## BPM7 Chapter 19. Selected Issues in Balance of Payments and International Investment Position Analysis: Annotated Outline ## Source details **Canonical URL:** [BPM7 Chapter 19. Selected Issues in Balance of Payments and International Investment Position Analysis: Annotated Outline](https://www.imf.org/-/media/files/data/statistics/bmp7/chapters/ao-bpm-ch-19.pdf) ## Other formats - [Markdown version](/-/media/files/data/statistics/bmp7/chapters/ao-bpm-ch-19.pdf.md) - [Structured JSON version](/-/media/files/data/statistics/bmp7/chapters/ao-bpm-ch-19.pdf.json) --- ### Overview - Update to BPM6 Chapter 14. - Changes from BPM6 highlighted in yellow in source draft. - Chapter will provide an introduction to the use of balance of payments and international investment position data in economic analysis. - Structure from the BPM6 chapter will be the starting point and additional sections will be added based on recommendations in GN B.4 to expand scope. - Some existing and proposed new text may be streamlined to avoid a chapter that is too lengthy. - References to recent policy relevant research will be included throughout the chapter. - Chapter will have separate sections on: - Section I: introduction - Section II: general framework - Section III: nexus between current account and international investment position - Section IV: alternative presentations of balance of payments data - Section V: financing a current account deficit - Section VI: balance of payments adjustment in response to a current account deficit - Section VII: implications of a current account surplus - Section VIII: the balance sheet approach - Section IX: valuation paradox - Section X: calculating and using rates of return - Section XI: further information - Further changes may be made to improve consistency of language with other macroeconomic statistics manuals (e.g., 2025 SNA) as appropriate. ### Introduction (Section II) - Will be expanded to provide a brief reference to topics not included in corresponding BPM6 chapter: - Nexus between current account and international investment position - Valuation paradox - Calculating and using rates of returns ### General Framework (Section III) - No significant changes relative to BPM6. ### Nexus Between Current Account and International Investment Position (Section IV) - Will adopt proposed text in GN B.4 (pages 12–14). - Will show how change in the net international investment position (IIP) equals the current account and capital account balances plus valuation effects and other changes in volume. - Explicit linking of net IIP changes to current account balances to provide insights into dynamics driving IIP developments, including the feedback loop between the current account and IIP through investment income. - Will introduce the three-dimensional account system to show changes in the net IIP by: - source - instrument - sector ### Alternative Presentations of Balance of Payments Data (Section V) - No significant changes. - Will retain presentations including: - Standard Presentation - Analytic Presentation - Sectoral Analysis - Monetary Presentation - Partner Analysis ### Financing a Current Account Deficit (Section VI) - No significant changes. ### Balance of Payments Adjustment in Response to a Current Account Deficit (Section VII) - No significant changes. ### Implications of a Current Account Surplus (Section VIII) - No significant changes. ### The Balance Sheet Approach (Section IX) - Provides a systematic analytical framework for exploring how balance sheet weaknesses contribute to macrofinancial vulnerabilities. - Will be expanded following GN B.4 (pages 15–17) with additional text on: - liquidity and interest rate risk - currency risk - credit risk - potential links to national accounts data ### Valuation Paradox in the International Investment Position (Section X) - Per GN B.4 (pages 17–18), section will emphasize cautious interpretation of revaluation effects because values recorded in the IIP do not necessarily reflect actual realized gains or losses. - Will introduce the valuation paradox: a country’s net IIP may improve as it approaches insolvency because of large negative revaluations in bonds issued by government and corporations and held by nonresident investors. ### Calculating and Using Rates of Return (Section XI) - Following GN B.4 (pages 19–21), will underscore importance of rates of return for: - understanding allocation of capital between economies - differences in sustainability of current account deficits - behavior over time of the current account, the financial account, and the IIP - Will introduce a framework for calculating: - income rate of return - revaluation rate of return - total rate of return - Systematic estimation of rates of return across the IIP can illuminate how characteristics of investment across functional categories differ. ### Further Information (Section XII) - List of references will be updated with recent policy relevant research, including IMF work on: - External Sector Report - External Balance Assessment methodology - Dominant currencies ### Schematic Overview - I Introduction - II General Framework - III Nexus Between Current Account and International Investment Position - IV Alternative Presentations of Balance of Payments Data - Standard Presentation - Analytic Presentation - Sectoral Analysis - Monetary Presentation - Partner Analysis - V Financing a Current Account Deficit - VI Balance of Payments Adjustment in Response to a Current Account Deficit - VII Implications of a Current Account Surplus - VIII The Balance Sheet Approach - IX Valuation Paradox in the International Investment Position - X Calculating and Using Rates of Return - XI Further Information ### References and Consultation - References to GN B.4 (guidance note) and its recommended text for multiple sections. - Key stakeholders consulted: - System of National Accounts Lead Editor - IMF Statistics Department Financial Institutions Division --- _Source: https://www.imf.org/-/media/files/data/statistics/bmp7/chapters/ao-bpm-ch-19.pdf_