How are BOP statistics used? THE CONTRACTOR IS ACTING UNDER A FRAMEWORK CONTRACT CONCLUDED WITH THE COMMISSION

To understand drivers of domestic growth GDP = C + G + I + X – M, where M = imports of goods and services C = household consumption G = government consumption I = gross capital formation1 X = exports of goods and services

To understand the drivers of GNDI The definition of gross national disposable income (GNDI) is GDP plus net primary and secondary income from abroad, so GNDY = C + G + I + X – M + BPI + BSI, where BPI = balance on primary income BSI = balance on secondary income (net current transfers)

Current account balance The current account mirrors the balance of saving / investment in an economy. So, a current account surplus will reflect high saving (or lower investment). Therefore policy makers need to consider impact of any policy changes designed to affect BOP (eg exchange rates) on domestic saving / investment.

Net lending and borrowing The balance between the financial account and other entries can be expressed as: NLB = CAB + KAB = NFA, where NLB = net lending/net borrowing KAB = the capital account balance NFA = net financial account entries

Financing a current account deficit The current account balance is funded by the change in net claims on the rest of the world. A deficit on the current and capital accounts implies that the net acquisition of resources from the rest of the world must be paid for by either liquidating foreign assets (such as reserves) or increasing liabilities with non-residents. Sustainability? Leads to pressure on exchange rates

Other Sectoral analyses - Series of balances (eg trade in goods, trade in services, sectoral balances) that shed light on the performance of an economy. Partner country analyses Rates of return analyses

Integration of the accounts Consistent classification of FA, IIP and income Allows validation of data and calculation of earnings to stock ratios Integrated IIP reconciles start and end values of IIP. Reconciliation takes place through FA (transactions) and other changes in financial assets and liabilities accounts.

The balance sheet approach Increased emphasis in BPM6 to reflect role of balance sheet in understanding vulnerability (nb financial crisis) E.g. debt to GDP ratios (financial stability) E.g. exposure to valuation changes E.g. indicator of external debt sustainability E.g. maturity of debt (short or long-term) E.g. currency composition of debt Understand structure of an economy Ability to attract foreign investment Degree of financial openness eg assets to GDP ratio Size of foreign loans and deposits of banking sector Indicator of future interest and dividend flows

Reconciled accounts

Current account balance (Q) - 1970 - 2015 Record deficit in 07 Q3 stands out quite starkly In % terms, latest deficit on par with late-80s

Current account balance by component (Q)

Current account balance (A) – 1970 - 2015

IIP – Gross positions (Q)

Net IIP (% annualised GDP)