CEIC News@lert: BPM6 Adoption: Distinctive Country-Specific Characteristics

December 10, 2014 BACKGROUND The 6th edition of the Balance of Payments (BoP) and International Investment Position (IIP) Manual (BPM6) released by the International Monetary Fund (IMF) is already widely adopted across Europe and South-East Asia (SEA). The new standard was first published in 2009 as an update to the fifth edition (BPM5). The introduction of the new manual aims to reflect the changes of the international economic and financial environment since 1993 when BPM5 was published, and to coincide with the update of the System of National Accounts (SNA) from SNA 1993 to SNA 2008. On CDM the newly compiled IMF datasets according to BPM6 for countries in our Global Database are located in the Balance of Payments sector, above the discontinued BPM5 tables (see an example below). The CEIC database team has previously presented the main differences between the two IMF manuals and how the methodology and presentation of data are affected in the most common cases. However, there are country-specific cases in which the adoption of BPM6 does not strictly follow the IMF guidelines, thus requiring a more elaborate explanation. BPM5 vs BPM6: COMMON SIGN CONVENTION Among others, a significant difference found in the BPM6 manual is the change of the sign convention in the presentation of the Financial Account and its respective items. Under BPM5 increases in assets and decreases in liabilities were recorded with a negative sign, while decreases in assets and increases in liabilities, with a positive one. The financial account balance was calculated as the sum of assets and liabilities. This representation of the data has been modified in a more comprehensive way in the BPM6 manual, whereas increases in both assets and liabilities are recorded with a positive sign, and decreases with a negative one. Table 1: Common Sign Convention BPM5 vs BPM6: COUNTRY SPECIFICS However, there are some country-specific differences in reporting data under BPM6 that are worth noting. Several Asian countries have retained the BPM5 sign convention in the Financial Account, while the rest of the data changes comply completely with the BPM6 methodology. The main reasoning behind this is to preserve the continuity with BPM5 and not to further confuse users of the BoP statistics. Since data under BPM6 have shorter coverage, as historical data have not yet been recalculated by sources, the same sign convention also allows for comparison and analysis of the whole historical span of the data without the need for further manipulations. Countries that adopted BPM6, but still follow the BPM5 Financial Account sign convention, are presented in the table below. In these cases a negative sign of the Financial Account balance represents a net increase in financial assets abroad while a positive value stands for a decrease. This is important to consider, especially when comparing these countries with others that have implemented the BPM6 sign convention fully. Table 2: Countries Under BPM6 that Retain BPM5 Sign Convention Several other specifics pertaining to some of these countries in question are notable: Hong Kong – Under BPM6 foreign currency claims on residents are not considered as reserve assets. Therefore, the amount of foreign currency deposits of the Hong Kong Monetary Authority (HKMA) with resident banks is not included in reserve assets when compiling BoP and IIP. As a result of this removal the reserve assets position is revised downwards. Indonesia – The Bank of Indonesia announced that the retention of the BPM5 sign convention was done in order to ensure consistency with the IIP statistics. The data on financial derivatives are included in the financial account as an independent component. For analytical purposes, foreign direct investment based on investment direction will still be available in the memorandum items section. Malaysia – The Department of Statistics continues to publish Direct Investments based on the directional presentation characterized by BPM5. This means that Direct Investments are reported as Assets/Liabilities (BPM6) as well as Direct Investments: Abroad/In the Reporting Economy (BPM5). The main reason behind this is to ease previous users of the data since there is a difference between the two presentations that mainly arises from the statistical treatment of the reverse investment. In particular, reverse investment is not netted from the total direct investment assets and liabilities under the BPM6. New Zealand – An interesting observation of New Zealand’s BPM6 data is that the Financial Account balance is calculated as Liabilities minus Assets. Therefore, the positive value of USD 472.7 mn in the second quarter of 2014 means that Liabilities exceed Assets, whereas in the standard presentation of data the value would appear with a negative sign. Singapore – As one of the major changes implemented, the treatment of Asian Currency Units (ACUs) as resident institutional units has an impact across all functional categories of the Financial Account. ACUs are offshore financial institutions which were treated as non-residents in Singapore’s BoP under BPM5. With the implementation of BPM6, and in order to be in line with international statistical standards, the Singaporean Department of Statistics has reviewed the treatment of ACUs and now treats such offshore banking units as residents in the compilation of the data. The international transactions of ACUs are classified under deposit-taking corporations. South Korea – Bank of Korea adopted BPM6 in two stages over three years. Data compiled under both stages of adoption is available in the CEIC Global Database. The main difference is found in the trade of manufacturing services which is now recorded according to the principle of ownership change. While this change was already introduced in the BPM6 manual, it wasn’t adopted by the Bank of Korea in the first stage of BPM6 release. Therefore, exports and imports generated by manufacturing trade are now estimated based on the owner of the products shipped for processing. For example, when a Korean parent company sends parts for assembly to China and the finished product is exported to a third country this is now considered as a Korean export rather than a Chinese one. STAGES OF BPM6 ADOPTION Some IMF member states are yet to implement the new methodology, although many countries introduced the new manual in 2014. In Asia, mainly the countries in SEA have adopted BPM6, while in Europe the new system is widely adopted (with a few exceptions about to adopt by the end of 2014), harmonized across countries and aligned with the standard guidelines presented by the IMF. Only few countries in South America, the Middle East and Africa are already reporting under BPM6. Table 3: Countries that have implemented BPM6 in selected regions Some countries of interest that have not implemented BPM6 as of November 2014 are Argentina, Brazil, Mexico and Nigeria. Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog
10th December 2014 CEIC News@lert: BPM6 Adoption: Distinctive Country-Specific Characteristics