The IMF's Statistical Systems in Context of Revision of the United Nations' A System of National Accounts
Chapter

7 Harmonization of the Classification of External Current Account Transactions

Author(s):
Vicente Galbis
Published Date:
September 1991
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Author(s)
Arie C. Bouter and Jan van Tongeren

The study described here responds to repeated recommendations by the United Nations Statistical Commission that statistical standards for related but specialized fields of statistics be harmonized, to the extent possible, with the present guidelines of A System of National Accounts (SNA).1 This recommendation was taken up again by the 1982 Expert Group Meeting on the SNA, which initiated a review of the SNA and made harmonization one of the main themes of revision of the SNA.

With regard to the IMF's Balance of Payments Manual (BPM), this focus on the review of the SNA is a continuation of the orientation already reflected in the 1977 edition of the BPM, which includes an appendix on the relation between the BPM and the SNA.2 Several discrepancies between the two have remained, however, because at the time of the 1977 edition of the BPM it was thought to be neither statistically feasible nor analytically useful to incorporate in the BPM all details of the external account of the SNA.

The first phase of the present harmonization project was finalized in 1981, when a reconciliation between the components of the external account of the SNA and the BPM was drawn up. A discussion of the differences between the SNA and the BPM took place at the 1982 SNA expert group meeting. Unfortunately, little was accomplished in terms of harmonization. The present phase of the project, which was initiated in 1983 in close cooperation between the UN Statistical Office (UNSO) and the IMF Bureau of Statistics, tries to revive the discussion and narrow the gap between the components by studying the availability of data in selected countries and identifying the explicit or implicit links between them.

This paper reports on the results of the country studies carried out until October 1985, draws conclusions, and makes proposals for the adaptation of the SNA and BPM components that would be compatible with further harmonization. Because the survey was restricted to current account transactions, the analysis is limited to that part of the SNA and BPM only.

The characteristics of the present SNA and BPM components and the relations between them, as reflected in the present reconciliation, are briefly reviewed in Section I of the paper. Section II discusses the survey of selected countries and summarizes results. Section III takes up issues reflecting the differences between the SNA and BPM components and discusses them one by one. For each of the issues the section includes a brief summary of the present SNA and BPM practices, the results of the survey (if available), and, where necessary, the proposed modifications of SNA and BPM components that would result in further harmonization of the two systems. This section also includes a description of the modified reconciliation, after incorporation of the proposed modifications of the components.

I. Present Reconciliation of SNA and BPM Components

The differences between the components of the external account of the SNA and the BPM can be seen from two perspectives.3 The first defines BPM components in terms of details—“building blocks”—that are needed to derive the SNA components; the second defines the SNA components in terms of the same building blocks, which are in turn needed to reconstruct the BPM components. Some of the BPM components are not covered in the SNA, while other building blocks are not included in the BPM because of differences in the coverage of transactions in the two systems. The reconciliation, although quite complex, provides all the elements needed to derive the components of both the SNA and the BPA and, thus, offers a guide to national compilers who want to derive the data for one system from that in the other.

The number of differences is large, although the majority constitutes discrepancies that are quantitatively small and often ignored by national compilers, as will be seen in the discussion in Sections II and III. The main differences can be summarized briefly, however. Both the SNA and the BPM use the change-of-ownership principle for recording transactions. The SNA deviates from this principle in several instances, whereas the BPM is consistent in its application. For example, for the recording of merchandise transactions, the SNA follows the physical movement basis in line with foreign trade statistics and includes an adjustment item in the external account in order to bring this account in line with the other accounts of the SNA. Another difference concerns the treatment of reinvested earnings of direct-investment enterprises with foreign branches or subsidiaries, which are not included in the SNA but are included in the BPM, in conformity with the change-of-ownership principle. Other differences include the valuation of imports, which are valued on a c.i.f. (cost, insurance, freight) basis in the SNA and on an f.o.b. (free on board) basis in the BPM; the treatment of monetary and nonmonetary gold; the separate identification of labor and property income received by factors of production, which is made in the SNA but not in the BPM; and, finally, the treatment of insurance transactions, for which the SNA requires various imputations that are not made in the BPM.

II. The SNA-BPM Questionnaire on the Availability of Separate Data or Estimates for Building Blocks

Following the completion of the conceptual reconciliation of the two classifications of international transactions, the UN and the IMF proceeded to collect information from a small but representative group of national compilers on the current and future availability of separate data for each of the approximately 150 building blocks that are needed for the link. Two questionnaires were designed, based on the two reconciliation tables prepared earlier. One questionnaire, listing the building blocks in the order of the BPM components, was sent by the IMF to compilers of balance of payments statistics; a second questionnaire, seeking identical information but structured according to the SNA components, was sent by the UN to compilers of national accounts statistics in the same countries. Follow-up visits were made by staff of both institutions to some of the selected countries in order to obtain clarification and additional information. Nine countries had completed the questionnaires by the time this study was prepared: Australia, Canada, France, Germany, the Republic of Korea, the Netherlands, Turkey, the United Kingdom, and the United States. The analysis and conclusions reached in this and the following sections are based on these responses.

The information obtained from the UN and IMF questionnaires is summarized in the matrix shown in Table 1, which reproduces, in an alternative form, the present link between the current and capital account transactions of the SNA (rows) and the BPM (columns). The information presented in the matrix shows whether or not separate data or estimates for the building blocks are available in the majority of countries that have responded until now. When separate data or estimates for a given building block or component are available, the matrix shows an “A,” whereas for other building blocks or components the notation is a dash (—). For instance, the BPM component “travel” needs to be broken down into separate building blocks for expenditures reimbursable by resident and nonresident employers, which are treated in the SNA as miscellaneous commodities or direct purchases by government; other travel expenditures, which are included in the SNA in direct purchases by households; rent on land, which is property income in the SNA; passport, visa fees, and airport taxes, which are included in SNA transfers; and the value of free goods and services acquired by and provided to travelers, which are not included in the SNA. The dashes in the BPM column for travel show that sufficient detail for these building blocks was not available in the responding countries. A similar analysis of the SNA details, required to derive the BPM components, may be carried out along the rows of the matrix.

Table 1.Comparison of Data Availability for Building Blocks in SNA and BPM
BPMComponents
SNA ComponentsMerchandiseShipmentPassenger servicesOther transportationTravelReinvested earnings on direct investmentOther directinvestment income
Merchandise
Transport on merchandise importsA
Other transport and communicationAA
Insurance service charges on merchandise imports
Other insurance service chargesA
Miscellaneous commodities
Adjustment of merchandise to change-of-ownership basis
Direct purchases, government
Direct purchases, households
Compensation of employees
Property and entrepreneurial incomeA
Current transfers, nongovernment
Current transfers, general government
Capital transfers, nongovernment
Capital transfers, general government
Capital flowsA
Excluded from SNA
Note: A, availability of separate data or estimates; —, insufficient detail of data or estimates; n.i.e., not included elsewhere.
Other investment income of resident official, including interofficialOther investment income of foreign official, excluding interofficialOther investment incomeInterofficial, n.i.e.Other resident official, n.i.e.Other foreign official, n.i.e.Labor income, n.i.e.Property income, n.i.e.Other goods, services, and incomeMigrants' transfersWorkers' remittancesOther private transfersInterofficial transfersOther transfers of resident officialOther transfers of foreign officialCapitalExcluded from BPM
A
AA
AAA
AA
AAA
AA
A
Note: A, availability of separate data or estimates; —, insufficient detail of data or estimates; n.i.e., not included elsewhere.
Note: A, availability of separate data or estimates; —, insufficient detail of data or estimates; n.i.e., not included elsewhere.

Further information on the availability of detailed data will be provided in the next section, where country practices are analyzed in detail. A general impression obtained from the survey was that the number of individual building blocks for which separate data or estimates are available in more than half of the responding countries is small and that the composition of the smallest available combinations of building blocks comes closer to the composition of the BPM components than to the composition of the components of the SNA.

The survey results on data availability and country practices have been important elements in drawing up the proposals made below. They are not, however, the only justification for either amending or not amending the present guidelines. Coverage, concepts, and classifications in both systems are governed by underlying principles and analytical usefulness, which in some instances have been used as justification for making recommendations that differ from what may have been implied by the survey results.

III. Proposals to Harmonize SNA and BPM Classifications of International Transactions

This section includes three proposals to harmonize the composition of the components of the SNA and the BPM; the proposals are based on the survey results and also take into account the underlying principles of both systems. The first is a proposal to consolidate the components of the external account of the present SNA into fewer, more aggregated components representing the essential transaction categories of the SNA that have counterparts in other sector accounts of the SNA. The second recommendation is to apply more consistently the change-of-ownership principle in the SNA in order to bring it more in line with the BPM. The third set of recommendations refers to other changes in the composition of the components of the SNA and the BPM that would bring the composition of the two systems in line with data availability.

Consolidation of Goods and Services Components of the SNA

The classification of goods and services flows in the SNA and the BPM differs considerably. The SNA external transactions account distinguishes between exports (imports) of merchandise and services; it includes a further breakdown of services into transport and insurance services, and direct purchases abroad by resident units, and in the reporting economy by nonresident entities, including those of households and governments. The BPM distinguishes between merchandise, shipment, passenger services, other transportation, and travel and has, furthermore, components for other goods and services (including income) broken down by interofficial, other resident official, other foreign official, and other goods and services. The considerable divergence between the breakdowns of the two systems requires a very large number of detailed building blocks to link the SNA and BPM components.

The survey shows that the commodity detail required by the SNA is generally not available in countries and that countries instead accommodate unadjusted BPM components in single or combined SNA categories. It is therefore proposed to eliminate this commodity detail from the SNA. This can be done without affecting the SNA, since none of the commodity details appears in any of the other sector accounts and is, therefore, not strictly needed for internal consistency of the national accounting framework.4

If the present commodity detail of the SNA is reduced, and only exports and imports of goods and services are distinguished, a much-simplified reconciliation with the BPM results. The following building blocks can then be eliminated from the reconciliation: migrants' effects and gifts in kind; transport services performed by nonresidents on imports; stores and fuel for carriers; repair of transportation equipment; travel expenditures reimbursable by resident government; travel expenditures reimbursable by an employer other than the government; net purchase or sales of capital goods for own use by government; net purchases or sales of goods, other than capital goods, and services for own use by government bodies stationed abroad; personal expenditures of diplomats and troops stationed abroad; and expenditures, other than rent on land, passport, visa fees, and airport taxes, by individuals working abroad.

The Change-of-Ownership Principle

According to paragraph 1.36 of the SNA, a balance sheet for an economy shows both the written-down value of tangible assets held (plus the excess of financial claims held as assets over financial claims issued as liabilities) and the net worth. Net assets at the end of a period are equal to net assets at the beginning, plus net investment in the period, plus revaluations needed to adjust assets previously acquired or liabilities previously issued to the prices prevailing at the closing date.

In line with that definition, paragraph 6.130 of the SNA defines exports and imports of goods and services as transactions between residents of a given country and those in the rest of the world, which, according to paragraph 6.131 of the SNA, in principle should be recorded in the national accounts at the moment at which the ownership of (legal title to) the goods in question passes or the services are rendered. This principle is also used for recording net acquisitions of financial assets and net incurrence of financial liabilities in the external transactions account as well as for recording transactions in the other accounts of the SNA (that is, in the production, consumption, and accumulation accounts).

Any deviation from this principle for recording transactions in goods and services would require a corresponding deviation for recording the related financial transactions. Thus, for example, if goods were recorded in the national accounts at the moment they crossed the border of a country, as in external trade statistics, rather than at the moment at which ownership passed, any credit extended (received) in connection with the sale of the goods would also have to be recorded at the moment the goods crossed the border, rather than at the moment the financial asset was acquired (the financial liability was incurred). Any advantage of a purely statistical nature that might be derived from recording goods at the moment they cross the border would be offset, therefore, by a corresponding disadvantage resulting from the need for making an offsetting recording in the financial items. In other words, any advantage that might be derived from not having to adjust to the change-of-ownership basis for the recording of the goods would be offset by a corresponding disadvantage resulting from the need for making an offsetting adjustment to the border-crossing basis for the recording of the related financial item. In the SNA the change-of-ownership principle is generally applied to all domestic sector transactions, but some deviations occur in the external account. These instances, which constitute differences between the SNA and the BPM, are examined in the remaining paragraphs of this section and are evaluated on the basis of country practices.

Transactions Not Involving a Change of Ownership

Goods for Processing. The recommendation of the BPM is that the change-of-ownership rule be observed for goods for processing and re-export. That recommendation applies to goods transferred between affiliates, as well as to those transferred between unaffiliated parties. Thus, when goods for processing and re-export are not accompanied by a change of ownership, the goods should be excluded from merchandise, and the difference in the value of the goods before and after processing should be recorded as an export or import of a service. In contrast, when a change of ownership does occur in connection with processing transactions, entries should be made in the merchandise account to record the market values of the goods before processing and afterward, and no entry should be made in the services account. In that case, however, entries in the capital account should offset the entries in the merchandise account.

If it is assumed that the data are based on foreign trade statistics, which will frequently determine the approach to recording goods for processing in the external account, the SNA does not identify separately goods for processing from other exports and imports of goods and services. Country practices vary. Some countries for which the processing activity is important try to identify and measure separately the flows of goods sent or received for processing. These countries generally follow the BPA treatment and include the value added by processing in imports or exports of services. Other countries, for which the item is less important, do not make the distinction. Given these practices, it is proposed to align the SNA treatment with that of the BPM.

Goods for Sale on Consignment. Goods for sale on consignment—that is, goods intended for sale that have not actually been sold at the time they cross the frontier—are customarily recorded in the trade statistics. As in the case of goods for processing, the SNA recommends imputation of a change of ownership, whereas the BPM prefers to adhere to the change-of-ownership principle.

Approximately half of the countries responding to the questionnaire were able to distinguish goods for sale on consignment. Given these practices and the advantages, mentioned above, of adhering to the change-of-ownership principle, which also apply in the case of goods sold on consignment, it is recommended to modify the SNA treatment and bring it in line with the recommendation in the BPM. This would also introduce further consistency with the treatment of goods sent for repair and rent, which are to be excluded from but recorded separately in international trade statistics and are to be excluded from the SNA.

Transportation and Insurance Services Performed by Residents on Imports. The external transactions account of the national accounts and the balance of payments are defined to cover transactions between residents of a given country and those in the rest of the world. Transportation and insurance services performed by residents on imports, therefore, should not be recorded in the national accounts and the balance of payments if the goods at the time these transportation and insurance services are being performed are owned by residents of the importing country.

Compiling countries often find it difficult, if not impossible, however, to ascertain whether merchandise imports are actually owned by a resident or by a nonresident at the time these transportation and insurance services are being performed. But any necessity for trying to relate changes of ownership of merchandise to these transportation and insurance services can be avoided by adopting a convention for constructing the entries that refer to these services on the compiling country's imports beyond the customs frontier of the exporting country. Under a convention of this kind, certain offsetting transactions between residents and foreigners may in effect be netted against each other and so may not be included in a statement of international transactions, whereas certain transactions between residents or between foreigners may be recorded in the accounts as both a credit and a debit. The use of such a convention thus entails a departure from the general rule for the service items of showing gross flows between residents and foreigners. The problems of compilation are greatly simplified, however, because the entries required represent identifiable types of service performed by residents or foreigners, without regard to whether the merchandise in question is actually owned by a resident or a foreigner at the precise time when those services are being performed.

Under the convention adopted in the SNA, transportation and insurance services on the compiling country's merchandise beyond the customs frontier of the exporting country are always treated as if they were services performed for residents of the importing country by residents of countries other than the importing country. One of the advantages of this convention is that the combination of the debit entries for transportation and insurance services and those for imports is equivalent to the value of imports valued on a c.i.f. basis, on which many trade statistics for imports are compiled.

Under the convention adopted in the BPM, transportation and insurance services on the compiling country's merchandise beyond the customs frontier of the exporting country are always treated as if they were services performed for residents of the importing country, whether by residents of that country or of any other country. This method has the advantage of eliminating any offsetting flows between residents, although for countries operating international carriers it may also bring about the exclusion of offsetting flows between residents and foreigners. Those exclusions, however, accord with the economic reality that, in the final analysis, the cost of shipment is borne by the importing country, whatever the arrangements for shipping the goods may have been. For that reason, this convention is analytically more meaningful than the convention currently recommended by the SNA.

Write-offs of Bad Debts. A write-off of a bad debt refers to an event not involving a change of ownership. The market value equivalent of a claim may be notionally reduced by the presumed unwillingness or inability of the debtor to make full repayment in settlement of the claim. When the creditor chooses to regard part or all of such a claim as having been canceled, the claim is said to have been written off as a bad debt. A write-off, including the write-off of an asset that has been expropriated without compensation, is equivalent to a change in valuation and not to a grant involving a change of ownership, since no contract with another party has been made to dispose of the claim.

Write-offs of bad debts are not included in the BPM. The SNA, in contrast, treats write-offs of bad debts as a sale of a financial asset with a counterpart in current transfers.

The country survey shows that data on write-offs are generally not included in the transactions accounts. Based on these practices and the theoretical considerations mentioned above, it is recommended to bring the SNA in line with the BPM and to include write-offs of bad debts in the reconciliation accounts of the system.

Transactions Involving a Change of Ownership

Free Goods and Services Provided to Travelers. Travelers may acquire goods and services against payment or free of charge. The external transactions account in the SNA covers only the goods and services acquired by travelers against payment, whereas the BPM covers both categories. Although data on goods and services acquired free of charge by travelers are generally not available, it appears that, for the sake of consistency in the balance-sheet account, the transactions account, and the reconciliation account of the SNA, it would be better if the transactions account covered goods and services acquired free of charge by travelers, as it does for goods and services that have been acquired free of charge by nontravelers.

Transactions for Which a Change of Ownership Should Be Imputed

Financial Leasing. In the BPM, financial lease arrangements refer to arrangements that provide for the recovery of all, or substantially all, of the cost of the equipment that is being leased, together with carrying charges. Under such arrangements the possession of the equipment passes from the lessor (the owner) to the lessee (the user) without a change of ownership. The BPM recommends that the basic nature of these transactions—the transfer of the economic risk from the lessor to the lessee—be given precedence over their legal form. Therefore, as a rule of thumb, a lease arrangement expected to cover at least three fourths of the cost of the equipment, together with the carrying charges, is taken as presumptive evidence that a change of ownership is intended. At the time the possession of the equipment passes from the lessor to the lessee, a change of ownership of the equipment from the lessor to the lessee is imputed, and the full equivalent of the market value of the equipment (not the cumulative total of the expected lease payments) is recorded as merchandise, with an offsetting entry made in the capital account to record the imputed credit received by the nominal owner. The so-called lease payments to the actual legal owner thereafter are construed as investment income payments and repayment of the financial obligation that was in effect created when possession of the equipment passed from the lessor to the lessee.

Unlike the BPM, the SNA does not refer to such an arrangement and, therefore, does not distinguish between financial and other lease arrangements. In the SNA, lease arrangements refer to the service provided by the owner in leasing his equipment to the enterprise that operates it. Because there is no change of ownership, the market value of the equipment is not recorded in the merchandise and capital accounts, and the lease payment is recorded in the service account.

Information derived from the survey suggests that most national compilers do not manage to follow either recommendation. Data on the market value of the equipment is recorded indistinguishably in the trade returns when, as is often the case, customs officials do not have a way of distinguishing between goods under financial lease arrangements and other goods; the capital account typically does not include an offsetting entry. At the same time, national compilers often record the lease payments in the service account, thus duplicating the market value of the equipment that is recorded in the merchandise account.

For that reason, it appears that analytical considerations rather than the current recording practices should be used for determining the method for recording financial lease arrangements. Because the national compilers, who were asked for their preferences, appeared to favor the methodology recommended in the BPM, that methodology has been incorporated in the proposed classification. In order to be able to implement that methodology for recording lease arrangements, national compilers should ask entities reporting payments of lease fees for information that will enable the identification of financial lease arrangements and facilitate the appropriate recording of the “lease” payments.

In this connection, the SNA suggests that in the case of hire-purchase arrangements the purchase is considered to have occurred at the time that the contract concerning the arrangement is signed or, if there is no formal agreement, at the time the goods are delivered. Thus, the recording of financial lease arrangements in the BPM is similar to the recording of hire-purchase arrangements in the SNA.

Furthermore, the recording of financial lease arrangements in the transactions account, as proposed, would call for a corresponding recording of those arrangements in the balance-sheet account.

Finally, it is worth mentioning that the national compilers in the OECD countries also have recommended that a change of ownership be imputed for lease arrangements.

Goods Shipped Between Affiliates. The definition of residence adopted for the SNA and the BPM has implications for the coverage of merchandise as determined by the change-of-ownership principle. Specifically, although enterprises are always considered residents of the economy where they operate, enterprises in different economies may be under the same management. Such affiliation may result in transactions between enterprises that are not subject to the legal changes of ownership that would have occurred had the enterprises been independently managed. Transactions between a parent company and a direct-investment branch (an unincorporated enterprise) might never involve a legal change of ownership in the literal sense, since both partners are part of the same legal entity. Moreover, although a parent company and a direct-investment subsidiary (an incorporated enterprise) constitute separate legal entities, a different balance of payments treatment for the transactions between the two enterprises that take the form of a legal change of ownership and those that do not would scarcely seem desirable. Therefore, it is recommended that—with the exception of transactions in goods for processing, for repair, or for rent—all transactions between direct-investment enterprises and their parent or other related enterprises be recorded as if a change in ownership had occurred.

The BPM follows the above-mentioned principle and includes in exports and imports of merchandise any shipments of goods to and from affiliated enterprises. The SNA does recognize affiliated enterprises in different countries as separate quasi-corporate enterprises, but it does not include the flows of merchandise to and from these affiliates in exports and imports. In country practices, the BPM treatment generally is followed, mainly for practical reasons, because countries are not able to identify separately within the foreign trade statistics the merchandise flows between the affiliates. It is proposed, therefore, to adopt in the SNA the present BPM recommendations, which would bring the SNA more in line with data availability in countries and would remove the above-mentioned internal inconsistency from the SNA.

Reinvested Earnings on Direct Investment. Reinvested earnings in the BPM cover the earnings of branches and other unincorporated direct-investment enterprises (excluding any part that can be identified as having been remitted) and the direct investor's portion of earnings of incorporated direct investment enterprises that are not formally distributed. They are conceived as providing additional capital to the enterprise, thus increasing the value of an economy's stock of foreign assets and liabilities. In the recording of such earnings in the balance of payments, therefore, entries should be made both for direct-investment income and for direct-investment capital. For example, the reinvested earnings of a foreign direct-investment enterprise attributable to a resident direct investor should be entered as a credit in the current account category for investment income and as a debit in the capital account category for direct investment.

This approach is followed for a variety of reasons. First, it can be said that a direct investor has control over the policies of the direct-investment enterprise. If the direct-investment enterprise reinvests any of its income, this can be regarded as reflecting a conscious decision by the direct investor to increase his direct investment in the enterprise by not taking out some of the income that would otherwise be payable to him. Hence, it would be useful to reflect these two conceptually separate decisions in the statistics by showing the reinvested income accruing to the direct investor both as income and as a capital flow. This argument is supported by the fact that taxation of income may influence the decision of the direct investor with respect to the form he chooses for increasing his capital in the direct-investment enterprise.

In addition, one might argue that reinvested income is comparable to the credit extended—by the direct investor to the direct-investment enterprise—for commodities that are not paid for at the time these commodities are delivered. By analogy, the reinvested income would refer to a credit extended by the direct investor for the use of capital that is not paid for during the period in which the capital was made available.

The present SNA guidelines do not recommend that reinvested earnings be included in the external transactions accounts and, thus, suggest by implication that reinvested earnings be treated as additions to the net worth of the subsidiary and not to that of the parent company. The UN Provisional Guidelines (paragraph 6.43) for balance sheets,5 however, differ from the SNA recommendations by stating that

Unlike the usual stockholders, the parent company can take possession of the net worth of the subsidiaries by selling its interest in them. Furthermore, the parent company controls the magnitude of subsidiaries' net worth as it determines the amount of dividends that they pay and thus fixes the amount of saving that they retain. It is therefore appropriate to consider that the subsidiaries do not have any independent net worth and that the value of the parents' equity securities in the subsidiaries is equivalent to the difference between the total value of the subsidiaries' assets less the total value of the subsidiaries' liabilities, including only the value of any minority interest in the case of corporate equity securities.

Even though the survey shows that data on reinvested earnings are generally not available, it appears that including them in the harmonized classification would still be advisable: not only would it lead to harmonization between the SNA and the BPM, but it also would result in a reconciliation between the SNA and the UN balance-sheet guidelines.

Other Reconciliation Issues

The remaining issues mainly concern differences in the composition of the components of the SNA and the BPM. They generally do not involve important principles of either of the two systems, and reconciliation therefore can be carried out on the basis of data availability. This implies that either the SNA or the BPM components should be adjusted.

Monetary Gold

According to the BPM, monetary gold is gold owned by the central authorities (or others subject to their effective control, under institutional arrangements that sometimes exist) that is held to finance payments imbalances directly or to manage the size of such imbalances by intervening to influence the exchange rate for the national currency. Changes in holdings of monetary gold come about as a result of transactions of the central authorities either with central authorities in another country or with entities other than central authorities.

According to both the BPM and the SNA, transactions between the central authorities in a given country and the central authorities of another country should be recorded in the capital account. Acquisitions by resident central authorities of newly refined gold from other residents, even though such acquisitions do not represent international transactions, are, according to the SNA, to be recorded as an export of merchandise. According to the BPM, however, data on such acquisitions are to be provided, as supplementary information, in the capital account. Acquisitions from or sales to nonresidents other than central authorities by resident central authorities are, according to the SNA, to be recorded as increases or decreases in financial assets. According to the BPM, they are to be recorded as an import or export of merchandise (with an additional pair of entries in the capital account, reflecting the change in the holdings of monetary gold and the monetization or demonetization of the gold).

Because information on acquisitions or sales of monetary gold by resident central authorities usually is available, harmonization of the classification of the transactions of resident authorities with other residents or with nonresidents other than central authorities can be achieved quite easily. It is suggested that this be done by changing the SNA methodology to that of the BPM, since changes in monetary gold are relatively unimportant for national accounts purposes but are of considerable importance in the context of balance of payments statistics.

Gold Other Than Monetary Gold

Gold other than monetary gold (nonmonetary gold) owned by any entity, including the central authorities that also own monetary gold, is treated in the BPM as any other commodity. In the SNA, nonmonetary gold is further broken down into gold for industrial use and gold for use as a financial asset. Information on international transactions in gold for use as a financial asset is available in about half of the countries surveyed. Information on changes in financial gold holdings arising from the reclassification of newly refined gold by residents other than the central authorities, which in the national accounts is part of merchandise exports, is generally not available. For that reason, there seems to be no justification, for national accounts or balance of payments purposes, for distinguishing international transactions in financial gold from those in industrial gold and, therefore, for distinguishing international transactions in non-monetary gold from those in other commodities.

Arbitrage in Financial Assets

In instances where a transactor intends to dispose of a financial asset at virtually the same time that ownership of the asset is nominally acquired, the BPM recommends that any profit or loss resulting from the two changes of ownership of the asset be regarded as the realization of a capital gain or loss. Like any other realization of a capital gain or loss, it should be entered in the capital account item that refers to the asset concerned. The SNA specifically recommends that gains or losses incurred in the purchase and sale of financial assets be recorded in the aggregate called miscellaneous commodities.

The implementation of the recommendation comes about as a result of the recording of purchases and sales of financial items at transaction prices, so that, when a pair of purchases and sales are recorded at different transaction prices, the difference between the two prices reflects the capital gain or loss on the purchase and sale, without any regard to the fact that the item may have been owned only very briefly. Such recording also brings about symmetry in the capital account of the global balance of payments statistics.

Country practices show that no explicit information is available on arbitrage profits or losses. Purchases and sales of financial assets, however, are recorded at different transaction prices, which implies that the difference between the two prices is dealt with as a realized capital gain or loss. Based on these country practices, it is therefore recommended that the SNA treatment be aligned with the standards of the BPM. This would also remove the internal SNA conflict between the treatment of arbitrage transactions, mentioned above, and the SNA recommendation that purchases and sales of financial assets be recorded at transaction values.

Insurance Services

In the BPM, insurance covers the difference between premiums paid and claims disbursed, which is taken to represent the insurance service charge. This treatment ignores (1) that the service charge the insurer takes into account in setting premiums during a given period (the “normal” service charge) may not be the same as the difference between the premiums and the claims payable during that period; (2) that losses may be greater or less than are expected in the longer run; (3) that claims may not yet be payable on losses that have already occurred; and (4) that premiums may have been paid in advance on risks to which the insurer has not yet been exposed. Therefore, in principle, the difference between premiums paid and claims disbursed may reflect not only a service charge but also capital gains (losses) and prepayments (postpayments).

In the SNA, the insurance premium is broken down into a service charge, a net premium (which is a payment for the coverage of the insurance risk), and, for pension and life insurance schemes, a savings element assigned to the household sector (to which an interest charge is also imputed).

The survey has shown that the SNA details are generally not available and, if information can be obtained or estimates made, the information is often available only for merchandise insurance, other casualty insurance, and life insurance combined. These experiences, together with similar information on country practices in other sectors (the government and the household sectors) may be a sufficient reason for reconsidering the present SNA treatment, simplifying it and bringing it more in line with country practices and data availability. Although no principal decision has been taken with regard to a modified treatment of insurance transactions in the present paper, a modified classification is proposed that identifies only two types of insurance transactions—premiums and claims—and does not distinguish anymore between the different types of insurance mentioned above.

Travel

In the BPM, travel covers the goods and services acquired—for personal use or to give away—from an economy by individuals defined as travelers during their stay in that economy. Travel covers the following components: expenditures reimbursable by the traveler's government or his or her employer; rent on land; passport, visa fees, and airport taxes; direct purchases by households; and the value of free goods and services. Except for the value of free goods and services, these components are included in the following categories of the SNA: goods and services; property and entrepreneurial income; current transfers to general government; and current transfers of other sectors.

The survey of country practices shows that the SNA detail is generally not available in the basic statistics of countries. The quoted breakdown is so essential for the SNA, however, that it cannot be eliminated. Practical solutions that allow for the estimation of the required detail on the basis of additional data or fairly reliable assumptions need to be found. Such estimates, together with the more aggregate information available from balance of payments statistics, would then be applied for national accounts purposes.

Official Goods, Services, and Income

In the BPM, official goods, services, and income cover the real resources—other than those that have been classified under merchandise, shipment, other transportation, travel, and investment income—that are acquired or provided by general governments and central banks. Thus, the category covers the transactions both of the resident general government and central bank with foreigners and of foreign governments with residents of the compiling economy (where foreign general government is defined to include international bodies other than enterprises).

Official goods, services, and income cover the following details: net sales in the domestic market to extraterritorial bodies; net purchases for own use by resident government bodies stationed abroad; foreign diplomatic and troops' personal expenditures in the domestic market; diplomatic and troops' personal expenditures abroad; salaries and wages; rent on land; and other official goods and services. These details are included in the SNA in goods and services; compensation of employees; and property and entrepreneurial income.

Although this SNA detail is generally not available in the basic data used by countries, the detail is essential for the SNA and cannot be eliminated. This implies that practical solutions need to be found to arrive at additional information or reliable assumptions on further breakdowns of the BPM categories.

Labor Income

In the BPM, labor income covers wages, salaries, and other compensation (in cash or in kind) that persons earn—in an economy other than the one in which they reside—by working for a resident economy. Such persons are not residents of the economy where they live and work either because they remain there for less than a year (for example, are seasonal workers) or because they do not have their abode in the same economy where they work (for example, are border workers). The expenditure of income by those workers in the economy where they are employed should also be recorded in this item. Income should be entered without any deduction for taxes paid (or withheld), for contributions to pensions, or other benefits.

Labor income covers the following components: salaries and wages; rent on land; passport, visa fees, and airport taxes; and other expenditures. These components are included in the SNA in goods and services; compensation of employees; property and entrepreneurial income; other current transfers to general government; and other current transfers by other resident sectors.

The survey shows that information on individual components of labor income required for SNA purposes is generally not available, while at the same time the categories cannot be eliminated because essential SNA elements are involved. Harmonization is therefore not possible, but practical reconciliation can be achieved by utilizing additional information and reliable assumptions to arrive at the SNA detail, taking BPM data as a point of departure.

Reconciliation of the Harmonized Classifications and Future Developments

The modifications proposed under the previous subsections of this section have been incorporated in the reconciliation. They require much simpler links and far fewer building blocks. The proposals would also result in identical coverage in the SNA and the BPM, so that the reconciliation does not contain a separate list of building blocks that are not included in the SNA or in the BPM.6

The proposals presented above are preliminary because they reflect only a limited number of responses to the SNA and BPM questionnaire. Further observations, when they become available, may modify the harmonization proposals. The number of issues included in the paper is also limited and may be expanded when other details become available on country practices. These additional issues may result in further adaptations of the modified reconciliation. It is also envisaged that the present proposals will be discussed in various international forums and that the proposed modifications of the concepts of SNA and BPM and the proposed reconciliation may be accordingly adjusted. Discussions of other parts of the SNA system, such as the government accounts, may also have their bearing on the proposals presented here. After several rounds of discussions, the ultimate result should be a set of modified guidelines for SNA and BPM, with simple links between their concepts and classifications that take into account practical limitations of statistical measurement and analytical usefulness and that do not violate the internal consistency requirements and other underlying principles of the SNA and the BPM.

1An earlier version of this study was prepared for the Nineteenth General Conference of the International Association for Research in Income and Wealth (IARIW), Noordwijkerhout, Netherlands, August 25–31, 1985.
2“Comparison of Balance of Payments Classification with External Transactions in SNA,” Appendix C in International Monetary Fund, Balance of Payments Manual, Fourth Edition (Washington, 1977), pp. 177–80.
3Two reconciliation tables, omitted from this volume, are available from the authors on request.
4“The SNA as a Framework for Statistical Co-ordination (Note by the United Nations Statistical Office),” DES/NI/85.3 (Paris: Organization for Economic Cooperation and Development (OECD), 1985).
5United Nations, Provisional International Guidelines on the National and Sectoral Balance-Sheet and Reconciliation Accounts of the System of National Accounts, Statistical Papers, Series M, No. 60 (New York, 1977).
6The resulting reconciliation, the reduced list of SNA components, and a list of BPM components are given in appendices to an unpublished version of this paper, which is available from the authors on request.

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