10.5 Balance of Payments

10.5.1 Balance of Payments and International Investment Position Manual, Sixth Edition

Conceptual Framework

The balance of payments (BoP) measures economic transactions between economic entities resident in a country and the rest of the world.

It also draws a series of balances between inward and outward transactions, provides a net flow of transactions between the country’s residents and the rest of the world, and reports how that flow is funded. BoP statistics are typically compiled at the same time as the national accounts. The BoP is an alternative presentation of the rest of the world sector in the national accounts, which provides more detail on international transactions and uses many common data sources.

More precisely, the relationship between the BoP and the SNA is as follows. The international accounts include the balance of payments, the international investment position (IIP), and the other changes in financial assets and liabilities accounts. The balance of payments statement is equivalent to the rest of the world accounts of the SNA, and the IIP statement may be considered a component of the sectoral balance sheet accounts of the SNA.

Published by the IMF, and most recently revised in 2013, the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6) updates the fifth edition (BPM5) that was released in 1993. The update was undertaken in close collaboration with the IMF Committee on Balance of Payments Statistics and involved extensive consultations with national compilers, and regional and international agencies over many years. It was drafted in parallel with the 2008 SNA to retain consistency between the two systems.

Like earlier editions, the BPM6 provides guidance on the recording of cross-border transactions and positions according to a set of internationally agreed guidelines. In addition:

• it provides greater clarity and details on an expanded range of international activities that affect countries than BPM5;

• it takes into account globalization (for example, currency unions, cross-border production processes, complex international company structures, and issues associated with labour mobility, such as remittances) and builds on the growing interest in examining vulnerability using balance sheet data (for example, greater elaboration of balance sheet components);

• it contains guidance on new financial instruments and financial activities linked to innovation (for example, on the treatment of short positions, goods under financial leases, and financial intermediation services indirectly measured); and

• it makes the international investment position (IIP) more central to the framework than does BPM5.

Example of national practice

An example of a national application of BPM6 and a good description of the BoP concepts and procedures is provided by the UK Office for National Statistics in a document entitled the Balance of payments QMI (🔗).

The UK BoP measures economic transactions between economic entities resident in the UK and the rest of the world. It also draws a series of balances between inward and outward transactions, provides a net flow of transactions between UK residents and the rest of the world, and reports how that flow is funded.

The UK’s BoP statistics are compiled at the same time as the national accounts. The BoP is an alternative presentation of the rest of the world sector, which is a component of the sector and financial accounts (SFA) and uses many common data sources. A BoP statistical bulletin (🔗) and time series dataset (🔗) is published quarterly on the ONS website, 90 days after the end of the period to which the data relate.

Eurostat has established an annual BoP quality reporting (🔗) process for all European Union (EU) member states. This is one of the provisions in the EU Regulation of BoP Statistics (🔗). The reports are based on quantitative measures of quality developed by Eurostat, which align with those assessed within this framework.

The conceptual framework of the UK BoP corresponds to that of the BPM6. This provides objective and coherent international standards to make data for the UK and other countries comparable, reflecting the needs of international and domestic users. The UK economic territory excludes the Channel Islands and the Isle of Man, which have their own fiscal and monetary authorities.

The UK BoP forms part of the broader system of UK National Accounts. The national accounts are a closed system in which both sides of every transaction involving a resident economic entity are recorded. A set of accounts, the ‘rest of the world account’, capture transactions that involve economic relationships with non-resident entities. The rest of the world accounts are presented from the perspective of non-residents; the reverse is true for the BoP presentation where the accounts are represented from the perspective of residents.

There are a number of different data sources used in the production of SFA and BoP statistics, some of which are ONS surveys and some of which are provided by partners such as the Bank of England (BoE) and HM Revenue and Customs (HMRC).

BoP estimates are used by the Bank of England and HM Treasury to inform decisions on monetary and fiscal policy. The Department for International Trade also uses BoP estimates to identify international trade partners. International users include Eurostat and the IMF; Eurostat uses UK figures to compile aggregate EU accounts, and the IMF collate data as a means of ensuring financial stability and sustainability.

BoP estimates are also used for feeding data into their own regular analyses of the macroeconomy, and also into more ad-hoc and in-depth analyses. For example, the importance of trade with particular countries or groups of countries, the importance of trade in different commodities or services, identifying comparative advantage, changes in import and export prices, economic contribution from trade and income, and looking at inward and outward investment. These analyses and briefings are aimed to inform ministers or decision-makers of the current or historical situation and provide evidence for the policy debate.

BoP data are also of interest to a wider range of user groups including the media, researchers and other regional, national and international policymakers. Some users focus primarily on the developments in the current account and their financing, including the sustainability of the current account imbalances in the longer-term and the need for policy adjustments. Others focus on an analytic presentation, classifying the standard components of BoP and their relationship to other components (for example, trade and direct investment, and foreign direct investment and productivity). The BoP allows a sector breakdown of the financial account and their relationship to domestic sources of finance.

10.5.2 Other related guidelines and manuals

Balance of Payments and International Investment Position Compilation Guide (BPM6 CG), 2014, IMF

The BPM6 CG is a companion document to the BPM6. It updates the guide that was released in 1995 to accompany the BPM5. Its purpose is to show how the conceptual framework described in the BPM6 may be implemented in practice. It is not intended as a stand-alone manual. In other words, users of the Guide should be familiar with the BPM6. Appendix 6 of the Guide explains the relationship between the BPM6, and the 2008 SNA as outlined in Chapter 10.5.1 — Balance of Payments and International Investment Position Manual, Sixth Edition. In describing how the international accounts statements may be compiled, the Guide thus illustrates how the rest of the world account of the SNA may be compiled.

The Guide covers:

• extraction of data from collections (e.g., international merchandise trade statistics, migration statistics, and other official sources) over which the compiler may have some influence but not full control;

• extraction of data from collections (such as reporting systems for foreign exchange and other international transactions and surveys of businesses) managed, either solely or jointly with other statistical compilers, by the balance of payments compiler;

• compilation of the international accounts, including the balance of payments, supplementary balance of payments series, and the IIP statement;

• international accounts data management, publication, dissemination, and communication with users;

• evaluation and development of data sources and compilation methods as necessary; and

• assessment of data quality.

Balance of Payments Coding System, 2012, International Monetary Fund

The IMF BoP Coding System was developed by the International Monetary Fund in cooperation with Eurostat, the OECD, and the ECB. It is designed to facilitate the exchange of data on the balance of payments, international investment position, international trade in services, and foreign currency liquidity among these organizations, their member states, and other interested organizations or entities. The system also appears as Appendix 9 Balance of Payments Coding System within the BPM6.

Extended Balance of Payments Services Classification 2010 (EBOPS 2010)

The EBOPS 2010 classification (🔗) appears as Annex I in the Manual on Statistics of International Trade in Services 2010 (🔗). It provides a breakdown of the Balance of Payments Trade in Services item (debit and credit) as defined in BPM6, by types of services. The classification thereby meets a number of user requirements, including the provision of more detailed information on Trade in services as required in connection with the General Agreement on Trade in Services (GATS).

10.5.3 Further development

The IMF Committee on Balance of Payments Statistics (🔗) was established in 1992 to:

• oversee the implementation of the recommendations contained in the reports of two IMF Working Parties that investigated the principal sources of discrepancy in the global balance of payments statistics;

• advise the IMF on methodological and compilation issues in the context of the balance of payments and international investment position statistics; and

• foster greater coordination of data collection among countries.

The Committee terms of reference (🔗) provide more details.