## Standardized Statistical Definition of Net International Reserves

## Source details

**Canonical URL:** [Standardized Statistical Definition of Net International Reserves](https://www.imf.org/-/media/files/data/statistics/bpm6/bptt/bptt-fourth-meeting-presentation-definition-of-nir-november-30-2021.pdf)

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### Context
- Presentation to BPTT on November 30, 2021.
- Net International Reserves (NIR):
  - No standardized statistical definition.
  - Widely used term, with wide variation both conceptually and computationally.
- Existing discussions and definitions referenced:
  - IMF Guidance Note on the Assessment of Reserve Adequacy.
  - Discussion in IRFCL Guidelines (relies on BPM6 definition of reserve-related liabilities).
  - Use of NIR in IMF-supported programs (sample definition and practice).

### Existing definitions and concepts
- IMF Guidance Note on the Assessment of Reserve Adequacy:
  - Comprehensive definition: "Measures of net reserves subtract predetermined short-term drains (due to both non-residents as well as residents) from the official reserve position."
  - Drains arise from on-and-off balance sheet activities, e.g., activated swaps, forward positions that unwind, short-term FX liabilities (e.g., FX deposits, including cash outflows derived from repos) used to fund reserve asset position.
  - Emphasizes importance of country specific risk factors in reserve adequacy assessments and use of the metrics.
- IRFCL Guidelines discussion:
  - Defines NIR as reserves minus reserve-related liabilities.
  - Relies on BPM6 definition of reserve-related liabilities.
  - Implies only liabilities to non-residents are included in reserve-related liabilities.
- Use of NIR in IMF-supported programs:
  - Sample definition (excerpt):
    - "NIR is defined as reserves assets minus reserve liabilities."
    - "Reserves liabilities are all foreign exchange liabilities to residents and nonresidents, including commitments to sell foreign exchange arising from derivatives and all credit outstanding from the Fund"
  - Practice (review of 37 TMUs):
    - Definitions in TMUs vary significantly, reflecting need for operational definitions that fit specific country circumstances.
    - Variations across TMUs:
      - IMF credit: all include in RL; some also include other IFIs.
      - Maturities of liabilities to non-residents: 26/37 short-term RL only.
      - Inclusion of liabilities to residents: 19 all maturities; 10 short-term only; 8 not included in RL.
      - Central government liabilities: not included; 2 include derivatives.
      - Financial derivatives: 18 include in RL.
      - Other country specifics.
    - TMU definitions of NIR serve an important program monitoring role.

### Proposed definition: objective, proposal, and key features
- Objective:
  - Gross reserves may not provide a full picture of a country’s reserve adequacy.
  - Identified potential drains on reserves need to be considered when assessing adequacy to buffer macroeconomic shocks.
  - A carefully defined NIR should take a comprehensive view of potential drains, providing an additional indicator of external vulnerabilities and guiding macroeconomic policy advice.
  - Concept: Define NIR as reserve assets minus potential short-term FX drains.
  - Purpose:
    - A standardized definition will facilitate cross-country comparison and empirical research.
    - Provides a starting point for reserve adequacy assessments and program design, while recognizing need to consider country specifics and program monitoring needs.
- Proposal:
  - Reserve assets (RA) are defined in BPM6 (paragraph 6.64)*
  - Short-term foreign currency drains (FCD) are the contractual currency obligations scheduled to come due during 12 months ahead, as defined in the IRFCL Template (section II)
  - *adjusted for FX financial derivatives included in FCD, to avoid double counting
  - Net International Reserves (NIR) = Reserve Assets (RA) minus short-term foreign currency drains (FCD)
- Key Features:
  - Liabilities to residents and non-residents: deducted from RA.
  - Central government liabilities: deducted from RA.
  - Off-balance sheet items: deducted from RA.
  - Treatment of IMF loans and credits: Short-term liabilities (principal and accrued interest) and scheduled interest (due within a year) are deducted from RA.
  - Maturity of liabilities: short-term on a remaining maturity basis.
  - Valuation of liabilities: the cash-flow value when the flows take place.

### Data considerations
- Concepts and data already covered in BPM6 and the IRFCL Guidelines.
- RA: Introduction of this NIR concept does not entail any new data collection in BPM7.
- FCD: Compilation of the IRFCL Template is a requirement to subscribe to the IMF’s Special Data Dissemination Standard (SDDS).

### Other considerations
- The proposed definition provides a standardized approach to support careful monitoring of the build-up of potential short-term drains on reserves.
- Country-specific considerations remain important:
  - in the context of reserve adequacy assessments.
  - for program design purposes.
- Examples of modifications:
  - For establishing and monitoring Fund-supported programs, all outstanding IMF credit and loans, regardless of maturity, could be deducted from RA.
  - In some cases, it may be appropriate to exclude from FCD government deposits and some liabilities to commercial banks.

### Questions for discussion (as presented)
- 1. Do you agree with the proposed statistical definition of NIR = Reserve Assets (RA) minus short-term foreign-currency drains (FCD)?
- 2. Do you agree to explain the concept/statistical definition and use of NIR in the BPM7 (in an annex and/or a Box) even though it goes beyond the scope of balance of payments framework?
- 3. Do you agree to the data collection for the proposed NIR (i.e., to be collected in the IRFCL Template/framework)?
- 4. Do you have any other suggestions on the concept of NIR proposed in the GN?

### Additional slide: IMF Note sample definition of NIR (excerpt)
- Excerpt from Internal Guidance to Fund Staff, August 1, 2003:
  - "Net international reserves of the [name of the central bank] are defined as the difference between reserve assets and reserve liabilities. Reserve assets are readily available claims on nonresidents denominated in foreign convertible currencies. They include the [name of the central bank] holdings of monetary gold, SDRs, foreign currency cash, foreign currency securities [specify], deposits abroad, and the country's reserve position at the Fund. Excluded from reserve assets are any assets that are pledged, collateralized, or otherwise encumbered, claims on residents, claims in foreign exchange arising from derivatives in foreign currencies vis-a-vis domestic currency (such as futures, forwards, swaps, and options), precious metals other than gold, assets in nonconvertible currencies, and illiquid assets. Reserve liabilities are all foreign exchange liabilities to residents and nonresidents, including commitments to sell foreign exchange arising from derivatives (such as futures, forwards, swaps, and options), and all credit outstanding from the Fund"
  - Several other issues to be clarified in each program for completeness, including program valuation conventions: "The NIR PC should indicate the program price of gold and other relevant reserve assets and program exchange rates for SDRs and other reserve currencies to be used to value NIR for the PC."

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_Source: https://www.imf.org/-/media/files/data/statistics/bpm6/bptt/bptt-fourth-meeting-presentation-definition-of-nir-november-30-2021.pdf_