Introduction to the SNA, advanced Lesson 8

Copyright 2010, The World Bank Group. All Rights Reserved.

Introduction to the SNA, advanced

Lesson 8

The 2008 SNA compared with balance of payments (BPM)

1


Background

• The International Monetary Fund’s Balance of Payments Manual (or BPM) provides the framework for compiling balance of payments and related statistics

• The BoP is a critical source of data for the national accounts– the accounts for the RoW sector are completely

dependent on the data from the BoP• Historically, the BoP and the SNA were broadly consistent but

there were several differences – most differences were eliminated when the 1993 SNA and

the fifth revision of the Balance of Payments Manual (BPM5) were released and this process was completed with the release of the 2008 SNA and the BPM6

2


The balance of payments (BoP)

• Like the SNA, the BoP records details of economic transactions within a framework of accounting rules relating to the time of recording transactions, their valuation and who the relevant transactors are

• The concept of residence is critical for the BoP because it records transactions between residents and non-residents and so they need to be precisely defined– the definition of residence is identical between the SNA

and BPM6

3


Terminology

• Despite the consistency between the concepts, valuation etc, both the SNA and BPM have largely retained the terminology that each has developed over the past few decades

• We saw earlier that the SNA refers to “Uses” and “Resources” as the headings for the columns in its accounts– the equivalents in the BoP are called “Credits” and “Debits”

respectively, although viewing the transactions from opposite points of view (the home country by the BoP and the rest of the world in the national accounts) confuses the issue

• The “current account balance” is a very important data item in the BoP– it is called the “current external balance” in the SNA’s Use of

disposable income account

4


Terminology (continued)

• There are three current accounts in the BoP– the goods and services account– the primary income account– the secondary income account

• The BPM6 has no equivalent accounts for the SNA’s production account, the generation of income account and use of income account– the international accounts do not describe production, consumption

or capital formation

• The Primary income account corresponds to the Allocation of primary income account in the SNA

• The Secondary income account is called the Secondary distribution of income account in the SNA

5


Current accounts• The main features of the BoP current accounts correspond to

those in the current accounts in the SNA– each distinguishes between goods and services– each distinguishes current from capital transfers

• The balance of payments distinguishes between goods and services because of the policy interest in this distinction

• The BoP and the SNA present their accounts differently– the national accounts shows details of Uses and Resources and then

the reconciliation between them as a balancing item under “Uses”, which is carried through to the following account as a “Resource”

– the BoP shows details under “Credits” and “Debits” and also shows totals for each account and then the balance

6


BoP double entry accounting

• Every transaction is represented in the BoP statement with two entries (credit and debit)

• This table presents examples of the types of items entered under the “Credits” and “Debits” headings

7

CREDITS DEBITSExports ImportsIncome receivable Income payableTransfers receivable Transfers payableIncrease in liabilities Reduction in liabilitiesDisposal of (decrease in) assets

Acquisition of (increase in) assets


BoP double entry accounting (continued)

8

Current accounts Credits Debits Balance

Goods and services account

Goods 462 392

Services 78 107

Goods and services 540 499 41

Primary income account

Compensation of employees 6 2

Interest 13 21

Distributed income of corporations 17 17

Reinvested earnings 14 0

Primary income 50 40 10

Goods, services and primary income 590 539 51


BoP double entry accounting (continued)

9

Current accounts Credits Debits Balance(From previous slide)Goods, services and primary income 590 539 51Secondary income account

Current taxes on income, wealth 1 0Net non-life insurance premiums 2 11Non-life insurance claims 12 3Current international transfers 1 31Miscellaneous current transfers 1 10

Secondary income 17 55 -38Current account balance 13


Financial account

• The BPM’s Financial account corresponds to part of the accumulation accounts in the SNA– it is particularly concerned with financial instruments– the main classification is into assets and liabilities

• There is a functional split within each of assets and liabilities– direct investment– portfolio investment– financial derivatives– other investment– reserve assets

• The assets and liabilities are also classified by type of instrument

10


International investment position• The BPM’s international investment position (IIP) is a

statement showing the stock of an economy’s foreign financial assets and liabilities

• The IIP shows details of – claims on non-residents– liabilities to nonresidents– monetary gold– special drawing rights (SDRs)

• The net IIP is the net position at a point in time (the end of an accounting period such as a year)

• Changes in the IIP reflect changes in an economy’s external positions due to flows, price changes, exchange rate changes and other changes

11


SNA’s balance sheet equivalent of the IIP

• The IIP is a subset of the assets and liabilities included in the national balance sheet

• In addition to the IIP, the SNA’s national balance sheet shows non-financial assets as well as financial assets and liability positions between residents

• A country’s net worth is defined as its stock of non-financial assets plus its net international investment position– the net worth of a unit (or person, or sector, or country) is

defined as the value of all the assets owned less the value of all outstanding liabilities

12


Data links between SNA and BoP• A number of important aggregates in the national accounts

depend on the accuracy and consistency of the BoP data as well as the data from the national accounts themselves

• The supply–use table was described in detail in the Part 1• The basic identity was that supply = use, whereSupply = output + imports, andUse = final consumption (households and government) +

investment + exports + intermediate consumption• We can use symbols to show these as follows:Supply = Use, so O + M = C + I + X + IC• Rearranging these, we obtain O – IC = C + I + X – M• Output less intermediate consumption = GDP, so C + I + X – M

must also equal GDP13


Data links between SNA and BoP (continued)

• From the previous slide we saw thatGDP = C + I + X – M• Gross national disposable income (GNDY) is GDP plus net

primary and secondary income from abroad, so:GNDY = GDP + BPI + BSIwhere BPI = balance on primary incomeand BSI = balance on secondary income• By substitution from the equation above, we obtainGNDY = C + I + X – M + BPI + BSI

14


Data links between SNA and BoP (continued)

• Gross national disposable income (GNDY) is GDP plus net primary and secondary income from abroad

GNDY = C + I + X – M + BPI + BSI• The current account balance is the sum of the balances from

the three BoP current accounts, i.e. CAB = (X – M) + BPI + BSI• By substitution in the first equation above we can see thatGNDY = C + I + CAB• The SNA defines gross saving as GNDY less final consumption

i.e. S = GNDY – C• Therefore S = (C + I + CAB) – C, which collapses to S = I + CAB• Rearranging these terms gives CAB = S – I, which shows the

BoP’s current account balance is equal to the gap between saving and investment in the national accounts

15


References• System of National Accounts, 2008 (Chapter 26 describes the

Rest of the world sector in detail)• Balance of Payments and International Investment Position

Manual, Sixth Edition (BPM6)• Standard International Trade Classification (SITC), Revision 4

16

Introduction to the SNA, advanced Lesson 8

Documents

Transcript of Introduction to the SNA, advanced Lesson 8