BOP Relationship to National Accounts

Balance of payments accounts and data on the international investment position are closely linked to the system of national accounts. In most countries, data on the balance of payments and the international investment position are compiled , and incorporated into the system of national accounts, forming the rest of the world (ROW).

The BPM5 was harmonized with the System of National Accounts 1993 (1993SNA), which led to identical treatments of residency, valuation, timing, coverage of transactions and coverage of the international investment position. The definition and treatment of services, income and certain financial transactions in the balance of payments has been revised to fit with the national accunts guidelines (1993SNA). However, the balance of payments and the national accounts are aiming to meet different analytical requirements, and because the national accounts have a uniform classification scheme accross all institutional sectors, some differences in classifications and level of detail is present.

The sequence of accounts for the domestic economy in the national accounts do not identify separately the transactions with the rest of the world, but includes them (along with the domestic transactions). The difference between the total economy’s resources and uses for each income item in the accounts is therefor equal to the net transactions with the rest of the world for that item. Similarly, the financial accounts total for the economy differ by the net transactions in each financial instrument with the rest of the world. The SNA includes a separate “account” (its not really a sector) to identify the transactions with the rest of the world - ROW.

The main difference between SNA’s ROW and the BOP is the reversal of accounting. While the BOP statement presents all transactions and assets from the compilers (the country in questions') point of view, the SNA presents the ROW accounts from the point of view of the rest of the world.

Example;Exports are a resource for the compiling economy, but are a use for the rest of the world (ROW). Similarly, liabilities of the compiling economy are financial assets for the ROW.

SNA’s coverage of imports and exports of goods and services are identical to the coverage in the balance of payments, with the exception of financial intermediation services (charge) indirectly measured (FISIM). In the balance of payments this service charge is included under investment income, as part of interest income. The categories of goods and services in the balance of payments are consistent with the Central Product classification (CPC), except for travel and government services.

The external account for primary income and current transfers in the SNA includes the same transactions as under the labels Income and Current transfers in the balance of payments, with the exception of financial intermediation services (charge) indirectly measured (FISIM).

Also the major elements of the capital account in SNA are the same as those in BOP, but while the financial assets are classified primarily by type of instrument in SNA, they are classified by function in the financial account in the balance of payments. Another difference between the balance of payments and SNA is that the BOP follows the principle of net recording of transfers in assets and liabilities, while SNA records on a gross basis.

The linkage between key aggregates of accounts of the total economy and balance of payments flows can easily be summarized algebraically within a saving - investment framework. (Balance of payments flows in italic.)

GDP = C + G + I +(X - M) C = Private consumption
G = Government consumption
I = Gross fixed capital formation
X - M = Balance of goods & services (BOP)
CAB = XM + NY + NCT CAB = Current account balance (BOP)
NY = Net income from abroad (BOP)
NCT = Net current transfers (BOP)
GNDY = C + G + I + CAB GNDY = Gross national disposable income
GNDY - C - G = S S = Saving
S = I + CAB or S - I = CAB
S - I + NKT - NPNNA = CAB + NKT - NPNNA = NFI
NKT = Net capital transfers
NPNNA = Net purchase of non-produced
non-financial assets
NKT - NPNNA = Balance on the capital account (BOP)
NFI = Net foreign investment,
or net lending to the ROW