2. International Investment Position (IIP) Presentation for Data Producers and Users Workshop May 8-9, 2006 SBP LRC Karachi
Naseer Ahmad
Joint Director Statistics
State Bank of Pakistan
Ph:

3. INTRODUCTION What is the IIP? Why is it important?
Who should compile it?
Periodicity?
Data Sources?
How is it compiled? Compilation Methodologies?
Dissemination process & practices
Improvement plans?
Questions or suggestions?

4. What is the IIP? It is a balance sheet It is snapshot of the stocks
At a specific point of time i.e. end of period
Only for external financial assets and liabilities
First time introduced in Pakistan
IIP mirrors the financial account in the balance of payments

5. Why is it important? Scope
Assess economic relations with the rest of the world
Monitor developments in external relations between countries
Measure degree of financial openness
Monitor foreign external debt
Indicator of external debt sustainability
Indicator of financial stability
International investment treaties

6. Who Should Compile it? IIP is an encouraged element for GDDS
IIP is a prescribed element for SDDS
Most commonly
the central bank
the central statistical office
a foreign exchange control body
a ministry (ministry of finance, economic affairs, or international relations)
More than one agency may collect and compile data
Crucial for these agencies to coordinate among themselves

7. Who Should Compile it?
Centralizing the tasks of balance of payments and IIP compilation in one agency
simplifies cross-checking of the external flow and position data
enhances overall consistency of the two datasets

8. Who Should Compile it?
If different agencies produce external debt and IIP
close cooperation required
data on the external debt position can be considered as a subset of the IIP
both sets of statistics need to be consistent
Coordinate the reporting requirements for respondents
avoid having respondents report the same data to different agencies

9. Periodicity and Timeliness
Started with compilation of data on IIP showing stock positions as on 31 December 2003 and 31 December 2004 on yearly periodicity
International Standards -Yearly periodicity is required;
Quarterly is encouraged
Recommended timeliness is one year

10. Data Sources Domestic Statistical Sources:
Banks' External Assets and Liabilities
Monetary Authorities’ External Assets and Liabilities
General Government External Debt
Surveys
Balance of Payments Statement
Domestic Non-statistical Sources
Financial Statements
Foreign Investment Approval
Financial Press

11. International Investment Position
How is it compiled?
International Investment Position
As On_____
Assets
Direct investment
Portfolio investment
Financial derivatives
Other investment
Reserve assets
Liabilities
Direct investment
Portfolio investment
Financial derivatives
Other investment
IIP (Net) = Asset - Liabilities

12. How is it compiled? Opening Position = Closing Position Transactions
Price changes
Exchange rate changes
Other adjustments (reclassifications, debt write-offs, etc.)
= Closing Position

13. Residence and Time of recording
Only those assets and liabilities of residents that represent claims on or liabilities to non-residents are recorded
Time of recording
A country’s external financial condition as of a specific point in time (such as year-end).
Time of recording of financial items that constitute position governed by the principle of accrual accounting

14. Valuation
In principle, all asset and liability positions should be measured at market value
Assumes that such positions are continuously and regularly revalued

15. Functional Types of Investment
Financial instruments grouped according to the intent of the resident holders or issuers
Direct investment
Portfolio investment
Financial derivatives
Other investment
Reserve assets

16. Financial Assets and Liabilities
Most financial assets are financial claims
Represented by financial instruments
currency and deposits
loans
advances and other credits
securities - bills and bonds
Financial assets that are not financial claims
monetary gold
SDRs allocated by the IMF
shares in corporations
financial derivatives

17. Direct Investment
Objective - Resident in one economy (direct investor) obtaining a lasting interest in an enterprise resident in another economy (direct investment enterprise)
Implies long-term relationship between the direct investor and the direct investment enterprise
Implies significant degree of influence by the direct investor in the management of the enterprise.

18. Direct Investment
Sole criterion is ownership of 10 percent or more of the ordinary shares
Classified by direction of investment
Direct investment in reporting economy
Direct investment abroad
Includes the initial transaction establishing the FDI relationship and all subsequent capital transactions among affiliated enterprises

19. Direct Investment
Covers all financial claims and liabilities between direct investors and direct investment enterprises except:
Financial derivatives
Loan or debt guarantees provided by a direct investor or related direct investment enterprise
Transactions between affiliated financial intermediaries other than transactions in equity or permanent debt
Changes in insurance company technical reserves

20. Direct Investment Components Current Account Financial Account
Direct Investment income
Income on equity
Dividends and distributed branch profits
Reinvested earnings and undistributed branch profits
Income on debt (interest)
Financial Account
Equity capital
Reinvested earnings (counter entry to income item)
Other capital

21. Direct Investment Equity Capital Equity in branches
Shares in subsidiaries and associates
Non-cash acquisitions of equity (for example, provision of capital equipment)

22. Direct Investment Reinvested Earnings and Distributed Branch Profits
The direct investor’s share
in proportion to equity held
of earnings that foreign subsidiaries and associated enterprises do not distribute as dividends and
earnings that branches and other unincorporated enterprises do not remit to direct investors

23. Direct Investment Other Capital
Intercompany borrowing or lending of funds, include:
Loans
Debt securities
Suppliers’ (trade) credits
Financial leases*
Non-participating preferred shares
*Financial Lease
A contract in which the service provided by the lessor to the lessee is limited to financing equipment. All other responsibilities related to the possession of equipment, such as maintenance, insurance, and taxes, are borne by the lessee. A financial lease is usually noncancellable and must be fully paid out over its term.

24. Portfolio Investment
Financial instruments in the form of equity and debt securities
Usually traded (or tradable) in organized markets
Equity securities
Debt securities
Bonds and notes (long-term)
Money-market instruments (short-term)

25. Portfolio Investment
Further classified by institutional sector of resident holder for assets/resident issuer for liabilities:
monetary authorities
general government
banks
other sectors

26. Financial Derivatives*
What is a financial derivative?
Financial instrument linked to an underlying item such as:
Another financial instrument (currency)
An indicator (price index)
A commodity (silver)
Through which financial risks such as:
Interest rate risk
Foreign exchange risk
Equity price risk
Commodity price risk or
Credit risk
Can, in their own right, be traded in financial markets
* To be covered in Session 3

27. Other Investment Residual category
All financial instruments other than those classified as direct investment, portfolio investment, financial derivatives, or reserve assets
Primarily classified by instrument and secondarily by sectors
Recommend classification by original maturity (short and long term)

28. Other Investment Instruments include: Trade credits Loans
Currency and deposits
Other assets and liabilities
Miscellaneous accounts receivable and payable
Interest payments in arrears, loan payments in arrears, taxes outstanding, prepayments of insurance premiums
Capital subscriptions to nonmonetary international organizations
Household equity in life insurance and commercial pension funds

29. Reserve Assets External assets that are:
foreign currency claims on a nonresident
readily available to and under the effective control of the monetary authorities
to meet a balance of payments need

30. Reserve Assets Classification distinguishes Monetary gold SDRs
Reserve position in the IMF
Foreign exchange
Other claims

31. IIP- BOP Closely inter-related
Changes that have occurred during the period
Current account – investment income
Payments and receipts on investment measured in the IIP
Financial account
Financial transactions that contributed to the change in positions

32. IIP- BOP Reconciliation Statement Opening Position
Transactions in Financial Account
Price changes
Exchange rate changes
Other adjustments (debt write-offs, reclassifications)
= Closing Position

33. Other Changes in Position
Factors Accounting for Change in the International Investment Position
Balance of Payments
Financial Account
Other Changes in Position
Position at
beginning of period
Transactions +
Price Changes
Exchange Rate Changes
Other
Adjustments
end of period =
IIP
Assets
Liabilities
Net IIP
-15 5
-20 7 - -2 4 -6 1 3
111 Assets
107 Liabilities
4 Net IIP

34. Dissemination process & practices
Data are disseminated on SBP’s website
Published in SBP annual report

35. Dissemination Format

36. Improvement plans? Improvements in enterprises data collection
Enhance frequency
Movement wise dissemination
Country wise compilation
Security wise compilation
Currency wise compilation

37. Questions or suggestions are most welcome!

38. Tanks
all of you