## BPM7 Chapter 6. Functional Categories in International Accounts: Annotated Outline ## Source details **Canonical URL:** [BPM7 Chapter 6. Functional Categories in International Accounts: Annotated Outline](https://www.imf.org/-/media/files/data/statistics/bmp7/chapters/ao-bpm-ch-6.pdf) ## Other formats - [Markdown version](/-/media/files/data/statistics/bmp7/chapters/ao-bpm-ch-6.pdf.md) - [Structured JSON version](/-/media/files/data/statistics/bmp7/chapters/ao-bpm-ch-6.pdf.json) --- ### Introduction - The chapter updates BPM6 Chapter 6 and discusses functional categories used in the compilation of balance of payments/international investment position statistics. - Structure: separate sections on Direct Investment (Section II), Portfolio Investment (Section III), Financial Derivatives (other than reserves) and Employee Stock Options (Section IV), Other Investment (Section V), and Reserves (Section VI). - Consistency: language will be aligned with other macroeconomic statistics manuals, including 2025 SNA, BD5, and IRFCL Guidelines. - Crypto assets: recording across functional categories will follow the guidance in Section II.F, Chapter 5, BPM7 (following GN F.18) and the chapter on Digitalization. - Changes from BPM6 are highlighted in yellow in the annotated outline. ### Direct Investment A. Definition of Direct Investment - Definitions to remain consistent with BPM6 and BD4/5 for: direct investment relationship, direct investor/investment enterprise, control and influence, subsidiaries/associates/fellow enterprises/affiliates, and requirements for a direct investment relationship. - GN D.3: investments in investment funds shares (F52) will be considered always portfolio investment; investments by investment funds (MMF and non-MMF) may qualify as DI if investment in equity is 10 percent or more, and PI otherwise. - A table will be added showing which institutional sectors could be direct investors and direct investment enterprises, based on discussion in paragraphs 6.20–6.24. - References to GN D.10 (Defining the boundaries of DI) and methods for the Framework for Direct Investment Relationships (FDIR) discussed in paragraph 6.18. B. Coverage of Direct Investment Flows and Positions - Discussion topics maintained: intercompany lending, debt between selected affiliated financial corporations, coverage of other financial instruments, pass through funds, effect of domestic ownership links, beginning and ending DI relationships. - A clarification table for determining the functional category of debt between affiliated institutions will be added. - Equity in international organizations (paragraph 6.32) is excluded from direct investment even when voting power is 10 percent or more; equity contributions are included in other investment – equity in international organizations and other equity. (Other equity can no longer be included in portfolio investment as described in GN B.12.) - Pass-through funds (paragraphs 6.33 and 6.34): updates based on GN D.6; identification of pass-through funds and income based on residency of the ultimate investor noted as supplementary indicators; Appendix 6 (Selected Issues in DI) will include additional details and supplementary presentation identifying pass-through funds by ultimate investor residency. C. Types of Direct Investment Transactions and Positions - Updates based on GN D.7: - Standard components presentation will be by instruments (equity and debt instruments) and sectors (central bank; deposit-taking corporations except the central bank; general government; other financial corporations; and nonfinancial corporations, households, and NPISHs). - Presentation by relationship (DI in DIE, reverse investment, between fellow enterprises) and reinvestment of earnings moved to memorandum items (standard components in BPM6). - Directional principle presentation and analytical uses updated to reflect changes to standard components by instruments/sectors; emphasis on use of DI data by sectors in the Balance Sheet Approach (BSA). - Box 6.4 (Derivation of Data under the Directional Principle) will be modified because DI in DIE, reverse investment, and between fellows are shifted to memorandum items with no breakdown of equity and debt instruments. D. Other Issues Concerning DI Transactions, Positions, and Income - Mostly maintained from BPM6 with minor updates. - Cash pooling (GN D.18) and Greenfield Investment and Extension of Capacity (GN D.1) will be briefly introduced as separate items; further discussion in Appendix 6. - Direct investment is also discussed in Chapter 7 (positions), Chapter 8 (financial account transactions), and Chapter 12 (primary income). Appendix 6 will cover selected DI issues. ### Portfolio Investment - The section defines portfolio investments and explains coverage inclusions and exclusions, consistent with BPM6. - References from CPIS Guide (third edition) Chapter 3 will be added to clarify specific issues. - GN D.3: investments in investment fund shares (F52) are always treated as portfolio investment irrespective of the equity held (i.e., 10 percent or higher). - Further portfolio investment information appears in Chapter 7 (positions), Chapter 8 (financial account transactions), and Chapter 12 (primary income). ### Financial Derivatives (Other Than Reserves) and Employee Stock Options - BPM6 definition of financial derivatives as a functional category is maintained. - Key inclusions: - Amounts accruing under the contract are classified as revaluations (additional clarification in revised Chapter 9 Other Changes in Financial Assets and Liabilities Account). - Intermediaries may provide services associated with transactions in derivatives. - Intra-concern derivatives to remain reported in the FDs functional category; a supplementary "of which: between affiliates" item will be added (voluntary identification), per GN D.12. - GN F.4: classification by market risk category will be included as a standard component (links to FDs discussion in Chapter 5, BPM7); classification by instrument and by trading venue will be supplementary items. - Compiling notional values of foreign currency derivatives will be emphasized (updated BPM6 Appendix 9, Tables A9-I-Ib and A9-I-2b). - Recording FDs on a gross or net basis: net-basis recording is acceptable where separate data on transactions in assets and liabilities are not available; the method used should be consistently applied during the life of the instrument (also reflected in 8.34 of BPM6 and Chapter 17 of 2008 SNA). - Further details on FDs will appear in Chapter 8 (Recording of Post Trading Activities—novation and portfolio compression) and Chapter 9 (Convention for Recording of Revaluations on Foreign Currency Derivatives). More detailed examples on novation and portfolio compression will be presented in the updated BPM6 Compilation Guide. ### Other Investment - Section maintained as in BPM6 with no major changes. - Other equity is included in other investment when it is not direct investment or reserve assets. - Participation in some international organizations that is not in the form of securities, or is in the form of unlisted non-tradable shares, is classified as equity in international organizations and other equity (paragraph 6.62). - Following GN B.12, BPM6 standard presentation for the balance of payments will be modified: Other investment – other equity renamed as Other investment – equity in international organizations and other equity. - Debt instruments associated with some cash pooling arrangements may be classified under other investment (GN D.18). Cash pooling discussed in Section II.D and Appendix 6. - Other investment information will be included in Chapter 7 (valuation of positions, particularly loans), Chapter 8 (financial account transactions), and Chapter 12 (primary income). ### Reserves - Two sub-sections: Reserve assets; Reserve-related liabilities. A Box on Net International Reserves (NIR) will be added. A. Reserve Assets - Definition and discussion of residence, control, definition of monetary authorities, availability for use, liquidity, assets denominated in currency of neighboring countries, assets denominated/indexed to the domestic currency but settled in foreign currency, etc., retained from BPM6. 1. Classification of Reserve Assets - Descriptions and standard components remain as in BPM6 with further elaboration aligned to IRFCL Template Guidelines. - Pool allocated gold accounts (a depository sets aside numbered bars into a segregated pool backing amounts owed to customers) will be treated similar to allocated gold accounts (classified as monetary gold when held as reserve assets), consistent with updated paragraph 5.76, BPM6 (see chapter 5, BPM7). - Treatment of securities transferred under repurchase agreements will be updated consistent with IRFCL Template Guidelines; a clarification note being prepared by the IMF will update paragraphs 6.82 and 6.88–6.89 on gold swaps and repurchase agreements. - Under other claims (paragraph 6.92), updates on long-term loans to IMF Trust Accounts considering new Trusts (e.g., Resilience and Sustainability Trust—RST) will be added; Appendix 9 will provide additional details on positions and transactions with IMF. - Brief descriptions of COFER and SEFER will be provided as additional presentations of reserve assets. 2. Selected Cases - Topics covered: sovereign wealth funds, pooled assets, central bank swap arrangements (with enhanced details/examples based on clarification note on central bank swaps), Asian Bond Fund, and channeling of SDRs to Multilateral Development Banks if process is completed. i. Foreign Assets that Do Not Qualify as Reserve Assets - Capital subscriptions to international organizations not readily available to monetary authorities do not meet the reserve assets definition; equity from these subscriptions is included in other investment – equity in international organizations and other equity (paragraph 6.106). - Credit lines: brief explanation of flexible credit lines (FCL) and precautionary and liquidity lines (PLL) of the IMF and their eligibility for inclusion in reserve assets. - Frozen assets: reserve assets affected by freezing are to be reclassified to the relevant functional category (for SDRs, monetary gold, RPF, securities, equity, deposits, etc.). B. Reserve-Related Liabilities - Concept and presentation table consistent with BPM6. Box on Net International Reserves (NIR) - A Box on NIR will be added per GN B.2 noting that NIR goes beyond the scope of the BPM framework and necessary data to calculate NIR is covered by the IRFCL framework. - Standard statistical definition introduced: - Net international reserves = Reserve assets – Net short-term foreign currency drains - The statistical definition aims to inform reserve adequacy assessments and macroeconomic policy advice; modifications for country-specific characteristics and vulnerabilities remain crucial. ### Schematic Overview - The structure of BPM6 Chapter 6 will be maintained: - A Introduction - B Direct Investment (1. Definition; 2. Coverage; 3. Types; 4. Other issues) - C Portfolio Investment - D Financial Derivatives (Other Than Reserves) and Employee Stock Options - E Other Investment - F Reserves (1. Reserve Assets; 2. Reserve-related liabilities) - Box: Net International Reserves ### References and Stakeholders Consulted - Guidance notes referenced: GNs B.2, B.12, D.1, D.3, D.6, D.7, D.10, D.11, D.12, D.14, D.18, F.4, and G.4. - Other referenced frameworks: IRFCL Guidelines For A Data Template 2013; OECD Benchmark Definition of Foreign Direct Investment, Fourth Edition 2008; System of National Accounts 2008; IMF Financial Operations 2018. - Key stakeholders consulted: System of National Accounts and Balance of Payments Manual editors, and the OECD. --- _Source: https://www.imf.org/-/media/files/data/statistics/bmp7/chapters/ao-bpm-ch-6.pdf_