4.22 Balance of payments capital and financial account See Table 4.22 here

Commentary
About the data
Definitions
Data sources

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In the fifth edition of the Balance of Payments Manual the International Monetary Fund (IMF) introduces changes in the capital account, now designated the capital and financial account. The principal changes are these (see the notes to table 4.21 for the corresponding changes in the current account):

Capital transfers are newly defined to include debt forgiveness, migrants' transfers, and foreign aid to acquire capital goods. These transactions are now separately recorded in the capital and financial account, not in the current account. The acquisition or disposal of nonproduced, nonfinancial assets (for example, patents, copyrights, goodwill, and leases) is newly recognized and included in the capital category of the capital and financial account. Portfolio investment now includes money market instruments (debt and short-term tradable instruments) and newly identified financial derivatives, in addition to long-term debt and equity securities. Other investment now includes use of IMF credit and loans from the IMF. Reserves are now restricted to assets, and exclude such nontransactions as the allocation or cancellation of special drawing rights and the monetization or demonetization of gold.

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The concepts and definitions underlying the data here are based on the fifth edition of the IMF's Balance of Payments Manual (1993). The presentation of the capital and financial accounts follows that of the IMF's International Financial Statistics. Reserve transactions equal the sum of net transactions in the current account and the capital and financial accounts, with the residual category, net errors and omissions, acting as the balancing item. Because the World Bank makes adjustments to the current account balances of some economies, principally to correct for differences between fiscal and calendar year timing (see Primary data documentation), the value for errors and omissions shown here may differ from that reported in the International Financial Statistics.

The concept of direct investment used in the balance of payments is broader than the U.N. System of National Accounts concept of foreign-controlled (as opposed to domestically controlled) resident enterprises. In the balance of payments, direct investment includes all international investments by an entity resident in one economy to obtain a lasting interest in an enterprise resident in another. According to the Balance of Payments Manual, the primary distinction between direct investment and portfolio investment is that the direct investor seeks a significant voice in the management of an enterprise.

One of the frequently watched indicators of the balance of payments is the level of reserve assets available to and controlled by monetary authorities for directly financing payments imbalances and for indirectly regulating the size of imbalances through intervention in exchange markets. Gross international reserves, shown here, include monetary gold, special drawing rights, the reserve position in the IMF, and foreign exchange and other claims. Because of differences in the definition of international reserves, in the valuation of gold, and in reserve management practices, the levels of reserve holdings published in national sources may not be strictly comparable. The reserve levels for 1980 and 1995 refer to the end of the year and are in current U.S. dollars at prevailing exchange rates.

For additional discussion of the balance of payments see the notes to table 4.21.

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• Net capital account includes government debt forgiveness, investment grants in cash or in kind by a government entity, and taxes on capital transfers. Also included are migrants' transfers and debt forgiveness and investment grants by nongovernmental entities.

• Net direct and portfolio investment comprises direct investment in equity capital, reinvested earnings, and other capital associated with intercompany transactions and transactions with nonresidents in financial securities (such as corporate securities, bonds, notes, money market instruments, and financial derivatives.) Excluded are flows of direct investment capital for exceptional financing, such as debt-for-equity swaps, and reserve transactions.

• Other net investment reflects all other transactions with nonresidents in financial assets and liabilities except for exceptional financing, liabilities constituting foreign authorities' reserves, and reserve assets. Examples include short- and long-term loans, trade credits, and transactions in currency.

• Net errors and omissions constitute a residual category needed to ensure that all debit and credit entries in the balance of payments statement sum to zero. In the International Financial Statistics presentation, this is equal to the difference between reserves and related items and the sum of the balances of the current, capital, and financial accounts.

• Reserves and related items are the sum of transactions in reserve assets, exceptional financing, liabilities constituting foreign authorities' reserves, and use of IMF credit and loans. A minus sign denotes an increase in reserves.

• Gross international reserves comprise holdings of monetary gold, special drawing rights, the reserve position of members in the IMF, and holdings of foreign exchange under the control of monetary authorities. The gold component of these reserves is valued at year-end (December 31) London prices ($589.50 an ounce in 1980 and $386.75 an ounce in 1995).

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.

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