## 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/final-annotated-outlines/bpm7-chapter-6-functional-categories-in-international-accounts-annotated-outline.pdf) ## Other formats - [Markdown version](/-/media/files/data/statistics/bmp7/final-annotated-outlines/bpm7-chapter-6-functional-categories-in-international-accounts-annotated-outline.pdf.md) - [Structured JSON version](/-/media/files/data/statistics/bmp7/final-annotated-outlines/bpm7-chapter-6-functional-categories-in-international-accounts-annotated-outline.pdf.json) --- ### I. Introduction - Chapter discusses the concept of functional categories used in the compilation of balance of payments/international investment position statistics, consistent with BPM6 Chapter 6. - Separate sections to be included: Direct Investment (Section II), Portfolio Investment (Section III), Financial Derivatives (other than reserves) and Employee Stock Options (Section IV), Other Investment (Section V), Reserves (Section VI). - Table 6.1 on the link between financial assets classification and functional categories will be included. - Consistency of language will be maintained with other macroeconomic statistics manuals (e.g., 2025 SNA, BD5, IRFCL Guidelines). - Recording of investment in the form of crypto assets under different functional categories will follow guidance in Section II.F, Chapter 5, BPM7 (following GN F.18) and the chapter on Digitalization. ### II. Direct Investment A. Definition of Direct Investment - Definition of DI and related concepts (direct investment relationship, direct investor/investment enterprise, control and influence, subsidiaries/associates/fellow enterprises/affiliates, requirements for a direct investment relationship) will be consistent with BPM6 and BD4/5. - Following GN D.3, investments in investment funds shares (F52) will be considered always portfolio investment while investments by investment funds (MMF and non-MMF) may qualify as DI if investment in equity is 10 percent or more; PI otherwise. - A table showing which institutional sectors could be direct investors and direct investment enterprises will be added (based on paragraph 6.20–6.24). - Additional explanations/examples from BD4/5 will be considered to improve discussion on the Framework for Direct Investment Relationships (FDIR), including methods for FDIR mentioned in paragraph 6.18. - This section will refer to GN D.10 (Defining the boundaries of DI). B. Coverage of Direct Investment Flows and Positions - Discussion topics retained from BPM6: intercompany lending; debt between selected affiliated financial corporations; coverage of other financial instruments; pass-through funds; effect of domestic ownership links on DI relationships; 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): Equity in international organizations 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): Updated based on GN D.6 recommendations; identification of pass-through funds and income based on residency of the ultimate investor will be supplementary indicators; additional details to be included in Appendix 6 (Selected Issues in DI); supplementary presentation of DI statistics with identification of pass-through funds based on residency of the ultimate investor will be included. 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 based on relationship between investor and entity receiving investment (DI in DIE, reverse investment, and between fellow enterprises), and reinvestment of earnings will be included under memorandum items (these are standard components in BPM6). - Subsections will present data as per the directional principle and analytical uses of different presentations; changes to standard components based on instruments/sectors will be reflected—use of DI data by sectors in the Balance Sheet Approach (BSA) will be highlighted. - Box 6.4, BPM6 (Derivation of Data under the Directional Principle) will be modified because DI in DIE, reverse investment, and between fellows have been shifted to memorandum items with no breakdown of equity and debt instruments. D. Other Issues Concerning Direct Investment Transactions, Positions, and Income - Mostly maintained as in 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 in this subsection, with reference to further discussion in Appendix 6. - Direct investment is further discussed in Chapters 7, 8, and 12 (positions, financial account transactions, and primary income, respectively). Selected issues in DI will be discussed in Appendix 6. ### III. Portfolio Investment - Section defines portfolio investments and explains coverage (inclusions and exclusions) as in BPM6. - References from CPIS Guide (third edition) Chapter 3 will be added where relevant to clarify specific issues. - Following GN D.3, investments in investment fund shares (F52) are always portfolio investment irrespective of the equity held (i.e., 10 percent or higher). - Further information on portfolio investment will be included in Chapter 7 (positions), Chapter 8 (financial account transactions), and Chapter 12 (primary income). ### IV. Financial Derivatives (Other Than Reserves) and Employee Stock Options - BPM6 definition of financial derivatives as a functional category will be maintained with no change. - Brief description of related issues retained—amounts accruing under the contract (classified as revaluations—with additional clarification in revised Chapter 9 Other Changes in Financial Assets and Liabilities Account), intermediary-provided services associated with transactions in derivatives, etc. - Following GN F.4 and Outcomes of the Holistic Review Survey of BPM6 Update Priorities, supplementary items will include classification by market risk category, by instrument, and by trading venue and clearing status (with links to Chapter 5, BPM7 discussion on FDs). - Compiling notional values of foreign currency derivatives will be emphasized (updated BPM6 Appendix 9, Tables A9-I-Ib and A9-I-2b). - Guidance on recording FDs by gross and net basis: - Recording of transactions on a net basis is acceptable where separate data on transactions in assets and liabilities are not available. - Position may change between assets and liabilities (e.g., forwards, swaps). - Method used should be consistently applied during the life of the instrument, not only when switching from assets to liabilities (this should be included in 8.34 of BPM6 and Chapter 17 of 2008 SNA). - Further details on FDs will be presented in Chapter 8 (Financial Account—Recording of Post Trading Activities: novation and portfolio compression) and Chapter 9 (Other Changes in Financial Assets and Liabilities Account—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. ### V. 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 may be classified as equity in international organizations and other equity when not in the form of securities or when in unlisted, non-tradable shares (paragraph 6.62). - Following GN B.12, BPM6 standard presentation for the balance of payments will be modified: - Other investment – other equity should be renamed Other investment – equity in international organizations and other equity. - Debt instruments associated with some cash pooling arrangements may be classified under other investment (following GN D.18); cash pooling is further discussed in Section II.D and Appendix 6. - Information on other investment will be included in Chapter 7 (valuation of positions, particularly loans), Chapter 8 (financial account transactions), and Chapter 12 (primary income). ### VI. Reserves A. Reserve Assets - Provides definition of reserve assets and discusses residence, control, definition of monetary authorities, availability for use, liquidity, assets denominated in the currency of neighboring countries, assets denominated/indexed to the domestic currency but settled in foreign currency, etc., consistent with BPM6. 1. Classification of Reserve Assets - Descriptions and standard components remain the same as in BPM6, with further elaboration along the lines of IRFCL Template Guidelines for consistency. - Pool allocated gold accounts (a depository sets aside numbered bars into a segregated pool, which backs the amount of pool allocated gold the depository owes to their customers) will be treated similar to allocated gold accounts (i.e., classified as monetary gold, when held as reserve assets). This is consistent with updated paragraph 5.76, BPM6 (see Chapter 5, BPM7). - Treatment of securities transferred under repurchase agreements is under consideration to align with IRFCL Template Guidelines; a clarification note is being prepared by the IMF and relevant parts of BPM6 (paragraphs 6.88–6.89) will be updated. Paragraph 6.82 on treatment and recording of gold swaps undertaken by monetary authorities will also be updated. - 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. Additional details will be provided in Appendix 9 “Positions and Transactions with IMF”. - Brief descriptions of COFER and SEFER will be provided as additional presentations of reserve assets. 2. Selected Cases - Covers sovereign wealth funds, pooled assets, central bank swap arrangements (as in BPM6) with enhanced details/examples based on clarification note on central bank swaps, Asian Bond Fund, and ongoing discussion on channeling of SDRs to Multilateral Development Banks (if process is completed). i. Foreign Assets that Do Not Qualify as Reserve Assets - All issues discussed in BPM6 will be covered with additional elaborations as needed. - Capital subscriptions to international organizations that are not readily available to monetary authorities do not meet the definition of reserve assets. Equity arising from these subscriptions are included in other investment – equity in international organizations and other equity (paragraph 6.106). - In context of credit lines, brief explanation will be provided on flexible credit lines (FCL) and precautionary and liquidity lines (PLL) of the IMF, and their eligibility for inclusion in reserve assets. Annex 9 will provide details on positions and transactions with the IMF. - For frozen assets, reserve assets that are affected are to be reclassified to the relevant functional category (for all relevant categories of reserve assets—SDRs, monetary gold, RPF, securities, equity, deposits, etc.). B. Reserve-Related Liabilities - Concept of reserve-related liabilities and table for presenting related data will be consistent with BPM6. Box on Net International Reserves (NIR) - Following GN B.2, a Box on NIR will be added noting that NIR goes beyond the scope of the BPM framework and that necessary data to calculate NIR is covered by the IRFCL framework. - NIR is widely used as an indicator of a country’s external vulnerability. New Box will introduce a standard statistical definition of NIR based on existing statistical frameworks in BPM6 and IRFCL Guidelines (based on GN B.2). - Net international reserves = Reserve assets – Net short-term foreign currency drains - Statistical definition provides a comprehensive approach to inform reserve adequacy assessments and macroeconomic policy advice. Modifications for country-specific characteristics and vulnerabilities remain crucial for reserve adequacy assessments and in the design and monitoring of Fund-supported programs. ### Schematic Overview - Structure of BPM6 Chapter 6 will be maintained: - A Introduction - B Direct Investment 1. Definition of direct investment 2. Coverage of direct investment flows and positions 3. Types of direct investment transactions and positions 4. Other issues concerning direct investment transactions, positions, and income - 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 (as cited in the chapter) - 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. - 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/final-annotated-outlines/bpm7-chapter-6-functional-categories-in-international-accounts-annotated-outline.pdf_