Changes from the 4th to the 5th Edition of the BOP Manual

One of the main features with the revision of the manual was to harmonize the balance of payments to the maximum extent possible with the System of National Accounts 1993 (1993SNA), but also changes in the international transactions, due to liberalization of financial markets, new financial instruments and new approaches to the restructuring of external debt made it necessary to change the treatment and classifications of the transactions within the structure of the balance of payments accounts.

• The coverage of the current account is changed in the way that capital transfers are no longer part of the current account. According to BPM5 capital transfers should be recorded in an expanded and re-designated capital and financial account.
• The coverage of goods has been expanded in BPM5;

(i) Goods imported/exported for processing was earlier recorded net and as part of services, while is now recorded on a gross basis as part of goods, this is changed to harmonize with the recording in the national accounts,
(ii) The value of repairs on goods are now recorded as goods, while it used to be recorded as services according to guidelines in BPM4 (Repairs are reported on a net basis), and
(iii) Goods procured in ports by carriers are recorded as goods, while earlier as services.

• A major change in the system is the separation between services and other income in the current account. BPM4 recorded income as a sub-component of services. There has also been some changes in what is recorded as services:

(i) the payments for the use of copyrights, patents, and similar non-financial intangible assets are according to BPM5 part of export/import of services, while this kind of income used to be recorded as property income,
(ii) a clear distinction is made between income and services with regard to the compensation of employees. E.g., Earnings of resident workers in foreign embassies and international agencies are according to BPM5 treated as income rather than services, and
(iii) investment income is on a full accrual basis, including net payments from interest rate derivatives.

• The financial account is expanded and re-designed. The new capital and financial account includes, in addition to the “old” financial account, capital transfers and acquisition/disposal of non-produced, non-financial assets recorded in the “new” capital account. Capital transfers are defined to include debt forgiveness, migrants' transfers, as well as transfers (foreign aid) to acquire capital goods, while non-produced, non-financial assets cover patents, copyrights, goodwill and leases.
• According to BPM5, all transactions between non-financial direct investment enterprises and their parents should be included in direct investment. Transactions between affiliated banks and between other affiliated financial intermediaries are recorded as direct investments if they are transactions in equities or loan capital representing a permanent interest, other transactions are classified under portfolio or other investment. BPM4 excluded only short term transaction of these types from direct investment.
• To reflect the growth in new financial instruments, the coverage of portfolio investment has been been expanded. Money market debt instruments and tradable financial derivatives are now included under this label, while they earlier were recorded under other capital.