4.21 Balance of payments current account
See Table 4.21 hereCommentary
About the data
Definitions
Data sources
Changes in the current account
In September 1995 the International Monetary Fund (IMF) revised its presentation of balance of payments data in International Financial Statistics to conform to the fifth edition of its Balance of Payments Manual (1993). The new edition of the manual has been strengthened and, to the extent possible, harmonized with the revised U.N. System of National Accounts and the IMF's forthcoming manual on money and banking and government finance statistics.
The revision introduced several important changes in the current account:
Some transactions previously included in the current account have been redefined as capital transfers. These include debt forgiveness, migrants' capital transfers, and foreign aid to acquire capital goods. Thus the current account balance now reflects more accurately net current transfer receipts in addition to transactions in goods, services (previously nonfactor services), and income (previously factor income). The category of merchandise has been replaced by a broader category of goods. The new category includes goods previously included in services: goods received or sent for processing and their subsequent export or import in the form of processed goods, repairs on goods, and goods procured in ports by carriers. Maintenance of transport equipment in ports and airports is still treated as a service. Earnings from royalties, license fees, and similar nonfinancial intangible assets have been reclassified from income to services. A clear distinction is made between income and services with regard to the compensation of employees. For example, earnings of resident workers in foreign embassies and international agencies are now treated as income rather than services. And current expenditures by nonresident workers are now treated as services rather than income. Investment income is recorded on a full accrual basis. It also includes net payments from interest rate derivatives. Residence, valuation, time of recording, and reinvested earnings on direct investment are defined in the same manner as in the System of National Accounts.
The balance of payments is divided into two groups of accounts. The current account refers to goods and services, income, and current transfers. The capital and financial account refers to capital transfers, the acquisition or disposal of nonproduced, nonfinancial assets, and financial assets and liabilities. This table presents data from the current account, and table 4.22 data from the capital and financial account.
The balance of payments is a double-entry accounting system that shows all real flows of goods and services into and out of the country; all transfers that are the counterpart of real resources or financial claims provided to or by the rest of the world without a quid pro quo, such as donations and grants; and all changes in residents' claims on, and liabilities to, nonresidents that arise from economic transactions. All transactions are recorded twice, once as a credit and once as a debit. In principle the net balance should be zero, but in practice the accounts often do not balance. In these cases a balancing item, net errors and omissions, is included to balance the accounts.
Discrepancies may arise in the balance of payments because there is no single source for balance of payments data and therefore no way to ensure that the data are fully consistent. Sources include customs data, the monetary accounts of the banking system, external debt records, information provided by enterprises, surveys to estimate service transactions, and foreign exchange records. Differences in the methods of collecting these data-such as in timing, definitions of residence and ownership, and the exchange rate used to value transactions-all contribute to net errors and omissions. In addition, smuggling and other illegal or quasi-legal transactions may be unrecorded or misrecorded.
The concepts and definitions underlying the data here are based on the fifth edition of the IMF's Balance of Payments Manual (1993). However, many countries maintain their data collection systems according to the fourth edition. Where necessary, the IMF converts data reported in earlier systems to conform with the fifth edition. Values are in U.S. dollars converted at market exchange rates.
Definitions
• Exports and imports of goods and services comprise all transactions between residents of a country and the rest of the world involving a change of ownership of general merchandise, goods sent for processing and repairs, nonmonetary gold, and services.
• Net income refers to employee compensation paid to nonresident workers and investment income (receipts and payments on direct investment, portfolio investment, other investments, and receipts on reserve assets). Income derived from the use of intangible assets is excluded from income and recorded under business services.
• Net current transfers are recorded in the balance of payments whenever an economy provides or receives goods, services, income, or financial items without a quid pro quo. All transfers not considered to be capital are current.
• Net workers' remittances are current transfers by migrants who are employed or intend to remain employed for more than a year in another economy in which they are considered residents. Some developing countries classify workers' remittances as a factor income receipt (and thus as a component of GNP). The World Bank adheres to international guidelines in defining GNP, and its classification of workers' remittances may therefore differ from national practices.
• Current account balance is the sum of net exports of goods and services, income, and current transfers.
More information about the design and compilation of the balance of payments can be found in the IMF's Balance of Payments Manual, fifth edition (1993), Balance of Payments Textbook (1996a), and Balance of Payments Compilation Guide (1995). The data come from the IMF's balance of payments database, Balance of Payments Statistics, and International Financial Statistics (IFS). The World Bank exchanges data with the IMF through electronic files, which in most cases are more up to date and cover a longer period than the published sources. The IFS is also available on CD-ROM.