The balance of payments (BOP) systematically summarises all economic transactions between the residents and the non-residents of a country or of an economic area during a given period.
BOP provides harmonized information on international transactions which are part of the current account (goods, services, primary and secondary income), as well as on transactions which fall within the capital and financial accounts.
The international investment position (IIP) presents the value of financial assets owned outside of the economy and indebtedness of the economy to the rest of the world.
BOP is an important macroeconomic indicator used to assess the position of an economy (credit or debit for the current and capital accounts, net acquisition of financial assets or net incurrence of liabilities for the financial account and international investment position) towards the external world. Out of BOP data, indicators on international position of the EU and its Member States are derived.
Indicators on main BOP and IIP items as share of GDP are presented as percentage of GDP for a given year or quarter and a moving average for 3 consecutive years for:
- balance, credit and debit flows of the current and capital accounts and of the main current account items: goods, services, primary and secondary income,
- net flows, net acquisition of financial assets and net incurrence of liabilities for the total financial account and foreign direct investment,
- international investment position, foreign direct investment positions, net international investment position excluding non-defaultable instruments and net external debt at the end of the reference quarter or year.
Balance of payments (BOP) is a statistical statement that systematically summarises, over a given period of time, all the transactions of an economy with the rest of the world. It records all economic transactions undertaken between residents and non-residents of a country during a given period. A transaction is defined in the IMF Balance of Payments and International Investment Position Manual (BPM6) as an economic flow that reflects the creation, transformation, exchange, transfer, or extinction of economic value and involves changes in ownership of goods and/or financial assets, the provision of services, or the provision of labour and capital.
The concept of resident in the BPM6 is identical to that used in the 2008 System of National Accounts (SNA 2008) and 2010 European System of National and Regional Accounts (ESA 2010). The concept is not based on nationality or legal criteria. It is based on the notion of a centre of economic interest. An institutional unit is a resident unit when it has a centre of economic interest in the economic territory of a country for a period of at least one year.
BOP provides information on the total value of credits (or exports), debits (or imports), net acquisition of financial asset and net incurrence of liabilities for each BOP item and on the balance (credits minus debits) or net (net acquisition of financial asset minus net incurrence of liabilities) of the transactions with each partner.
BOP statistics are expressed in value terms. The trends observed depend also on the volume of transactions, market prices and exchange rates. Variations in prices and exchange rates are often considerable, making it difficult to analyse value flows. Time series analysis or comparisons across countries, especially outside the euro area should take into account such variables.
BOP accounts are constructed on a double-entry accounting system, so that every transaction – in principle – is recorded twice, once as a debit, once as a credit. If for example a country exports goods and receives foreign currency in return, it will record the export by a credit in the current account (more specifically in the goods account) and the increase in the asset (foreign currency) in the financial account. Thus, given complete and accurate recording, the overall BOP (i.e. the combined current and capital account and the financial account) should sum to zero. In practice, however, this is seldom the case.
BOP is broken down into three broad sub-balances: (a) the current account, (b) the capital account, and (c) the financial account.
a) Current account (BOP item CA = sum of items G + S + IN1 + IN2)
This item shows the flows of goods, services, primary income and secondary income between resident and non-resident units.
a.1 – Goods (BOP item G)
Goods cover general merchandise, non-monetary gold and, since the implementation of BPM6, net export of goods under merchanting.
The most important component, general merchandise, includes all movable goods whose ownership is transferred from a resident to a non-resident and vice versa.
When calculating the BOP, both exports and imports of goods should be valued free-on-board (f.o.b.). When a cost-insurance-freight (c.i.f.) valuation is provided, freight and insurance components have to be estimated separately and eliminated from the trade figures to arrive at a f.o.b. valuation. These components are then recorded in the services account.
a.2 – Services (BOP item S = sum of items SA + SB + SC + SD + SE + SF + SG + SH + SI + SJ + SK + SL)
Services are the second major category of the current account. In the production of data on international trade in services, the references are the IMF’s BPM6 and the United Nations’ Manual on Statistics of International Trade in Services 2010.
Services’ items manufacturing services on physical inputs owned by others (SA) and maintenance and repair services n.i.e (SB) were recently introduced in the services account under BPM6.
Transport (SC) covers services provided by all modes of transport – sea, air, and other, which includes space, rail, road, inland waterway and pipeline – that are performed by residents of one economy for those of another. The different types of services offered include transport of passengers, transport of freight, other supporting and auxiliary services (e.g. storage and warehousing), postal and courier services and electricity transmission.
The debit side of the item travel (SD) consists of goods and services which are acquired by residents who stay abroad for less than one year. The credit side includes purchases of the same type made by foreign travellers on the national territory. This item contains two main categories of travel: business travel and personal travel (leisure, study, health-related purposes, etc.). Note that international transport costs of the traveller to destination are recorded under the heading “transport”, but all movements within the country, including cruises, are entered under “travel”.
Other categories of services are:
- construction (SE)
- insurance and pension services (SF)
- financial services (SG), which include explicitly charged and other financial services, and financial intermediation services indirectly measures (FISIM)
- charges for the use of intellectual property n.i.e. (SH)
- telecommunications, computer and information services (SI)
- other business services (SJ), which include research and development services, professional and management consulting services, and technical, trade-related and other business services
- personal, cultural and recreational services (SK)
- government goods and services n.i.e. (SL)
a.3 – Primary income (BOP item IN1)
Primary income covers three types of transactions between residents and non-residents.
1) Compensation of employees records wages, salaries and other benefits, in cash or in kind, earned by individuals for work performed for economic units whose place of residence is different from their own (border workers, seasonal workers, employees of international organisations, etc.). Compensation of employees records money paid to non-resident workers or received from non-resident employers.
2) Investment income is income derived from ownership of external financial assets and liabilities and payable by residents of one economy to residents of another economy. In line with the related financial account, investment income is classified in direct investment, portfolio investment, and other investment and reserve assets income. It includes interest, dividends, remittances of branch profits, and direct investor’s shares of the retained earnings of direct investment enterprises; income on equity and investment fund shares, as well as on debt securities from portfolio investment; income from interest, withdrawals from income of quasi corporations and income attributable to policyholders in insurance, pension schemes and standarised gurarantee schemes.
3) Other primary income includes rent, taxes and subsidies on products and production.
Detailed data for annual foreign direct investments income (FDI), with a breakdown by partner country and by kind of activity, are available in a separate table.
a.4 – Secondary income (BOP item IN2)
Secondary income consists of all transfers, which are not capital (see below). Current transfers are broken down according to the sector of the compiling economy into two subcomponents: general government and other sectors.
General government transfers are broken down into:
a) current taxes on income, wealth, etc.
b) social contributions
c) social benefits
d) current international cooperation
e) miscellaneous current transfers
Other sectors’ transfers are broken down into:
a) current taxes on income, wealth, etc.
b) social contributions
c) social benefits
d) net nonlife insurance premiums
e) nonlife insurance claims
f) miscellaneous current transfers, which includes personal transfers between resident and non-resident households, including workers’ remittances
It is a counterpart entry, required by the double-entry system used in BOP compilation, that offsets the provision of a non-financial, or financial, item by a resident to a nonresident (or vice versa) without a counterpart return of an item of economic value.
b) Capital account (BOP item KA)
This item covers all transactions that involve (a) the receipt or payment of capital transfers (debt forgiveness, nonlife insurance claims, investment grants, one-off guarantees and other debt assumption, capital taxes and other capital transfers) and (b) the acquisition/disposal of non-produced, non-financial assets, which includes transactions associated with tangible assets (e.g. land and subsoil assets) and transactions associated with intangible assets (e.g. patents, copyrights, trademarks, franchises, etc.).
c) Financial account (BOP item FA)
This item covers all transactions associated with changes of ownership in the foreign financial assets and liabilities of an economy. The financial account is broken down into five basic functional categories:
1) Direct investment (divided by instrument into equity and investment fund shares, reinvestment of earnings and debt instruments)
2) Portfolio investment (divided by instrument into equity and investment fund shares, reinvestment of earnings for investment fund shares and debt securities)
3) Financial derivatives and employee stock options
4) Other investment (divided by instrument into other equity, currency and deposits, loans, insurance, pension schemes and other standardised guarantee schemes, trade credits and advances, other accounts receivable/payable and special drawing rights)
5) Official reserve assets (divided by instrument into monetary gold, special drawing rights, reserve position in the International Monetary Fund and other reserve assets).
Short descriptions of BOP and IIP items are included in Annex II of Commission Regulation (EU) No 555/2012.
International investment position (IIP) shows stock of financial assets and liabilities at the end of quarter of year. Stocks at the end of period T should be equal to the sum of the value of stocks at the end of period T-1 (equal to the value at the beginning of period T), value of transactions during period T and value of changes in positions other than transactions. Changes in positions other than transactions consist of revaluations due to exchange rate changes, revaluations due to other price changes and other changes in the volume of assets/liabilities.
Detailed data for foreign direct investment (FDI), with a breakdown by partner country and by kind of activity, are available in a separate table.
For the current and capital account items, credits and debits are to be recorded with a plus sign (even though some exceptions, such as for reinvested earnings in direct investment income, insurance services or for net exports of goods under merchanting, can occur). For the most part, only balances in accounts carry a negative sign. The balance is calculated as credits – debits and may be positive or negative.
For the financial account items, in BPM6 the headings and signs in BOP financial account have been changed from “credit” and “debit” to “net acquisition of assets” and “net incurrence of liabilities”. The new terminology and sign convention for the BOP financial account are consistent with those for the IIP, i.e. a positive sign represent an increase, and a negative sign represents a decrease, in the asset or a liability to which it relates. Thus, for “net acquisition of assets” in the financial account of the BOP, a plus sign denotes a net increase in financial assets, while a minus sign refers to a net decrease in financial assets. The net is calculated as net acquisition of assets – net incurrence of liabilities and may be positive or negative.
In IIP data for assets and liabilities, values should be positive and negative ones could be observed in exceptional circumstances, as described in the international manuals. These very rare exceptions may occur, for example in the context of FDI equity where the accumulated losses (reported as negative reinvestment of earnings) are larger than the total equity (other than reinvestment of earnings).
For revaluations due to exchange rate change, revaluations due to other price changes and other changes in the volume of assets/liabilities, data are to be reported with a plus sign, whereas decreases in assets and liabilities are to be reported with a minus sign.
The net is calculated as net acquisition of assets – net incurrence of liabilities and may be positive or negative.
For net external debt, net liabilities are calculated as liabilities – assets.
The BOP is constructed on a double-entry accounting system. Thus, the overall balance of payments should sum to zero. However, several factors (timing, valuation, data sources, etc.) cause imbalances in the information recorded. BOP item EO – net errors and omissions is used to balance the current and capital account with the financial account. In principle, FA – CA – KA = 0. If it is not the case, countries use EO as balancing item (FA – CA – KA – EO = 0).
When the balance of payments is said to be in or out of balance, this does not refer to the BOP as a whole but simply to one of the sub-balances, that is, one item or a set of items. For instance, the goods account will be in deficit/surplus when the total value of imported goods is greater/smaller than the total value of exported goods.
Any individual, corporation or other institution that provides information on the transactions between the residents and non-residents of a country during a given period.
The BOP statistical population includes all the economic transactions and positions between residents and non-residents. The coverage of the statistical population assured by the reported transactions and positions can be very different for different BOP items. Information on the transactions and positions can be provided by individuals, corporations or institutions.
European Union (EU), euro area (EA), EU Member States, EFTA countries, candidate and potential candidate countries.
BOP produces monthly, quarterly and annual data.
Euro area BOP:
When compiling the euro area aggregate at all frequencies, several checks are run at the ECB on the contributions received from all euro area Member States and from the ECB itself (derived from data of its Accounting Department). The aim of these checks is to detect inaccurate, inconsistent or implausible data. Outliers in time series or inconsistencies with other data sources are analysed. If a potential problem is detected, the country involved has to check and to change or confirm the figures; in the latter case, a further explanation on the underlying economic development is often delivered.
EU BOP:
Data transmitted by the Member States are checked by Eurostat for their consistency and plausibility. If any problems are found, Eurostat contacts the relevant Member State to check the figures or confirm changes made by Eurostat.
Data on goods are generally based on international trade statistics, which are often collected by customs’ administrations. Data on services come from a variety of surveys where the data can be reported either by the banks or directly by the enterprises or the households. Data from national authorities are checked by Eurostat as elaborated in Section 18.4 “Data validation”.
Size of revisions is checked on regular basis, during each data production process and in more detail in the annual quality report.
Asymmetries are another way of assessing the accuracy of bilateral statistics. Intra-EU/EFTA are regularly analysed in the annual quality reports and separately presented and discussed within the framework of the Balance of Payments Working Group. Eurostat organises also workshops to discuss asymmetries and better reconcile national data. Asymmetries with the United States are analysed in collaboration with the US Bureau of Economic Analysis and most recent analysis was published in the paper Current account asymmetries in EU-US statistics — 2019 edition.
At the European level, accuracy of GDP is regularly monitored in the framework of the GNI (gross national income) Committee and technical aspects are regularly analysed in several working groups and technical committees.
Data are available in millions of euro and millions of national currency. Some data are also disseminated as share of GDP and share of world exports.
Time of recording: in line with the BPM6, recording is on a transaction basis (“accruals principle”), meaning that transactions have to be recorded when economic value is created, transformed, transferred or extinguished. The main criterion is change of ownership. The change may be legal or economic.
Valuation: in principle, market prices are used.
In the compilation of BOP, responsibility is shared between Eurostat and ECB. A Memorandum of understanding (with a BOP Annex) has been signed between the two parties. Eurostat produces euro area information only regarding the annual detail in trade in Services. All other monthly and quarterly BOP data related to the euro area available in Eurostat’s database are produced by the ECB.
In regard with the compilation of EU aggregates, Eurostat compiles the aggregate EU figures by consolidating the EU Member States’ transactions vis-à-vis non-residents of the EU. The balance of payments of the EU institutions is added to the EU aggregate. Intra-EU transactions are not included in the calculation of the aggregate.
This methodology, which is used to compile the BOP aggregates for the EU27, has been agreed between Eurostat and the ECB, which computes the euro area aggregate in a similar way. This methodology has the advantage of skipping the problem of the existing intra-EU asymmetries.
Data published by Eurostat are compiled on the basis of data provided by Member States.
Each year, quarter or month, the national banks or the national statistical offices of the Member States provide Eurostat with data according to a set of questionnaires approved by all Member States and designed to fulfil a set of requirements. The Balance of Payments Vademecum 2020 is the reference text for national BOP compilers. This document contains the questionnaires, and also all the details on the coding system, the format of the data, the deadlines for transmission.
Each country compiles its BOP statistics using the data coming from a number of surveys and administrative sources. Methods used for the collection and compilation of statistics differ among BOP items within a country, as well as among countries.
- Data for BOP item goods are generally based on international trade in goods statistics, which are often collected by customs' administrations.
- Data for BOP item services come from a variety of surveys where the data can be reported either by the banks or directly by the enterprises or the households.
- Data for BOP item primary income are generally estimated using information coming from the banking sector and other financial institutions.
- Data for BOP item secondary income generally come from administrative sources.
- Data for BOP financial account and international investment position generally come from the banks and from other financial and non financial institutions.
BOP data: monthly, quarterly and annual
IIP data: quarterly
BOP monthly data are released within 7 weeks after the reference period.
BOP quarterly data:
- A first estimate for the EU and EA (euro area) aggregates is published 7 weeks after the reference period.
- The complete BOP quarterly dataset, as well as quarterly IIP and revaluations are published 3 months and 1 week after the reference period.
The underlying methodological framework, which is defined in BPM6, ensures a high degree of comparability across countries. Regulation (EU) No 555/2012, amending Regulation (EC) No 184/2005, contains the questionnaires, and also all the details on the coding system, the format of the data, the deadlines for transmission. Each country compiles its BOP statistics using the data coming from a number of surveys and administrative sources.
Questionnaires and data requests with all details and explanations concerning requested item, geographical and activity breakdowns are included in Balance of Payments Vademecum.
The methodologies used by Member States when compiling the BOP are covered in the country chapters of the ECB publication European Union Balance of Payments and International Investment Position statistical sources and methods (B.o.p. and i.i.p. e-book), October 2023.
The data are generally considered highly comparable over time. The methodology is revised according to the revisions of the sixth edition of IMF’s Balance of Payments and International Investment Position Manual (BPM6). In some countries, methodological breaks can affect time series (normally on a temporary basis). Backward calculations of time series are provided to ensure full time coherence in a case of methodological changes.