External sector statistics - Introduction to conceptual framework

1. External sector statistics - Introduction to conceptual framework THE CONTRACTOR ISACTING UNDER A FRAMEWORK CONTRACT CONCLUDED WITH THE COMMISSION

2. International standards • Balance of Payments and International Investment Position Manual (6th edition) - BPM6 https://www.imf.org/external/pubs/ft/bop/2007/pdf/bpm6.pdf • BPM6 Compilation Guide • BPM6 consistent with SNA2008 • ESA2010 the EU version of SNA2008 • Manual on Statistics of International Trade in Services (MSITS) http://unstats.un.org/unsd/tradeserv/msitsintro.htm

3. BPM6 – International accounts “The international accounts summarise the economic relationships between residents of that economy and the rest of the world” 3 accounts • The Balance of Payments • The International Investment Position • The other changes in financial assets and liabilities account.

4. Balance of Payments “ A statement summarising transactions between residents and non-residents during a period”. Consists of: • Goods and services account • Primary income account • Secondary income account • Capital account • Financial account Double entry accounting system (credits and debits).

5. International Investment Position “A statement at a point in time showing the value of financial assets of residents of an economy that are claims on non-residents, and the liabilities of an economy to non-residents”. • Difference between assets and liabilities is net IIP. (either net claims or net liabilities) • Subset of assets and liabilities in national balance sheet (includes non-financial assets and liabilities)

6. Other changes in assets and liabilities ..the other changes in financial assets and liabilities account shows changes in financial positions that arise for reasons other than transactions between residents and nonresidents. • Currency changes • Price changes • Other changes (debt write-off, etc.)

8. Recording transactions • Double entry accounting system. Each transaction has a credit and debit entry. • Current and capital account show gross transactions. • But, financial account shows transactions in net terms (separately for assets and liabilities) i.e. net transactions in financial assets is acquisition less disposal of assets NOT assets less liabilities.

9. Double entry system • Every economic transaction has two sides: something of economic value is provided and something of equal value is received • When an economic value is provided (UAE exports a barrel of oil) a credit entry is made. • When the corresponding economic value is received (payments for oil) a debit entry is made. • Credits = exports of G&S, income receivable, decrease in assets or increase in liabilities • Debits = imports of G&S, income payable, increase in assets or decrease in liabilities.

10. Current account shows flows of goods, services, primary income and secondary income between residents and non-residents • Balance = Current account balance

11. Capital account Shows credit and debit entries for non-produced, non-financial assets and capital transfers between residents and non-residents. • Non-produced, non-financial assets? e.g. land sold to foreign embassies, leases • Capital transfers e.g. aid to build a bridge. • Balance on current and capital accounts is equivalent to net lending/borrowing of an economy

12. Financial account • Shows the net acquisition and disposal of financial assets and liabilities. • In BoP, but also IIP as they affect the stock of financial assets and liabilities. • Net balance on financial account = net lending/borrowing on current and capital ac. • Therefore the financial account measures how the net lending/borrowing from non-residents is financed.

13. Net errors and omissions • Conceptually, current + capital = financial But • Imbalances due to problems of measurement • Imbalance = errors and omissions • Should be identified separately. • Measure of quality e.g. as a % of GDP e.g. if net lending from current/capital account = 25 and net lending from financial account = 20, errors and omissions is -5.

14. Linkages within International Accounts • End period values of IIP = start position value + transactions + other changes. • Current, capital and financial account entries balance (in theory) • Balance on current/capital = financial balance • Income from financial assets and liabilities can be presented as a rate of return.

15. Linkages with other datasets • National Accounts. External ac = RoW • Monetary statistics. Data should be consistent with foreign assets and liabilities of financial corporations. • GFS. Data on grants to/from non-residents, interest payable on govt debt to non-residents, net external assets and liabilities should be consistent.

16. Accounting principles

17. Transactions • An interaction between 2 units that involves an exchange of value or transfer. • In BoP, transaction must be between a resident and non-resident. • Include illegal transactions.

18. Timing of recording • Accruals accounting. • “Change of economic ownership” determines timing of recording transactions. • For services, it is equivalent to when service is provided/received.

19. Valuation = market price • Market price is the amount of money that a willing buyer pays to acquire something from a willing seller (includes taxes/subsidies) • For the double entry system to work there must be uniformity in the valuation adopted • Credits and debits, even if from different sources, should be valued at the same price

20. Currency • Convert to domestic currency at the time the transaction occurs. • Positions are converted at the rate prevailing on the balance sheet date (end-period). • Use midpoint between buying and selling rates.

21. Economic territory, units, sectors and residence

22. What is the economic territory? • Geographical territory administered by a govt. • Usually a country, but not always eg Economic and currency unions • International organisations. • Not subject to laws of host country • Eg IMF and UN are not US residents

23. What is an institutional unit? • Units own assets, incur liabilities, make contracts. • Decision making units that have their own accounts. • Organised into institutional sectors

24. Table 4.2. BPM6 Classification of Institutional Sectors • Central bank • Deposit-taking corporations except the central bank2 • General government • Other sectors • Other financial corporations • Money market funds (MMFs) • Non-MMF Investment funds • Other financial intermediaries except insurance corporations and pension funds (ICPFs)2 • Financial auxiliaries • Captive financial institutions and money lenders • Insurance corporations • Pension funds • Nonfinancial corporations, households, and NPISHs • Nonfinancial corporations • Households • NPISHs (nonprofit institutions serving households; may be combined with households) • Additional sectors for counterpart data: • International organizations • International financial organizations • Central bank of currency union • Other international organizations

25. Residence • Residency is not based on nationality or legal criteria • Residents of an economy are deemed to have a centre of predominant economic interest in the economy and to be resident for at least a year • UK residents include UK branches of foreign companies and non-residents include foreign branches of UK companies • Non-residents include diplomatic or military personnel and their dependents and foreign students irrespective of their length of stay

26. Residence: households • Residence determined by: • Intention to stay at least one year • Special cases • Diplomatic staff • Members of armed forces • Students • Medical patients • Ships crew

27. Residence: enterprises • Production expected to extend over a long period. • Normally enterprises will have a location in a single location based on company and tax law. • Special cases • Operators of mobile equipment (based on residence of operator, not location of equipment) • SPVs. No physical presence. Residence according to country of incorporation/registration (not according to location of assets etc) • Offshore financial centres.