Pakistan’s Balance of Payments

2. Pakistan’s Balance of Payments Presentation for Collaboration Among Data Compilers & Users Workshop May 8 – 9, 2006 SBP LRC Karachi By Zafar Iqbal Joint DirectorStatistics DepartmentState Bank of Pakistan

3. INTRODUCTION • What is BOP ? • Why is it important ? • Who does Compile it ? • Periodicity and Timeliness? • Conceptual Framework & standard Components of BOP • Data Sources ? • System of compilation. • Dissemination

4. What is BOP ? Balance of payments is a statistical statement designed to provide for a specific period of time a systematic record of an economy’s transactions with the rest of the world. An “economy” is comprised of economic entities (residents) that have closer association with that specific economy than with any other. Economic entities that have closer association with other economies are nonresidents.

5. CONCEPTUAL FRAMEWORK OF BOP • BOP registers transactions between residents and non-residents. • BOP deals with flows. • BOP uses double entry accounting system. • BOP adopts the principal of accrual accounting (time of recording). • BOP are normally expressed in domestic currency or in stable unit of account.

6. Principles and Concepts • Double-entry System The basic convention of a BOP statement is the DOUBLE ENTRY ACCOUNTING SYSTEM in which every transaction is represented by two entries of equal values. If for example an exporter receives foreign

7. currency in payment for goods, a credit entry would be recorded in the BOP accounts for export of goods and offsetting debit entry would be recorded for exports increase in foreign currency bank balance. In BOP these entries would be recorded as: Credit Debit Merchandise 100 .. Foreign Currency Assets .. 100

8. Why is it important ? The balance of payments statistics are used for a number of reasons within a country and worldwide. The most frequent users are: Domestic Economic Policy Government authorities are constant users of balance of payments and other statistics in carrying out their responsibilities of monitoring economic activity, formulating recommendations an appropriate balance of payments and domestic economic policies and evaluating various economic strategies.

9. Why is it important ? International Uses Regional balance of payments statistics are used both by the Pakistan’s authorities and by the authorities of partner countries to monitor developments in economic relations between Pakistan and those countries or specific country grouping. Pakistan’s balance of payments is used by academic and business observers as well as by policy maker around the world in monitoring developments in the worldwide payments position and in comparative studies of trends in the balance of payments of various countries. BOP data is also used by international bodies such as IMF, World Bank and other external stakeholders etc.

10. Who does it compile • Statistics Department of State Bank of Pakistan is responsible to compile Pakistan’s Balance of Payments Statistics (BOP) as per IMF format (BPM5)

11. Periodicity and Timeliness • Monthly (highly provisional), Quarterly and Annually. • Monthly: By the time lag of 36 days after the reference Month. • Quarterly:By the time lag of one quarter after the reference period.

12. Standard Components of BOP • I. Current Account • Goods • Services • Income • Current Transfers II. Capital & Financial A/C • Capital Account • Financial Account Direct Investment Portfolio Investment Financial Derivatives Other Investment Reserve Assets III. Errors and Omissions

13. Standard Components of BOP I. Goods FOBCreditDebitNet • General merchandise. • Goods for processing.  • Repairs on goods.  • Goods procured in ports by carriers  • Non-monetary gold.

14. Standard Components of BOP- Contd… • II. Services CreditDebitNet • Transportation. • Travel. • Communication • Construction • Insurance • Financial

15. Standard Components of BOP- Contd… • II. Services CreditDebitNet • Computer and information • Royalties and license fees • Other business services • Entertainment & Cultural and recreational • Government services

16. Standard Components of BOP- Contd… • III. IncomeCreditDebitNet • Compensation of employees • Investment income • ► Direct investment • ► Portfolio investment • ► Other investment •  Monetary authority •  General govt. •  Banks •  Others

17. Standard Components of BOP- Contd… • IV. Current transfers CreditDebitNet • General government • Other sectors • ► Workers’ remittance . • ► Resident FCAs . • ► Others .

18. Standard Components of BOP- Contd… V. Capital account CreditDebitNet • Capital transfers  General government  Debt forgiveness  Others  Other sectors  Debt forgiveness  Others • Acquisition/disposal of non-produced non-financial assets

19. Standard Components of BOP- Contd… VI. Financial account CreditDebitNet Direct investment  Direct investment abroad  Direct investment in reporting economy • Portfolio investment  Portfolio investment – Asset  Portfolio investment – Liability • Financial Derivatives

20. Standard Components of BOP- Contd… • Other investment CreditDebitNet  Assets  Trade Creditors  Loan  Currency and Deposits  Other assets  Liabilities  Trade Creditors  Loan  Currency and Deposits  Other assets

21. Standard Components of BOP- Contd… • Reserves Assets  CreditDebitNet • Monetary gold  • SDRs  • Reserve position in the Fund.  • Foreign exchange • Other claims VII. Errors and omissions –Net VIII. Exceptional financing.

22. Data Sources ? SECTORSSources 0 Authorized Dealers 1 Accounts Department of SBP 2 Foreign Shipping/Air Cos. 3 Pak Diplomatic Missions Abroad 4 Custom Houses/Duty Free Shops 5 Survey of Foreign Investment & Liab of Statistics Deptt of SBP 6 Economic Affaires Division

23. Data Sources ? SECTORSSources 7 Economic Affaires Division 8 EAD/Ads and Accounts Deptt of SBP 9 Development Project 10 FBS/ADS/EDMD of SBP 12 Pak Air / Shipping Cos. 13 Foreign embassies/int. Inst. in Pakistan. 14 Exchange Cos,

24. System of Compilation • Pakistan’s balance of payments statistics are compiled both is Pak. Rupees and US Dollars on monthly, quarterly and annual basis. • Compilation process of Pakistan’s Balance of Payments involves composing of data being received from various sources in different formats. The data is distributed according to sources in 14 sectors. Distribution is based on main source of information. Collection, processing, and compilation of whole data are distributed among three Divisions viz. Balance of Payments, Exchange Accounts, and Foreign Investment & Loans Division. • A very comprehensive system is available in the BOP Division to ensure incorporation of whole data.

25. System of Compilation • The objective is to build a table in accordance with the conceptual framework and minimum disclosure requirements as per BPM5. The Division make sure that these guidelines are being met keeping in view the economic structure of the country. • Each and every item of all sectors is coded in the database against a four-digit code called “Purpose Code”. A five-digit code BP-Item is mapped against each purpose codes in sectors that is used to accommodate specific items for placement in the final table of BOP.

26. System of Compilation • First three digits are identical with the sequential code list recommended by IMF (http://www.imf.org/external/np/sta/bopcode/seq.htm). The next two-digits are allotted for internal sub-classification specifically for Pakistan’s Balance of Payments.

27. System of Compilation • Further to this, two-digit codes as follows are mapped against Purpose, BP Item code meant to place the amounts as Credits or Debits in the BOP table. • CodeDescription • 81 Credit • 82 Negative Payments • 91 Debit • 92 Negative Receipts

28. System of Compilation • For example, all worker’s remittance data received through banks have purpose code i.e. 9471. System thus map this data through a master file mapper for all sectors as follows: • Purpose BP Item Code Designation code • 9471 39101 81 • This data when mapped on Bp-item code we prepared a summary on the basis of first 3 digits which is known as Sequential Code List described by IMF as per BPM5.

29. System of Compilation

30. General Merchandise f.o.b.

31. General Merchandise f.o.b. • EXPORT (FOB) • a) Exports c. & f. (exchange record) • b) Less freight on exports by foreign Air / Shipping Cos. • c) Less freight on exports by Pakistani Air / Shipping Cos. • d) Timing adjustment • i) increase • ii) decrease • e) Unrequited exports • f) Others • i) Export of crude oil • ii) Export Credits • iii) Land borne exports • iv) Export samples

32. IMPORT (FOB) a) Imports c.f. (exchange record ) b) Less freight on import ( 8% ) c) Imports under personal baggage/ NRI d) Unclassified imports i) Excluding military Principal ii) Excluding military Interest e) Imports under foreign economic assistance f) Others i) Capital equipment ii) Land borne iii) PIA vi) Saudi Oil Facility

33. Dissemination Formats • Hard Copy • News Release • Publication • Weekly • Monthly “Statistical Bulletin” (English) • Quarterly • Annual “Pakistan's Balance of Payments” (English) • Other • Electronic • Internethttp://www.sbp.org.pk • Other Online • CD-ROM • Diskette  • Other (specify) •  None

34. Dissemination Reports • Monthly/Quarterly/Annual Balance of Payments (BOP) • IMF Table-2003. Standard format, Summary BOP-BPM5 and Summary BOP-MOF format-BPM4. • Workers’ Remittance – Country wise • Foreign Direct Investment Country wise & Sector wise • Portfolio Investment - Country wise • Foreign Currency Accounts & its Utilization • Quarter wise Debt servicing • Quarter wise Outstanding stock Foreign debt/liabilities • Export receipts –Monthly & Annual • Balance of Payment Booklet- Quarterly/Annual Country wise & County groups i.e. OIC, EEC, EE & I.I etc

35. Dissemination Reports • Weekly/Monthly Gold and Foreign Exchange Reserves. • Foreign Exchange Budget • Quarterly Report form of IMF • Outstanding Export Bills • Imports payments by commodities • Invisible & Capital Receipts / Payments • Exchange Rates

36. Summary Balance of Payments as per BPM5

37. July - Jun July - March ITEM FY 05 FY 04 FY 06* FY05

38. July - Jun July - March ITEM FY 05 FY 04 FY 06* FY05

39. July - Jun July - March ITEM FY 05 FY 04 FY 06* FY05

40. July - Jun July - March ITEM FY 05 FY 04 FY 06* FY05

41. July - Jun July - March ITEM FY 05 FY 04 FY 06* FY05

42. July - Jun July - March ITEM FY 05 FY 04 FY 06* FY05

43. July - Jun July - March ITEM FY 05 FY 04 FY 06* FY05

44. THANKYOU