Balance of Payments

(See also Foreign trade.)

Current account balance is the sum of net trade (exports minus imports) in goods, services, and income plus net current transfers.

Direct investment is net flows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments.

Exports or imports of goods, is a broader category which has replaced merchandise. 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.

Exports or imports of goods, services and income is the sum of the exports or imports of goods, services, and factor receipts or payments.

Exports or imports of services (previously nonfactor services) refer to economic output of intangible commodities that may be produced, transferred, and consumed at the same time. International transactions in services are defined by the IMF's Balance of Payments Manual Version 5 (1993), but definitions may nevertheless vary among reporting economies.

Gross international reserves comprise holdings of monetary gold, special drawing rights, the reserve position of members in the International Monetary Fund (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.

Merchandise refers to all movable goods (including non-monetary gold) involved in a change of ownership from residents to nonresidents.

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' capital transfers and debt forgiveness and investment grants by nongovernmental entities.

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 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.

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.

Portfolio investment flows are net and include non-debt-creating portfolio equity flows (the sum of country funds, depository receipts, and direct purchases of shares by foreign investors). Liabilities constituting foreign authorities' reserves are excluded.

Receipts or payments of 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.

Reserves and related items are the net change in a country's holdings of international reserves resulting from transactions on the current, capital, and financial accounts. These include changes in holdings of monetary gold, SDRs, foreign exchange assets, reserve position in the International Monetary Fund, and other claims on nonresidents that are available to the central authority. The measure is net of liabilities constituting foreign authorities' reserves, and counterpart items for valuation changes and exceptional financing items.

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 GNI [gross national income—formerly gross national product, or GNP]). The World Bank adheres to international guidelines in defining GNI, and its classification of workers' remittances may therefore differ from national practices.