined so tat
te results of all flo s itin a given
accounting period can be compiled.
- Determination of timing is very important
for maintaining consistency of
international accounts but is complicated
due to existence of leads and lags in
international payments.
- Broadly, te time of recording could be
determined on four bases: accrual
basis, the due-for-payment basis, the
commitment basis, and the cash
basis (Consult GFS Lectures).
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3.8 Valuation
Market prices are te basis for valuation in
te international accounts.
- Tere are different concepts of value suc as
- Fair value
- Nominal value
- Amortized value
- Face value
- Book value
- Historic cost
_________________________________
- Consult GFS Lectures V-2 for detailed
discussions on these concepts which are
not repeated here.
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3.9 Unit of Account
- alues of nonfinancial and financial
transactions and te values of positions of
financial assets and liabilities may be
expressed initially in a variety of currencies or
in oter standards of value suc as SD s. Te
conversion of tese values into a reference
unit of account is a requisite for te
construction of consistent BOP accounts.
- International accounts can be compiled in te
domestic currency as ell as in anoter
currency in addition to te domestic currency.
Ho ever, bot are needed for formulation of
domestic policies and for international
comparisons.

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3.V Aggregation and Netting

- ree re    e


e ery
e   
  
w r .
- Te er Ơeơ ve d
e
(  

deb/ red r   

e r 
b
 e d e  
e  
b
).
_________________________________
- Consult GFS Lectures V-2 for detailed
discussions on these concepts which are
not repeated here.

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3.VV Derived Measures
- Balance on goods
- Balance on services
- Balance on goods and services
- Balance on primary incomes
- Balance on secondary incomes
- Current account balance
- Net lending/borro ing
- Net IIP arising from oter flo s
- Net international investment position.

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3.V2 Overall Balance of Payments

- Te Balance of
Payments is te sum of
current and capital and
financial accounts.
- Te Balance of
Payments al ays
balances.

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4.V Domestic Economy-ROW and Saving-
Investment Interrelationships

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4.2 Domestic Economy- OW and Saving-
Investment Interrelationsips

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Õ 

   

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