1. Introduction to the external sector accounts
THE CONTRACTOR IS ACTING UNDER A FRAMEWORK CONTRACT CONCLUDED WITH THE COMMISSION

4. Current account
Shows flows of goods, services, primary income and secondary income between residents and non-residents.
Follows national accounts breakdown for easy integration of BoP into the Rest of World sector
Current and capital balance is a measure of an economies saving (or borrowing).

5. BPM6 Current Account Classification
Goods
Services
Primary income
Secondary income

6. Trade in goodS

7. Goods
Physical products where ownership can be transferred from one unit to another.
Classified into:
General merchandise
Goods under merchanting
Non-monetary gold.

8. Consistency with international classifications
Trade in goods: BOP = NA
But not consistent with IMTS
Based on physical movement rather than change of ownership

9. Coverage - inclusions
Electricity, gas and water (transmission in services)
Products such as packaged software purchased outright (licenses in services)
Goods procured in ports (eg ships stores, bunkers)
Equipment sold outside the territory of residence of the original owner
Illegal goods (eg drugs)
Smuggled goods (eg tobacco)

10. Goods – exclusions No change of ownership eg Transit trade
Migrants personal effects
Goods sent to embassies etc from home country
Goods temporarily exported or imported with no change of ownership eg goods for repair

11. Goods - exclusions No change of ownership
Goods for assembly, processing, packing for an enterprise that does not own the goods.
Returned goods
Trade between free trade zones and residents of the same economy

12. Goods – time of recording
When change of ownership occurs.
In practice determined when recorded by Customs.
For large, expensive goods (eg ships and aircraft) change of ownership can be staged in line with Work in Progress.

13. Valuation
Require a common valuation to separate value of goods from transport services
Fob = border of exporting country
Often goods are valued at Customs border of importing country (cif).
Goods data then need to be adjusted to exclude transport and insurance costs from border of exporting country.

14. Goods under merchanting
“Purchase of goods by a resident from a non-resident with the subsequent resale to another non-resident without the goods entering the compiling economy”
Acquisition of goods shown as a negative export.
Sale of the goods treated as a positive export.
Net exports under merchanting includes trader margins, holding gains, changes in inventories under merchanting.

15. Goods under merchanting - Example
Merchant in country A purchases goods from country B and sells to country C
(From the Handbook on Globalisation)
Country B Producer
Country C Purchaser 80
100
Country A Merchant (compiling economy)
Physical movement of goods
Ownership of goods
Cash flow

16. Sources
Extra – EU trade: Main source is from Customs declarations (require clearance before goods can enter or leave country)
Intra- EU trade based on Intrastat survey of traders above a threshold

17. Trade in services

18. BPM6 - classification
Manufacturing services on physical inputs owned by others
Maintenance and repair
Transport
Travel
Construction
Insurance and pension services
Financial services
Charges for the use of intellectual property
Telecommunications, computer and information services
Other business services
Personal, cultural and recreational services
Government goods and services

19. EXTENDED BOP CLASSIFICATION OF SERVICES (EBOPS)
A product-based classification (exceptions are travel, construction and government services which are transactors based components).
Consistent with, but more detailed than BPM standard components.
Includes additional memorandum items and developed with GATS negotiation needs in mind.
MSITS provides a correspondence table between EBOPS and CPC /GATS list of services.

20. 1 Manufacturing services on physical inputs owned by others
EBOPS digit classification (There are actually 3 digits in the manual)
1 Manufacturing services on physical inputs owned by others
1.1 Goods for processing in reporting economy
1.2 Goods for processing abroad
2 Maintenance and repair services nie
3 Transport
3.1 Sea transport (passenger, freight, other)
3.2 Air transport (passenger, freight, other)
3.3 Other transport – rail, road, space, pipeline, inland waterway, electricity transmission, other supporting services (passenger, freight, other)
3.4 Postal and courier services
4 Travel
4.1 Business travel
4.2 Personal travel

21. EBOPS2010 (continued)
5 Construction services 5.1 Construction abroad 5.2 Construction in the compiling economy 6 Insurance Services 6.1 Direct insurance (life, freight, other direct) 6.2 Reinsurance 6.3 Auxiliary insurance services 6.4 Pension and standardised guarantee services 7 Financial Services 7.1 Explicitly charged and other financial services 7.2 FISIM

22. EBOPS2010 (continued)
8 Charges for the use of intellectual property nie 8.1 Franchises and trademarks licensing fees 8.2 Licenses for the use of outcomes of R&D 8.3 Licenses to reproduce and/or distribute computer software 8.4 Licenses to reproduce and/or distribute audio visual products 9 Telecommunications, computer and information services 9.1 Telecommunication services 9.2 Computer services 9.3 Information services 10 Other Business Services 10.1 Research and development services 10.2 Professional and management consulting services 10.3 Technical, trade related and other business services10

23. EBOPS2010 (continued)
11 Personal cultural and Recreational Services 10.1 Audiovisual and related services 10.2 Other personal, cultural, and recreational services 12 Government services nie Embassies and consulates 11.2 Military units and agencies 11.3 Other government services

24. primary income

25. What is included in Primary Income
Primary income is income that accrues to institutional units for their provision of:
Labor
Financial assets
Natural resources
Income associated with the production process
Provision of labor = compensation of employees
Taxes and subsidies on products and production (e.g. sales tax or value added) = other primary income
Property income
Provision of financial assets = investment income
Renting natural resources = other primary income

26. Classification Compensation of employees Investment income
Dividends
Reinvested earnings
Interest
Investment income attributable to policyholders in insurance, pensions schemes, and standardized guarantee schemes
Other primary income (new category in BPM6)
Taxes on products and production
Subsidies
Rent

27. Compensation of employees
Compensation of employees is earned:
by persons residing in economies that differ from the economies in which they are employed on a short-term basis (for less than one year)
earnings of border, seasonal, and other short-term workers that are in an employer-employee relationship with nonresident employer
by persons residing in their own economies but employed by a nonresident company or by foreign government enclaves
compensation paid by foreign embassies, foreign military establishments, and international institutions to residents of the economies in which they are located

28. Investment income
Investment income is classified by financial account functional categories
Direct Investment
Portfolio Investment
Other Investment
Reserve Assets
Investment income attributable to direct investors
includes:
Dividends and withdrawals from income of quasi-corporations
Retained earnings
Interest

29. Dividends are the distributed earnings allocated to the owners of equity for placing funds at the disposal of corporations (BPM6, paragraph 11.24)
Reinvested earnings are the direct investors’ share in retained earnings of the direct investment enterprise (DIENT)
Interest is a form of investment income receivable by the owners of deposits, debt securities, loans, and other accounts receivable for putting those financial assets at the disposal of another institutional unit

30. Secondary income and capital account

32. What is secondary income
Secondary income account shows current transfers between residents and nonresidents
Distinction between current and capital (capital account)
A transfer is an entry that corresponds to the provision of a good, service, financial asset, or other nonproduced asset by an institutional unit to another institutional unit when there is no corresponding return of an item of economic value

33. Examples? General government
Personal – transfers between resident and non-resident households
All current transfers in cash or in kind made or received by resident households to or from nonresident households
Sources?

34. Other current transfers
Current taxes on income, wealth, etc.:
mainly taxes levied on the income earned by nonresidents from the provision of their labor or financial assets
Social contributions and social benefits
Non-life insurance premiums and claims
Current international cooperation

35. Capital account The capital account, recorded on a gross basis, shows:
Gross acquisition and disposal of nonproduced nonfinancial assets
Capital transfers
General Government
Debt forgiveness
Other capital transfers
Financial corporations, nonfinancial corporations, households and NPISHs
Other capital transfer

36. Debt forgiveness
the voluntary cancellation of all or part of a debt obligation within a contractual agreement between a creditor and a debtor
the contractual arrangement cancels or forgives all or part of the principal amount outstanding, including interest arrears (interest payments that fell due in the past) and any other interest costs that have accrued
Debt forgiveness is distinguished from debt-write-off

37. Financial account

38. Transactions in financial assets
Financial assets have following attributes:
Ownership rights can be enforced and owners get benefits from holding them.
They have counterpart liabilities (except monetary gold).
Every asset has value.
Transactions involve change of ownership of financial assets

39. Classification Sectors and instruments based on national accounts
BoP functional breakdown (Correspondence with income and IIP).
Direct investment.
Portfolio investment.
Financial derivatives.
Reserve assets.
Other investment

41. Sectors Assets: based on sector of the domestic creditor (owner)
Liabilities: based on sector of domestic debtor.

42. International investment position (IIP)

43. Conceptual framework The IIP shows the value and composition of:
Financial assets (claims on non-residents) or gold bullion held as reserve assets.
Financial liabilities of residents of an economy to non-residents
Values shown at the beginning or end of a period.
Net IIP = difference between assets and liabilities (can be +ve or –ve)
IIP is a subset of national balance sheet

45. Other changes in financial assets and liabilities account

46. Other changes in financial assets and liabilities (BPM6 chap 9)
Used to
Distinguish between transactions and other changes
To understand movements in balance sheets
Helps identify data errors
A reconciliation account
Useful to check consistency of dataset (eg high “other changes” an indicator of a problem?

48. Revaluations Exchange rate changes
assets priced in US $, will change valuation in domestic currency as exchange rates fluctuate.
Price changes
price of shares will go up or down depending on market conditions, which will change value of shares held.

49. Other changes in the volume of financial assets and liabilities
Debt cancellation and write-off
Reclassifications (eg PI to DI)
Assets of entities changing residence (eg migration)
Changes in insurance reserves (etc) because of changes in actuarial assumptions

50. Example – data validation
No transactions in quarter In national currency 1 Jan Mar 2016 Deposits in EURO Bonds in US$ Total Increase in valuation is due to fall in exchange rate of national currency (+ increase in bond price) If the change was wrongly attributed to transactions, 250 would be added to net errors and omissions.