1. Update of the Fifth Edition of the IMF’s Balance of Payments Manual ESCWA Workshop on the Compilation of Statistics on Trade in Services Cairo, Egypt February 6-9, 2007

2. 2 Background At its meeting in 2000, the IMF Committee on Balance of Payments Statistics (BOPCOM) asked the IMF to begin the process of planning for a Manual update The first important step was the production of an Annotated Outline in April 2004.  This set out the issues to be addressed in a proposed chapter order  Comments were invited from IMF member countries.

3. 3 Background (2) Around the same time, BOPCOM set up three, and eventually, four expert groups to advise it on the technical issues identified. These groups covered direct investment (DITEG), currency unions (CUTEG), reserve assets (RESTEG), and other balance of payments issues (BOPTEG). In total, 30 countries and 9 international agencies, in addition to the IMF, were represented in these groups.

4. 4 Background (3) For each technical issue, an issue paper was prepared as well as an outcome paper  These papers were published on the IMF’s external website. BOPCOM has by-and-large accepted the TEGs recommendations.

5. 5 WHY THE NEED FOR AN UPDATE? take into account financial innovations and growth in financial services; clarify selected areas (e.g., scope of direct investment, services); increase emphasis on the international investment position (to be called “Balance of Payments and International Investment Position Manual”); demonstrate the integration between international accounts statistics and other macroeconomic statistics; take into account specialized manuals and classification systems; deal with the special issues related to currency unions and other regional monetary and economic arrangements.

6. 6 Key Changes: (1) Position Data In many respects the basic framework for balance of payments data in the updated Manual is to be the same as in BPM5. However, there is to be a greater emphasis on positions  The international investment position (IIP) is to have a far more prominent position in the updated manual There is a possibility of further breakdown of the IIP by currency; and By remaining maturity.

7. 7 Key Changes: (2) Related Manuals and Guides The advances in thinking that are incorporated in other guides and manuals since 1993 are to be adopted. These include: The International Trade in Services Manual, drawing on the more detailed discussion than is in BPM5 The External Debt Guide, such as its definition and identification of debt The Guidelines for the Reserve Data Template, such as the expanded description of what constitutes reserve assets The Government Finance Statistics Manual (2001) and the Monetary and Financial Statistics Manual (2000) are also being drawn upon.

8. 8 Key Changes: (3) Sectorization The sectorization is to be brought closer to that of the SNA  This is to allow further harmonization between the two systems,  but the new Manual is to allow for an ease of transition from BPM5 by identifying the BPM5 sectors  A central bank sector is to replace the monetary authorities.

9. 9 Key Changes: (4) Globalization The updated manual is to take account of developments arising from globalization This is most notable in the changes proposed for:  Goods for processing, to be treated as a service, if the goods do not change ownership In essence, in BPM5 a change of ownership is imputed  Merchanting, to be treated as trade in goods, on a net basis In BPM5 no change of ownership of goods but a service was recorded.

10. 10 Key Changes: Globalization (cont’d.) Repairs on goods to be classified as a service not goods Special purpose entities are to be classified as separate institutional units in the economy in which they are incorporated — residence principles in BPM5 for SPEs to be clarified.

11. 11 Key Changes: (5) Currency Unions An appendix on currency and other economic unions will be introduced  A currency union and its economic territory to be defined  The currency union central bank to be recognized as an institutional unit  Various aspects of recording that are special to currency unions to be described.

12. 12 Other Changes: (6) Conceptual Framework There are a number of other proposed changes. These include:  The concept of “change of ownership” is modified to “change in economic ownership”  The residence of households to be based on “predominant center of economic interest.”

13. 13 Other Changes: (7) Persons Cross-border movements of personal effects during migration not to be recorded as a transaction but a reclassification. A new concept of personal transfers to be introduced replacing “workers remittances”  comprises all transfers in cash or in kind made or received by resident households to or from other nonresident households.

14. 14 Other Changes: (8) Direct Investment Within direct investment, the 10 percent level for establishing a direct investment relationship to be maintained Direct investment positions, transactions, and income to be recorded on a gross basis rather than netting off reverse investment Valuation of positions at market value to be preferred and given greater emphasize Permanent debt between affiliated financial institutions to be excluded, like for other debt between these institutions Already work is underway to update the OECD Benchmark Definition of Direct Investment based on these and the other outcomes on direct investment.

15. 15 Other Changes: (9) Instruments Like for direct investment, earnings of mutual funds to include reinvested earnings. Employee stock options to be included in the category, “financial derivatives and employee stock options” Foreign currency indexed linked debt with both principal and coupons indexed to a foreign currency to be classified and treated as being denominated in that foreign currency.

16. 16 Other Changes: Instruments (cont’d) Loans continue to be valued at nominal value in the position data, with a memorandum item for the creditor showing the likely realizable value So called standardized guarantees to be treated in the same way as insurance, and  guarantees that meet the definition of financial derivatives to be treated as such.

17. 17 Other Changes: (10) Debt Concessionality No change in the recording in the standard components, but  supplementary information showing the benefits arising from concessional debt as one-off transfers at the point of loan origination  this is equal to the difference between the nominal value of the debt and its present value using a relevant market discount rate.

18. 18 Next Steps First draft due for completion in February 2007, and core chapters would be posted on the IMF external website for public comment Following public comments, an updated version of the complete Manual will be presented to the October 2007 BOPCOM meeting (following BOPCOM comments, this version would be posted on the IMF external website, and be promoted in regional seminars during the first half of 2008). A final version would be prepared for BOPCOM’s approval in October 2008, and then be posted as the final version, subject to editing, by end­2008. Process being coordinated with the revision of 1993 SNA.