## Appendix Annex 1

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### A. Introduction
- Exceptional financing:
  - Is linked to an analytic construct and brings together financial arrangements made by the authorities (or by other sectors fostered by authorities) to meet balance of payments (BOP) needs.
  - Can be an alternative to the use of reserve assets, IMF credit, and loans, or be used in conjunction with them.
  - Is subject to the IMF Articles of Agreement analytical requirement of need linked to a member’s balance of payments, reserve position, or developments concerning reserves.
- Presentation and purpose:
  - Exceptional financing is presented in the analytic presentation of the balance of payments (BOP), with relevant transactions reclassified from the standard components (see paragraphs [194.16–194.17]).
  - Determining need helps distinguish:
    - (a) above-the-line items: deemed autonomous in the current, capital, and financial accounts and undertaken for the sake of the transactions, thus contributing to or resulting in an overall payments deficit or surplus; and
    - (b) below-the-line items: considered accommodating or financing the deficit or accommodating the surplus.
  - Below-the-line transactions reflect:
    - (a) transactions undertaken for BOP needs that finance payments required to be made in the current recording period (e.g., predetermined debt service payments by the authorities); and
    - (b) other financial transactions undertaken by the authorities related to BOP needs that impact reserve assets in the current recording period (e.g., prepayments of debt, drawings on new loans, receipt of cash transfers).
  - Transactions in reserve assets and in IMF credit and loans are always considered undertaken to meet a BOP need; exceptional financing records the other below-the-line transactions.
- Identification and recording:
  - Identification of exceptional financing involves judgment; examples include government-to-government grants for debt payment linked to BOP needs and rescheduling or forgiveness of debt falling due in the current period.
  - In cases of arrears, “transactions” are recorded in exceptional financing but are not recorded in the standard presentation.
  - Typical recording conventions:
    - Exceptional financing transactions are usually recorded as credit entries below-the-line in the analytic presentation, with corresponding debit entries above-the-line.
    - For arrears past due from previous periods, swaps of such debts, or debt repaid/cancelled through transfers, both entries are recorded below-the-line.
- Sections covering types of exceptional financing:
  - B. Transfers
  - C. Debt-for-equity swap
  - D. Borrowing (including bond issues) for BOP support induced by the authorities
  - E. Debt rescheduling or refinancing
  - F. Debt prepayment and debt buybacks
  - G. Accumulation and repayment of debt arrears
- Some debt reorganization cases are covered in Appendix Annex 2, Debt Reorganization and Related Transactions.
- Table A1.1 presents selected exceptional financing transactions in the analytic and standard presentation of the BOP.

### B. Transfers
- 1. Debt forgiveness
  - Definition: voluntary cancellation of all or part of a debt obligation within a contractual arrangement between a creditor and a debtor (contrast with debt write-offs).
  - Recording:
    - Recorded as a capital transfer (see paragraph [143.23]) from the creditor economy to the debtor economy, offset by a reduction in the liability of the debtor (reduction in the asset of the creditor) under the appropriate debt instrument in the financial account; any interest accruing in current period is recorded in the income account.
  - Analytic presentation depends on timing of forgiven debt:
    - due in the current reporting period: recorded as transfers, debt forgiveness (credit item) below-the-line, with reduction of obligations (debit item) shown above-the-line in the respective debt instrument (Table A1.1, rows 1–6);
    - past due (arrears): both credit (debt forgiveness) and debit (cancellation of arrears) items are recorded below-the-line in exceptional financing;
    - not yet due: no entry under exceptional financing; both entries are made above-the-line.
- 2. Other intergovernmental transfers
  - Include cash grants from governments and international organizations (including the IMF and the World Bank) to a recipient economy.
  - If cash is provided to finance a BOP need in the recipient economy:
    - The grant received (credit item) is recorded in the analytic presentation as exceptional financing, with a corresponding debit entry under reserve assets (Table A1.1, row 7).
    - Examples: cash grants from donor governments or multilateral financial institutions to be used to repay debt or to finance a current account need.
  - Only the initial transaction associated with the grant is relevant for exceptional financing:
    - If grant proceeds are used for scheduled debt service payments, no exceptional financing transactions for the debt are recorded.
    - If the grant is directly used for advance repayments of debt for BOP needs (e.g., a debt buyback), no additional exceptional financing for the debt transaction is recorded—except when an advance repayment is made out of reserve assets, in which case an exceptional financing entry will be recorded for the debt transaction.

### C. Debt-for-Equity Swap
- Nature and typical effects:
  - Involve exchange, usually at a discount, of debt instruments of an economy for nonresident investors’ equity investments.
  - Typical effects:
    - Extinction (debit item) of a fixed-payment liability (debt security or loan), usually denominated in foreign currency, recorded under the appropriate instrument.
    - Creation (credit item) of an equity liability denominated in domestic currency to a nonresident, recorded under direct or portfolio investment as relevant.
- Recording principles:
  - Direct exchanges for equity:
    - If investor directly holds equity entitling 10 percent or more of voting power, record under direct investment–equity; otherwise record under portfolio investment–equity.
    - Transactions recorded at the value of the equity acquired, offset by debit under the relevant debt instrument.
  - Indirect swaps (debt → local currency claim/deposit → equity):
    - Record both the initial exchange (debt for deposit at value of deposit) and the exchange of deposits for equity.
    - In the IIP, equity liabilities increase and debt liabilities decrease by the value of the instrument extinguished.
  - Analytic presentation relevance:
    - Only the initial transaction associated with the swap is relevant for exceptional financing.
    - Recording depends on timing of exchanged debt (Table A1.1, rows 8–16):
      - Debt due in current period: swaps recorded under equity (credit item) below-the-line; debt repayment (debit item) recorded above-the-line.
      - Arrears swapped: equity (credit item) and repayment of arrears (debit item) both recorded below-the-line.
      - Not yet due: no exceptional financing record; both entries made above-the-line.
  - Valuation:
    - All transactions should be valued at the market price of the new claim received.
    - Differences between old and new claim values are recorded as valuation adjustments in the revaluation account rather than as transactions, except when nonmarketable debt owed to official creditors is involved—in that case any reduction in the value of the old debt is recorded as debt forgiveness (capital transfer).

### D. Borrowing for Balance of Payments Support
- Recording:
  - Borrowing (including bond issues) by or on behalf of the authorities to meet BOP needs is recorded (credit item) below-the-line under exceptional financing in the analytic presentation; subsequent scheduled debt payments are recorded above-the-line (Table A1.1, rows 17–18).
  - Advance repayments for BOP needs financed from reserve assets are recorded as exceptional financing (debit item); both the reserve and debt transactions are recorded below-the-line.
- Short-term borrowing specifics:
  - Only the initial drawing of a loan and any subsequent increases in amount borrowed need to be recorded below-the-line.
  - Rolling-over the same amount under a short-term loan without repayment is not recorded as a new borrowing each time (debit and credit cancel; see paragraph [3.115]).
  - Repayment (even partial) is recorded above-the-line unless it is an advance repayment under the conditions described above.
  - If a loan is rolled over for a number of periods, judgment is required to decide whether continual renewal represents exceptional financing because the debtor is unable to repay.

### E. Debt Rescheduling or Refinancing
- Definitions:
  - Debt rescheduling: formal deferment of debt service payments and application of new and generally extended maturities to deferred amounts.
  - Debt refinancing: replacement of an existing debt instrument(s), including any arrears, with new debt instrument(s).
  - If government assumes debt of banks or other sectors under rescheduling, sector classification of debtor changes (see paragraph [8.45]).
- Analytic presentation recording depends on timing of debt (Table A1.1, rows 19–30):
  - Debt falling due in current period: rescheduling/refinancing recorded below-the-line as a debt transaction (credit item) under exceptional financing; offsetting debit entry recorded above-the-line.
  - Arrears rescheduled/refinanced: both arrears on old debt (debit item) and rescheduling of arrears (credit item) recorded below-the-line.
  - Not yet due: no exceptional financing recording; both entries made above-the-line under relevant debt instruments.
- Valuation:
  - All transactions should be valued at the market price of the new claim received.
  - Differences between old and new claim values are recorded as valuation adjustments in the revaluation account rather than as transactions, except when nonmarketable debt owed to official creditors is involved—any reduction in nominal value is recorded as debt forgiveness.
  - Where no established market price exists for the new claim, an appropriate proxy is used.

### F. Debt Prepayment and Debt Buyback
- Definitions:
  - Debt prepayments: repurchase or early payment of debt under mutually agreed conditions.
  - Buybacks: prepayments when a discount relative to nominal value applies.
- Analytic presentation:
  - Debt prepayment transactions are recorded as exceptional financing only if financed from reserve assets to meet BOP needs (Table A1.1, rows 31–33).
  - In that case, debit entries are recorded below-the-line in the appropriate instrument in exceptional financing with offsetting credit entries in reserve assets also below-the-line.
  - If prepayment is financed from external donor funds placed in the debtor’s reserve assets, the debtor economy records all transactions below-the-line in the analytic presentation (Table A1.1, row 31).
  - In the IIP of the debtor economy, reserve assets increase when donor funds are received and decline, along with debt liabilities, when the prepayment takes place.
  - Prepayments using the debtor’s own financial assets other than reserve assets are recorded above-the-line in the appropriate accounts (Table A1.1, row 33).

### G. Accumulation and Repayment of Debt Arrears
- The Annex provides detailed guidance on accumulation and repayment of debt arrears, including recording conventions for arrears, swaps of arrears, and intertemporal consistency (see Table A1.1 and related paragraphs).

### 1. Accumulation of arrears—current period

H3: Definitions and general treatment
- Debt arrears arise when amounts are past due for payment and are unpaid.
- If the contract remains unchanged, in the standard presentation, no transactions will be recorded; debt arrears (both interest accrued and principal) remain in the outstanding amount of the debt instrument for which payments have been missed until the liability is extinguished (see paragraph [3.56]).
- Debt arrears are recorded as an arrangement in exceptional financing.
- If the original contract provided for a change in the characteristics of a financial instrument when it goes into arrears, that change should be recorded as a reclassification in the other change in volume of assets account.

H3: Accumulation of arrears — standard vs analytic presentations
- Standard presentation:
  - No transaction recorded when contract unchanged; arrears remain part of the outstanding liability.
  - Repayment of arrears to meet a balance of payments (BOP) need is recorded as a debit under the appropriate debt instrument in the financial account and a corresponding credit under reserve assets (Table A1.1, rows 37 and 38).
- Analytic presentation:
  - Arrears are included because the analytic presentation focuses on actions of monetary authorities to meet BOP needs; accumulating arrears is such an action.
  - Arrears in the current period resulting from BOP difficulties (i.e., inability of the authorities to provide foreign exchange, and not from inability of the original debtor to provide national currency) are recorded below-the-line as accumulation of arrears (credit) within exceptional financing, as de facto the creditor is financing the payments the debtor was required to make.
  - Contra debit entries to these arrears are recorded in the reporting period above-the-line under the appropriate accounts:
    - Accrued interest in the current period: recorded above-the-line in income in the current account (investment income, other investment) with the analytic credit shown as Exceptional financing (Table A1.1, row 34).
    - Other arrears (principal arrears, and interest arrears arising in the current period that accrued in earlier periods): recorded above-the-line under the appropriate debt instrument in the financial account (Other investment, liabilities, loans) with the analytic credit shown as Exceptional financing (Table A1.1, rows 35–36).

H3: Balance of Payments accounting entries (selected rows from Table A1.1)
- F.1. Accumulation of arrears (Table A1.1):
  - Row 34 — Interest accrued in the current period:
    - Analytic credit: Exceptional financing
    - Analytic debit: Investment income, other investment
    - Standard credit: Other investment, liabilities, loans
    - Standard debit: Investment income, other investment
  - Row 35 — Interest accrued previous period:
    - Analytic credit: Exceptional financing
    - Analytic debit: Other investment, liabilities, loans
    - Standard presentation: No transaction / No transaction
  - Row 36 — Principal due and not paid:
    - Analytic credit: Exceptional financing
    - Analytic debit: Other investment, liabilities, loans
    - Standard presentation: No transaction / No transaction
- F.2. Repayment of arrears (Table A1.1, rows 37–38):
  - Row 37 — Interest:
    - Analytic debit: Reserve assets E
    - Analytic credit: Exceptional financing
    - Standard debit: Reserve assets
    - Standard credit: Other investment, liabilities, loans
  - Row 38 — Principal:
    - Analytic debit: Reserve assets E
    - Analytic credit: Exceptional financing
    - Standard debit: Reserve assets
    - Standard credit: Other investment, liabilities, loans

H3: Accounting rationale and implications
- Recording accumulation of arrears in the analytic presentation highlights that:
  - Accumulating arrears is an action taken by monetary authorities to meet BOP needs, effectively reflecting creditor financing of required debtor payments.
  - Contra entries place the impact on the usual above-the-line current-account and financial-account instruments (accrued interest and principal arrears).
- Recording repayment of arrears as below-the-line in the analytic presentation (repayment of arrears within exceptional financing) with a credit to reserve assets isolates BOP support operations from regular above-the-line transactions.

*Source: draft BPM7 Annex (draft-bpm7-annex-1-v7) — “1. Accumulation of arrears—current period”*

### Appendix Annex 1

### Appendix Annex 1

### A. Introduction
- Exceptional financing is linked to an analytic construct and brings together financial arrangements made by the authorities (or by other sectors fostered by authorities) to meet balance of payments (BOP) needs.
- Exceptional financing can be an alternative to the use of reserve assets, IMF credit, and loans, or be used in conjunction with them.
- The use of IMF resources is subject to an analytical requirement of need linked to a member’s balance of payments, reserve position, or developments concerning reserves (Articles of Agreement of the IMF).
- Exceptional financing is presented in the analytic presentation of the balance of payments (BOP), with relevant transactions reclassified from the standard components (see paragraphs [194.16–194.17]).
- Determining need helps distinguish:
  - (a) above-the-line items: deemed autonomous in the current, capital, and financial accounts and undertaken for the sake of the transactions, thus contributing to or resulting in an overall payments deficit or surplus; and
  - (b) below-the-line items: considered accommodating or financing the deficit or accommodating the surplus.
- Below-the-line transactions reflect:
  - (a) transactions undertaken for BOP needs that finance payments required to be made in the current recording period (e.g., predetermined debt service payments by the authorities); and
  - (b) other financial transactions undertaken by the authorities related to BOP needs that impact reserve assets in the current recording period (e.g., prepayments of debt, drawings on new loans, receipt of cash transfers).
- Transactions in reserve assets and in IMF credit and loans are always considered undertaken to meet a BOP need; exceptional financing records the other below-the-line transactions.
- There are no below-the-line entries under exceptional financing arising from the provision of financing nor for transactions other than those undertaken to meet BOP needs.
- Identification of exceptional financing involves judgment; examples include government-to-government grants for debt payment linked to BOP needs and rescheduling or forgiveness of debt falling due in the current period.
- In cases of arrears, “transactions” are recorded in exceptional financing but are not recorded in the standard presentation.
- Typical recording conventions:
  - Exceptional financing transactions are usually recorded as credit entries below-the-line in the analytic presentation, with corresponding debit entries above-the-line.
  - For arrears past due from previous periods, swaps of such debts, or debt repaid/cancelled through transfers, both entries are recorded below-the-line.
- Sections presenting types of exceptional financing:
  - B. Transfers (debt forgiveness and other intergovernmental transfers, including transfers from international organizations)
  - C. Debt-for-equity swap (debt or equity swaps involving debt reduction/the exchange of debt instruments for equity investment)
  - D. Borrowing (including bond issues) for BOP support induced by the authorities
  - E. Debt rescheduling or refinancing
  - F. Debt prepayment and debt buybacks
  - G. Accumulation and repayment of debt arrears
- Some cases involve debt reorganization covered in Appendix Annex 2, Debt Reorganization and Related Transactions.
- Table A1.1 presents selected exceptional financing transactions in the analytic and standard presentation of the BOP.

### B. Transfers

- 1. Debt forgiveness
  - Debt forgiveness is defined as the voluntary cancellation of all or part of a debt obligation within a contractual arrangement between a creditor and a debtor (contrast with debt write-offs).
  - Debt forgiveness is recorded as a capital transfer (see paragraph [143.23]) from the creditor economy to the debtor economy, offset by a reduction in the liability of the debtor (reduction in the asset of the creditor) under the appropriate debt instrument in the financial account; any interest accruing in current period is recorded in the income account.
  - Analytic presentation recording depends on whether forgiven debt is:
    - due in the current reporting period: recorded as transfers, debt forgiveness (credit item) below-the-line, with reduction of obligations (debit item) shown above-the-line in the respective debt instrument (Table A1.1, rows 1–6);
    - past due (arrears): both credit (debt forgiveness) and debit (cancellation of arrears) items are recorded below-the-line in exceptional financing;
    - not yet due: no entry under exceptional financing; both entries are made above-the-line.
- 2. Other intergovernmental transfers
  - Other transfers within exceptional financing include cash grants from governments and international organizations (including the IMF and the World Bank) to a recipient economy.
  - If cash is provided to finance a BOP need in the recipient economy, the grant received (credit item) is recorded in the analytic presentation as exceptional financing, with a corresponding debit entry under reserve assets (Table A1.1, row 7).
  - Examples: cash grants from donor governments or multilateral financial institutions to be used to repay debt or to finance a current account need.
  - Only the initial transaction associated with the grant is relevant for exceptional financing.
    - If grant proceeds are used for scheduled debt service payments, no exceptional financing transactions for the debt are recorded.
    - If the grant is directly used for advance repayments of debt for BOP needs (e.g., a debt buyback), no additional exceptional financing for the debt transaction is recorded—except when an advance repayment is made out of reserve assets, in which case an exceptional financing entry will be recorded for the debt transaction (see Section C).

### C. Debt-for-Equity Swap
- Exceptional financing transactions related to equity investment involve the exchange, usually at a discount, of debt instruments of an economy for nonresident investors’ equity investments in the economy (see paragraphs [A2.29–A2.37]).
- Typical effects:
  - Extinction (debit item) of a fixed-payment liability (debt security or loan), usually denominated in foreign currency, recorded under the appropriate instrument.
  - Creation (credit item) of an equity liability denominated in domestic currency to a nonresident, recorded under direct or portfolio investment as relevant.
  - Examples include exchanges of a bank loan or enterprise liability for equity, or the resident central bank redeeming outstanding debt owed to a nonresident at a discount in local currency with the nonresident reinvesting proceeds as equity.
- Recording principles:
  - Direct exchanges for equity:
    - If investor directly holds equity entitling 10 percent or more of voting power, record under direct investment–equity; otherwise record under portfolio investment–equity.
    - Transactions recorded at the value of the equity acquired, offset by debit under the relevant debt instrument.
  - Indirect swaps (debt → local currency claim/deposit → equity):
    - Record both the initial exchange (debt for deposit at value of deposit) and the exchange of deposits for equity.
    - In the IIP, equity liabilities increase and debt liabilities decrease by the value of the instrument extinguished.
  - Analytic presentation relevance:
    - Only the initial transaction associated with the swap is relevant for exceptional financing.
    - Recording depends on whether exchanged debt is due in the current reporting period, in arrears, or not yet due (Table A1.1, rows 8–16):
      - Debt due in current period: swaps recorded under equity (credit item) below-the-line; debt repayment (debit item) recorded above-the-line.
      - Arrears swapped: equity (credit item) and repayment of arrears (debit item) both recorded below-the-line.
      - Not yet due: no exceptional financing record; both entries made above-the-line.
  - Valuation:
    - All transactions should be valued at the market price of the new claim received.
    - Differences between old and new claim values are recorded as valuation adjustments in the revaluation account rather than as transactions, except when nonmarketable debt owed to official creditors is involved—in that case any reduction in the value of the old debt is recorded as debt forgiveness (capital transfer).

### D. Borrowing for Balance of Payments Support
- Borrowing (including bond issues) by or on behalf of the authorities to meet BOP needs is recorded (credit item) below-the-line under exceptional financing in the analytic presentation; subsequent scheduled debt payments are recorded above-the-line (Table A1.1, rows 17–18).
- Advance repayments for BOP needs financed from reserve assets are recorded as exceptional financing (debit item); both the reserve and debt transactions are recorded below-the-line.
- Short-term borrowing:
  - Only the initial drawing of a loan and any subsequent increases in amount borrowed need to be recorded below-the-line.
  - Rolling-over the same amount under a short-term loan without repayment is not recorded as a new borrowing each time (debit and credit cancel; see paragraph [3.115]).
  - Repayment (even partial) is recorded above-the-line unless it is an advance repayment under the conditions described above.
  - If a loan is rolled over for a number of periods, judgment is required to decide whether continual renewal represents exceptional financing because the debtor is unable to repay.

### E. Debt Rescheduling or Refinancing
- Definitions:
  - Debt rescheduling: formal deferment of debt service payments and application of new and generally extended maturities to deferred amounts.
  - Debt refinancing: replacement of an existing debt instrument(s), including any arrears, with new debt instrument(s).
  - If government assumes debt of banks or other sectors under rescheduling, sector classification of debtor changes (see paragraph [8.45]).
- Analytic presentation recording depends on whether debt being rescheduled/refinanced is due in the current reporting period, in arrears, or not yet due (Table A1.1, rows 19–30):
  - Debt falling due in current period: rescheduling/refinancing recorded below-the-line as a debt transaction (credit item) under exceptional financing; offsetting debit entry recorded above-the-line.
  - Arrears rescheduled/refinanced: both arrears on old debt (debit item) and rescheduling of arrears (credit item) recorded below-the-line.
  - Not yet due: no exceptional financing recording; both entries made above-the-line under relevant debt instruments.
- Valuation:
  - All transactions should be valued at the market price of the new claim received.
  - Differences between old and new claim values are recorded as valuation adjustments in the revaluation account rather than as transactions, except when nonmarketable debt owed to official creditors is involved—any reduction in nominal value is recorded as debt forgiveness.
  - Where no established market price exists for the new claim, an appropriate proxy is used (see Appendix Annex 2).

### F. Debt Prepayment and Debt Buyback
- Debt prepayments consist of repurchase or early payment of debt under mutually agreed conditions; when a discount relative to nominal value applies, these are “buybacks.”
- Analytic presentation:
  - Debt prepayment transactions are recorded as exceptional financing only if financed from reserve assets to meet BOP needs (Table A1.1, rows 31–33).
  - In that case, debit entries are recorded below-the-line in the appropriate instrument in exceptional financing with offsetting credit entries in reserve assets also below-the-line.
  - If prepayment is financed from external donor funds placed in the debtor’s reserve assets, the debtor economy records all transactions below-the-line in the analytic presentation (Table A1.1, row 31).
  - In the IIP of the debtor economy, reserve assets increase when donor funds are received and decline, along with debt liabilities, when the prepayment takes place.
  - Prepayments using the debtor’s own financial assets other than reserve assets are recorded above-the-line in the appropriate accounts (Table A1.1, row 33).

### G. Accumulation and Repayment of Debt Arrears
- (Section introduced; detailed guidance on accumulation and repayment of debt arrears follows in the Annex — see Table A1.1 and related paragraphs for specific recording conventions regarding arrears, swaps of arrears, and intertemporal consistency.)

*Appendix Annex 1—Exceptional Financing Transactions, draft BPM7 Annex, International Monetary Fund.*

### 1. Accumulation of arrears—current period

### 1. Accumulation of arrears—current period

### Definitions and general treatment
- Debt arrears arise when amounts are past due for payment and are unpaid.
- If the contract remains unchanged, in the standard presentation, no transactions will be recorded; debt arrears (both interest accrued and principal) remain in the outstanding amount of the debt instrument for which payments have been missed until the liability is extinguished (see paragraph [3.56]).
- Debt arrears are recorded as an arrangement in exceptional financing.
- If the original contract provided for a change in the characteristics of a financial instrument when it goes into arrears, that change should be recorded as a reclassification in the other change in volume of assets account.

### Accumulation of arrears: standard vs analytic presentations
- Standard presentation:
  - No transaction recorded when contract unchanged; arrears remain part of the outstanding liability.
  - Repayment of arrears to meet a balance of payments (BOP) need is recorded as a debit under the appropriate debt instrument in the financial account and a corresponding credit under reserve assets (Table A1.1, rows 37 and 38).

- Analytic presentation:
  - Arrears are included because the analytic presentation focuses on actions of monetary authorities to meet BOP needs; accumulating arrears is such an action.
  - Arrears in the current period resulting from BOP difficulties (i.e., inability of the authorities to provide foreign exchange, and not from inability of the original debtor to provide national currency) are recorded below-the-line as accumulation of arrears (credit) within exceptional financing, as de facto the creditor is financing the payments the debtor was required to make.
  - The contra debit entries to these arrears are recorded in the reporting period above-the-line under the appropriate accounts:
    - Accrued interest in the current period: recorded above-the-line in income in the current account (investment income, other investment) with the analytic credit shown as Exceptional financing (Table A1.1, row 34).
    - Other arrears (principal arrears, and interest arrears arising in the current period that accrued in earlier periods): recorded above-the-line under the appropriate debt instrument in the financial account (Other investment, liabilities, loans) with the analytic credit shown as Exceptional financing (Table A1.1, rows 35–36).

### Balance of Payments accounting entries (selected rows from Table A1.1)
- F.1. Accumulation of arrears (Table A1.1):
  - Row 34 — Interest accrued in the current period:
    - Analytic credit: Exceptional financing
    - Analytic debit: Investment income, other investment
    - Standard credit: Other investment, liabilities, loans
    - Standard debit: Investment income, other investment
  - Row 35 — Interest accrued previous period:
    - Analytic credit: Exceptional financing
    - Analytic debit: Other investment, liabilities, loans
    - Standard presentation: No transaction / No transaction
  - Row 36 — Principal due and not paid:
    - Analytic credit: Exceptional financing
    - Analytic debit: Other investment, liabilities, loans
    - Standard presentation: No transaction / No transaction

- F.2. Repayment of arrears (Table A1.1, rows 37–38):
  - Row 37 — Interest:
    - Analytic debit: Reserve assets E
    - Analytic credit: Exceptional financing
    - Standard debit: Reserve assets
    - Standard credit: Other investment, liabilities, loans
  - Row 38 — Principal:
    - Analytic debit: Reserve assets E
    - Analytic credit: Exceptional financing
    - Standard debit: Reserve assets
    - Standard credit: Other investment, liabilities, loans

### Accounting rationale and implications
- Recording accumulation of arrears in the analytic presentation highlights that:
  - Accumulating arrears is an action taken by monetary authorities to meet BOP needs, effectively reflecting creditor financing of required debtor payments.
  - Contra entries place the impact on the usual above-the-line current-account and financial-account instruments (accrued interest and principal arrears).
- Recording repayment of arrears as below-the-line in the analytic presentation (repayment of arrears within exceptional financing) with a credit to reserve assets isolates BOP support operations from regular above-the-line transactions.

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_Source: https://www.imf.org/-/media/files/data/statistics/bmp7/draft-chapters/draft-bpm7-annex-1-v7.pdf_