Compilation procedures: Rest of the World

Filipa Lima Deputy – Head | Statistics Department

COMPILATION PROCEDURES:

REST OF THE WORLD

Banque d’Algérie IFC seminar on Developing and Improving Sectoral Financial Accounts

Session 5: The non-resident sector

Algiers, 21 January, 2016

2 IFC seminar on Developing and Improving Sectoral Financial Accounts


1. Main definitions

2. Linkages between RoW and BoP/ IIP

3. BoP and IIP Statistics – Regulatory framework

4. BoP and IIP Statistics – Definitions, data sources and compilation

5. Methodology of compilation

6. Internal consistency between different sources

7. Statistics on foreign financial claims of Portuguese banks

OUTLINE



1. Main definitions







OUTLINE

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The rest of the World account (RoW) [in National Accounts]

The rest of the world sector (S.2) is a grouping of units without any

characteristic functions and resources; it consists of non-resident units

insofar as they are engaged in transactions with resident institutional

units, or have other economic links with resident units. Its accounts provide

an overall view of the economic relationships linking the national economy

with the rest of the world (ESA 2010 - §2.131)

1. Main definitions

IFC seminar on Developing and Improving Sectoral Financial Accounts


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Balance of Payments (BoP)

The balance of payments summarizes transactions between residents and

nonresidents during a period. It consists of the goods and services account,

the primary income account, the secondary income account, the capital

account, and the financial account (BPM6 - §2.12)

International Investment Position (IIP)

The IIP is a statistical statement that shows at a point in time the value of:

financial assets of residents of an economy that are claims on nonresidents

or are gold bullion held as reserve assets; and the liabilities of residents of

an economy to nonresidents (BPM6 - §2.8)



1. Main definitions



1. Main definitions







OUTLINE

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The rest of the world account covers transactions between resident and

non-resident institutional (balance of payments) units and the related

stocks of assets and liabilities (international investment position)

BUT Rest of the world plays a role in the accounting structure similar to that of

an institutional sector from the perspective of non-residents (with the

counterparty in the domestic economy)

The balance of payments / international investment position is from the

perspective of the resident sectors (with the counterparty in the domestic

economy)




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A resource for the rest of the world is a use for the resident economy and

vice versa:

In Balance of Payments

BoP surplus is a surplus of the resident economy and a deficit

of the rest of the world (national accounts)

BoP deficit is a deficit of the resident economy and a surplus of

the rest of the world (national accounts)




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An asset of the rest of the world is a liability of the resident economy and

vice versa:

In International Investment Position

Positive IIP is a positive financial net worth of the resident

economy and a negative financial net worth of the rest of the

world (national accounts)

Negative IIP is a a negative financial net worth of the resident

economy and a positive financial net worth of the rest of the

world (national accounts)




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Accounting principle:

Rest of the world sector uses a quadruple-entry* (each transaction involving

two institutional units is recorded twice by each unit)

Balance of payments / international investment position uses a double-

entry** accounting system (each transaction is recorded as consisting of two

entries and the sum of the credit entries and the sum of the debit entries is

the same)

* the activity of either two residents or a resident and a non-resident is recorded.

** the activity of only one transactor is recorded: the resident entity (with a non-resident entity).




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Complete concept and classification concordance between balance of payments /

international investment position and the rest of the world account as bop / iip form

an integral part of the national accounts (although the extent of cross-classifications

may differ between the two systems)

Similarities between the two systems:

Identification of resident producers / consumers

Definition of the economic territory and centre of economic interest

Valuation principles of market prices and accrual accounting

In the rest of the world financial account the instrument of investment is the

primary classification, whereas in the bop/ iip financial account classification is given

by functional category






1. Main definitions







OUTLINE

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Organic Law of Banco de Portugal (BP) – Law nº 5 / 98, of 31 January, assigns to BP

the responsibility for the compilation and production of balance of payments and

international investment position and the power of require to any public or private

entity the provision of information necessary to comply with that referred in the

previous item

Instruction No. 27/2012 of Banco de Portugal, Statistics on the Foreign transactions

and positions

Instruction No. 31/2005 of Banco de Portugal, on Securities Statistics – Transactions

and positions

Decree-Law No. 295/2003 of 21 November, which regulates the legal regime of

economic and financial transactions with foreign countries and foreign exchange

operations




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Guideline of the ECB of 31 May 2007 (ECB/2007/3) concerning ECB statistical

requirements in the field of external statistics

Recommendation of the ECB of 31 May 2007 (ECB/2007/4) and Regulation (EC) No

184/2005 of the European Parliament and the Council of 12 January concerning

Community statistics on balance of payments, international trade in services and foreign

direct investment

At the European Union and Monetary Union level, the Eurostat and ECB divided the

responsibility for compilation of BoP and IIP statistics:

Eurostat is responsible for current and capital account (excluding investment income);

collection of information on direct investment with detailed geographical and sectoral

breakdown (economic activity); international trade statistics

European Central Bank is responsible for monthly bop / iip compilation for the Monetary Union; financial account (including investment income) and quarterly IIP statistics






1. Main definitions







OUTLINE

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BoP / IIP presentation follows functional category approach

Direct Investment

Portfolio Investment

Other Investment

Reserve assets

Financial Derivatives

BoP / IIP




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Direct Investment

It is a category of cross-border investment associated with a resident in one economy

having control (> 50% of the voting rights) or a significant degree (between 10% and

50% of the voting rights) of influence on the management of an enterprise that is

resident in another economy




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Direct Investment

Data sources, on a monthly basis:

COPE – communication of external operations and positions (for transactions in equity, loans and direct investment income settled)

SSIS – collected from custodians processed on a security-by security basis (foreign securities in portfolios held by residents: transactions, outstanding amounts and related income)

Immigration and borders service – real estate investment




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Direct Investment

Data sources, on a monthly basis:

COPE – communication of external operations and positions (for transactions in equity, loans and direct investment income settled)

SSIS – collected from custodians processed on a security-by security basis (foreign securities in portfolios held by residents: transactions, outstanding amounts and related income)

Immigration and borders service – real estate investment

Data sources, on an annual basis:

IES – Simplified Corporate Information (for equity, reinvested earnings and structure of the economic group)

On an monthly basis, estimates are produced for equity and reinvested earnings




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Portfolio investment is defined as crossborder transactions and positions involving

debt or equity securities, other than those included in direct investment or reserve

assets and should be negotiable, giving the investor the ability to quickly compose its

portfolio




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Data sources

SSIS - collected from custodians processed on a security-by security basis (foreign securities in portfolios held by residents: transactions, outstanding amounts and related income)

COPE - communication of external operations and positions (for portfolios held by residents and located in custodians abroad)

Market and Reserve Management Department for additional details of securities

Residual approach - liabilities are calculated as the difference between the total amounts outstanding of all securities issued by residents and the holdings of such securities by residents




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Financial Derivatives and Employee Stock Options

Negotiable financial instrument linked to, although autonomous, another financial

instrument, indicator or commodity that presents financial risk

Data sources

Financial derivatives surveys (provided on a monthly basis)

COPE - communication of external operations and positions (for financial derivatives

contracted with banks abroad)

Direct report of the Portuguese Treasury and Debt Management Agency (IGCP, E.P.E.) on

positions in financial derivatives

Market and Reserve Management Department for additional details of securities




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Other Investment

Residual category, including transactions that do not fit into the other

functional categories

Positions are valued at nominal value (pragmatic concerns about data

availability and the need to maintain symmetry between debtors and

creditors)

This value includes accrued income that has not yet been paid.

Nevertheless, transactions should be valued at market prices




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Other Investment

Data sources

COPE – loans / deposits stocks and flows, income

Central Bank – Accounting Plan of Banco de Portugal (Accounting Department); Market and

Reserve Management Department, for additional details of Deposits, with a country and currency

breakdown

MFIs – balance sheet reported for monetary and financial statistics (MFS), with a country and

currency breakdown

Households – COPE, COL, mirror MFS (other EMU countries) and mirror BIS

Other sectors – COPE, ITENF / IES (trade credits)

Other auxiliary information for General Governemnt - Direct report of the Portuguese Treasury

and Debt Management Agency (IGCP, E.P.E.)




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Reserve assets

Valuation: market prices for all tradable instruments; nominal value (for positions) in non-tradable instruments.

Data source: The Information system of the Banco de Portugal (accounting, payment and market operations systems) provides a comprehensive set of information for the compilation of Reserve Assets: positions, flows and related income.

in/in in/out

out/in out/out Reserve assets

country

currency



In – inside euro area

Out – outside euro area




1. Main definitions







OUTLINE

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Balance of Payments / International Investment position information is reorganized for rest of the world account compilation purposes:

Value type used for the rest of the world compilation:

Stocks – IIP Transactions – BoP Other price changes – IIP Other volume changes – determined by difference (residual approach) but also available in IIP

Information by sector of resident counterpart – information source for other sectors

Aggregation of the counterparty country between Monetary Union and Non-Monetary Union countries

Reorganization of functional categories and instruments




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Functional categories vs financial instruments

BoP/IIP

Direct Investment


Financial Derivatives

Other Investment

Reserve Assets

Financial Instruments

Monetary gold and SDR F.1.

Currency and deposits F.2.

Securities other than shares F.3.

Loans F.4.

Shares and other equity F.5.

Insurance technical reserves F.6.

Financial derivatives F.7.

Other accounts receivable/payable F.8.




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Financial Accounts Monetary gold and SDR F.1

Currency and deposits F.2

Securities other than shares and financial derivatives

F.3

Loans F.4

Shares and other equity F.5

Insurance technical reserves F.6

Financial derivatives F.7

Trade credits and advances F.81

Other accounts except trade credits and advances

F.89

BOP / IIP CONNECTION

Reserve Assets

F.1

F.1

F.2

F.2

F.3

F.7

F.89

Monetary gold

Special drawing rights (SDR)

Reserve position in the IMF

Foreign exchange

Currency and deposits

Debt securities

Financial derivatives

Other assets

Direct Investment

F.5

F.5

F.4

Equity capital

Reinvested earnings

Other capital


F.5

F.3

Shares and other equity

Debt securities

Financial Derivatives F.7

Other Investment

F.2

F.4

F.81

F.5 / F.6 / F.89

Currency and deposits

Loans

Trade credits

Other assets




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Revision policy ensures similar revision time spans and are based on the same vintages of the

source data

However there are some methodological differences between the national financial account and

Balance of payments / international investment position that are incorporated:




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source data





International Investment Position

Asset of the Central Bank

Financial Accounts


Liability of the RoW

MONETARY GOLD


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source data







Financial Accounts



MONETARY GOLD

BoP – (FINANCIAL ACCOUNT BALANCE + ERRORS AND OMISSIONS)

ROW FINANCIAL SAVING


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source data







Financial Accounts



MONETARY GOLD

– ( INTERNATIONAL INVESTMENT POSITION – MONETARY GOLD POSITION)

ROW NET FINANCIAL ASSETS

BoP – (FINANCIAL ACCOUNT BALANCE + ERRORS AND OMISSIONS)

ROW FINANCIAL SAVING




1. Main definitions







OUTLINE

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Internal analysis developed on a monthly basis to ensure consistency between rest of the world sector and other sectors´ financial instruments:

Whom to whom analysis:

Debt securities (long term and short term) and Equity instruments Assets and liablities BoP / IIP and SSIS data comparison

in order to fill a whom-to-whom matrix

Integration and use of internal data sources: MFS statistics, SSIS, … Other quality checks to compare the information available in other statistics

Passivos S.11 S.12 S.13 S.14+S.15 S.2 Total

S.11

S.12

S.13

S.14+S.15

S.2

Total

AtivosAssets

Liabilities

BoP / IIP liabilities vis-a-vis other sectors

BoP / IIP assets

vis-a-vis other

sectors






1. Main definitions







OUTLINE

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Compiled according to the BIS methodological guidelines in the field of international banking statistics, which comprises:

Locational banking statistics - financial claims and liabilities in the unconsolidated balance sheet of resident banks in Portugal, and are currently published by Banco de Portugal as part of the balance sheet of other monetary financial institutions under monetary and financial statistics Consolidated banking statistics - exposure to risks of banks having their head office in Portugal, particularly to country-risk associated with financial claims (except financial derivatives) held by them in the context of their international activity, including foreign claims of branches and subsidiaries abroad

Foreign financial claims of Portuguese banks on a consolidated basis were published in November 2015

These statistics are also used to compile households deposits abroad using the mirror information provided by the BIS Data source – based on direct report from MFI




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Thank you for your attention!

Questions?

Filipa Lima [email protected]



mailto:[email protected]

Compilation procedures: Rest of the World

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