Eurostat Balance of Payments recent methodological changes (including euro banknotes) ESTP course - MIP Luxembourg 1-3 December 2015 Olaf Nowak

Eurostat What is balance of payments? The balance of payments is a statistical statement that summarizes transactions between residents and nonresidents during a time period. According to BPM6 it consists of the goods and services account, the primary income account, the secondary income account, the capital account, and the financial account. 2

Eurostat What is it used for? To monitor imbalances and how they are financed To monitor exposure to external financing To assess the competitiveness of an economy BOP related statistics (goods, services, FDI) are useful in trade negotiations To assess the sustainability of the exchange rate Useful tool for monetary policy Input for NA  RoW account 3

Eurostat BOP in the EU To fulfil its tasks, the ESCB requires comprehensive and reliable balance of payments statistics. The Treaty requires the Commission to investigate the positions of Member States seriously threatened by balance of payments imbalances and to recommend corrective measures. The implementation and the review of trade agreements, as well as the current and future negotiations on further agreements require availability of the relevant BOP statistics. 4

Eurostat EU legal framework Regulation (EC) No 184/2005 of the European Parliament and of the Council of 12 January 2005 on Community statistics concerning balance of payments, international trade in services and foreign direct investment as amended by ➥ Commission Regulation (EU) No 555/2012 as regards the update of data requirements and definitions Implementing regulations on quality reporting and transmission format. ECB Guideline ECB/2011/23 on the statistical reporting requirements of the European Central Bank in the field of external statistics. 5

Eurostat BOP in MIP  Headline indicators: Current account balance 3 year average as % of GDP), Net international investment position (% of GDP), Export market shares (share in world exports – 5 year change).  Auxiliary indicators: Net lending/net borrowing (% of GDP), Net external debt (% of GDP), FDI flows in the reporting economy (% of GDP), FDI stock in the reporting economy (% of GDP). 6

Eurostat International standards IMF publishes the Balance of Payments and International Investment Position Manual (BPM) 6 editions have been issued (1948, 1959, 1961, 1977, 1993, 2009) Specific manuals for FDI (BD4) and ITS (MSITS2010) BPM6 is used in the EU since 2014 – together with ESA2010 7

Eurostat Relationship BOP-RoW There is complete concordance between the SNA and BPM6 with respect to the delineation of resident units, valuation, time of recording, conversion procedures, and coverage of goods, services, income, capital transfers, and foreign financial assets and liabilities. The coverage and terminology of major aggregates have been fully harmonized. There is a major presentational difference in that the international accounts use functional categories as the primary level of classification for investment income, the financial account, and the IIP, whereas the SNA uses instruments and sectors. 8

Eurostat Goods and services account Goods breakdown:  General merchandise,  Merchanting,  Nonmonetary gold. Services breakdown:  Manufacturing services on physical inputs owned by others,  Maintenance and repair services,  Transport,  Travel,  Construction,  Insurance and pension services,  Financial services,  Charges for the use of intellectual property,  Telecommunication, computer and information services,  Other business services,  Personal, cultural and recreational services,  Government goods and services. 9

Eurostat Primary income Compensation of employees Investment income: Other primary income:  Taxes on production and on imports,  Subsidies,  Rents. 10

Eurostat Investment income (1) 11 Breakdown by functional category:  direct investment,  portfolio investment,  other investment,  reserve assets. Breakdown by instrument:  Equity,  Investment fund shares,  Debt,  Income attributable to policyholders.

Eurostat Investment income (2) Breakdown by international accounts item:  Dividends - the distributed earnings allocated to the owners of equity for placing funds at the disposal of corporations.  Reinvested earnings - the direct investors’ share of the retained earnings of the direct investment enterprise.  Interest - investment income receivable by the owners of deposits, debt securities, loans, and other accounts receivable, for putting the financial assets at the disposal of another institutional unit. 12

Eurostat Secondary income Sector breakdown – general government and other sectors:  Current taxes,  Social contributions,  Social benefits,  Current international cooperation,  Miscellaneous current transfers (includes personal transfers)  VAT and GNI-based EU own resources  Adjustments for change in pension entitlements 13

Eurostat Functional classification in BOP For financial flows and stocks, BOP functional classification distinguishes: 1)Direct investment 2)Portfolio investment 3)Financial derivatives (other than reserves) and employee stock options 4)Other investment 5)Reserve assets Each category is broken down by instrument 14

Eurostat Main changes introduced in BPM6 (1)  In the financial account, the headings have been changed from “credit” and “debit” to “net acquisition of financial assets” and “net incurrence of liabilities”.  The new terminology and sign convention for the financial account are consistent with those for the IIP.  The net balance on financial account has the opposite sign in the BPM6 compared to the BPM5. 15

Eurostat Main changes introduced in BPM6 (2) 16  Net export of goods under merchanting,  Manufacturing services on physical inputs owned by others,  FISIM,  Secondary income,  Other changes in current and capital account,  Presentation of direct investment.

Eurostat International Investment Position IIP is the “Balance Sheet” of the BOP system, Shows stocks of cross-border financial assets and liabilities, Functional classification, IIP at end of the period should be equal to the sum of IIP at the end of previous period, BOP financial account transactions, revaluations due to exchange rate changes, revaluations due to other price changes and other changes in the volume of assets/liabilities. 17

Eurostat New treatment of euro banknotes The new recommended statistical treatment of EUR banknotes in national b.o.p./i.i.p. statistics entails: 1.The recording of the intra-Eurosystem (“technical”) claims/liabilities, under “other investment/currency and deposits/central bank/short-term” as an assets/liability vis-à-vis the Eurosystem. 2.The recording of the “exporting” of EUR banknotes as a liability under “other investment/currency and deposits/central bank/short- term”. Or the recording of the “importing” of EUR banknotes as an asset under “other investment/currency and deposits/resident sector/short-term”. 3.The recording of any remuneration related to intra-Eurosystem (“technical”) claims/liabilities in the current account as “primary income/investment income/other investment/interest”. 18

Eurostat CA balance (2014, % GDP) 19

Eurostat Net IIP (2014, % GDP) 20

Eurostat Exports market share 5 year change(2014) 21

Eurostat Thank you for your attention! Contact: 22