1.

BPM 6 (IMF 2009) - Balance of Payment Manual

2. Pháp lệnh số 06/2013/PL-UBTVQH13 ngày 18/3/2013 Sửa
đổi. bổ sung một số điều của Pháp lệnh Ngoại hối
3. Nghị định số 16/2014/NĐ-CP về quản lý cán cân thanh toán
quốc tế của Việt Nam
4. Thông tư số 05/TT - NHNN ngày 12/3/2014 của Ngân hàng
Nhà nước hướng dẫn việc mở và sử dụng tài khoản vốn
đầu tư gián tiếp để thực hiện hoạt động đầu tư gián tiếp
nước ngoài tại Việt nam
5. Thông tư số 36/ TT - NHNN ngày 31/12/2013 quy định về
việc mở và sử dụng tài khoản ngoại tệ để thực hiện hoạt
động đầu tư trực tiếp ra nước ngoài
6. Nghị định số 50/ 2014/NĐ-CP ngày 20/5/2014 về quản lý
Company Logo dự trữ ngoại hối nhà nước www.themegallery.com
Group exercise:
Each group (4-5 students) will choose a
country to analysis ab BOP in recent years (
can be 1,2,3 years )
Sugguest: Structure of BOP, balance of each
account (CA, KA, FA…), trend , explanation,
predict reasons for trend.
1 The National Income Accounts

National Income Accounting

2
for an open economy

3 The balance of payments

Learning Objectives
1. Discuss concept of current account balance.
2. Use the current account balance to extend national
income accounting to open economies.
3. Apply national income accounting to the
interaction of saving, investment, and net
exports.
4. Describe balance of payments accounts and
explain their relationship to the current account
balance.
5. Relate the current account to changes in a
country’s net foreign wealth.
Preview

• National income accounts

• measures of national income
• measures of value of production
• measures of value of expenditure
• National saving, investment, and the current account
• Balance of payments accounts
 1. The National Income Accounts

• Records the value of national income that results

from production and expenditure.
Producers earn income from buyers who spend
money on goods and services.
The amount of expenditure by buyers =
the amount of income for sellers =
the value of production.
National income is often defined to be the income
earned by a nation’s factors of production.
 1. The National Income Accounts

• Gross national product (GNP) is the value of all final

goods and services produced by a nation’s factors of
production in a given time period.
What are factors of production? Factors that are
used to produce goods and services: workers (labor
services), physical capital (like buildings and
equipment), natural resources and others.
The value of final goods and services produced by
US-owned factors of production are counted as US
GNP.
 1. The National Income Accounts

• GNP is calculated by adding the value of expenditure on final goods

and services produced:
1. Consumption: expenditure by domestic consumers
2. Investment: expenditure by firms on buildings & equipment
3. Government purchases: expenditure by governments on goods and services
4. Current account balance (exports minus imports): net expenditure by foreigners
on domestic goods and services
Figure 2.1 U.S. GNP and Its Components

America’s gross national product for the first quarter of 2016 can be broken down
into the four components shown.
Source: U.S. Department of Commerce, Bureau of Economic Analysis. The figure
shows 2016:QI GNP and its components at an annual rate, seasonally adjusted.
 1. The National Income Accounts

• GNP is one measure of national income, but a more

precise measure of national income is GNP adjusted
for following:
1. Depreciation of physical capital results in a loss of income to
capital owners, so the amount of depreciation is subtracted
from GNP.
2. Unilateral transfers to and from other countries can change
national income: payments of expatriate workers sent to
their home countries, foreign aid and pension payments
sent to expatriate retirees.
 1. The National Income Accounts

• Another approximate measure of national income is

gross domestic product (GDP):
• Gross domestic product measures the final value of
all goods and services that are produced within a
country in a given time period.
• GDP = GNP − payments from foreign countries for
factors of production + payments to foreign
countries for factors of production
 2. National Income Accounting
for an Open economy
• The national income identity for an open economy is
Y = C + I + G + EX − IM
= C + I + G + CA

• where C + I + G is expenditure by domestic

individuals and institutions
• and CA is net expenditure by foreign individuals
and institutions
 2. National Income Accounting
for an Open economy
CA = EX − IM = Y − (C + I + G )
• When production > domestic expenditure, exports >
imports: current account > 0 and trade balance > 0
• when a country exports more than it imports, it
earns more income from exports than it spends on
imports
• net foreign wealth is increasing
• When production < domestic expenditure, exports <
imports: current account < 0 and trade balance < 0
• when a country exports less than it imports, it
earns less income from exports than it spends on
imports
• net foreign wealth is decreasing
Table 2.1 National Income Accounts for Agraria, an Open
Economy (bushels of wheat)

GNP Government
= Consumption + Investment + + Exports − Imports
(total output) purchases

100 = 75a + 25 + 10 + 10 − 20b

a55 bushels of wheat + (0.5 bushel per gallon) × (40 gallons of milk).
b0.5 bushel per gallon × 40 gallons of milk.
Saving and the Current Account

• National saving (S) = national income (Y) that is not spent on consumption
(C) or government purchases (G).
S=Y−C−G
• An open economy can save by building up its capital stock or by acquiring
foreign wealth.
S = I + CA
Private and Government Saving
• Private saving is the part of disposable income
(national income, Y, minus taxes, T) that is saved rather
than consumed:
S P = Y −T − C
• Government saving is net tax revenue, T, minus
government purchases, G:
Sg = T −G
• Private and government saving add up to national saving.
S = (Y −T − C ) + (T − G ) = S P + S g
Figure 2.2 The U.S. Current Account and Net International
Investment Position, 1976–2015

A string of current account deficits starting in the early 1980s reduced

America’s net foreign wealth until, by the early 21st century, the country had
accumulated a substantial net foreign debt.
Source: U.S. Department of Commerce, Bureau of Economic Analysis.
 3. Balance of Payments

3.1. BOP definition

3.2. BOP structure
3.3. BOP double - entry principle
3.1. Definition of BOP
IMF SBV
The balance of payments is a The balance of payments
statistical statement that (shortly BOP or BP) is a
summarizes transactions statistical statement that
between residents and systematically summarizes, for
nonresidents during a period. It a specific time period (often
consists of the goods and in one year), all economic
services account, the primary transactions between
income account, the residents and non-residents of
secondary income account, the one country.
capital account, and the
financial account (BPM 6)
3.1. Definition of BOP
➢ BOP records all economic transactions between
residents and non - residents
➢The residence of each institutional unit is the economic
territory with which it has the strongest connection,
expressed as its center of predominant economic
interest. Conditions:
- Resident period lasts at least 12 months.
- People have income from the resident country
- Residents: individuals, households, companies,
administrators and international organizations
3.1. Definition of BOP - notes

▪ Nationality and residents

▪ Int organizations: non - residents to all countries
▪ Embassies, foreign military agents, overseas students,
tourists, etc, are non-residents with destination
countries
▪ Multinational companies are residents of all
countries, representative offices of
multinational companies located in a specific country
are considered as its residents.
3.1. Definition of BOP - notes

➢ Currency recorded in BOP

- All currencies can be used: costs?
- Developed countries with freely convertible
currencies: domestic currency
- Developing countries with non - convertible
currencies: accounted in the free-converted foreign
currency that is used mostly in their international
payments
Some Analytical Uses
of BOP and IIP
• Provides data to guide economic analysis and policy
formulation
• Trends in exports and imports of goods and services
• Composition and volatility of financial flows
• Implications of foreign exchange instability
• Causes of imbalances and the need to implement adjustment
measures
• Facilitates analysis of vulnerability to external shocks
3.2. BOP structure
Horizontal and vertical structure
1. Current account - CA
2. Capital account - KA
3. Financial account - FA
4. Net Errors and Omissions - OM
5. Overall Balance - OB
6. Official financing balance - OFB

26
Current account CA = TB + SE + PI + SI Credits Debits
Goods and services (TB + SE)
Primary income (PI)
Secondary income (SI)
Capital account KA = NFP + KTR
Acquisitions and Disposals of
Nonproduced, Nonfinancial Assets (NFP)
Capital transfer (KTR)
Financial account FA = FDI + FII + FDS + OFI
Direct investment (FDI)
Portfolio investment (FII)
Financial derivatives (FDS)
Other investment (OFI)
Net errors and omissions - OM
Overall Balance OB = CA + KA + FA + OM
Reserve assets and related items OFB = R + L + #
Reserve assets (TSC/R)
IMF credit and loans (TSN/L)
Exceptional financing (#)
1. Goods and services

2. Primary income

3. Secondary income
Goods: Classification
Goods
• General merchandise
• Of which: re-exports
• Net exports of goods under merchanting
• Goods acquired under merchanting (negative exports)
• Goods sold under merchanting (positive exports)
• Nonmonetary gold
Services: Classification
• Travel
• Transport
• Telecomunication
• Insurance & Pension Fund Services
• Financial Services
• Construction Services; Charges for Use of Intellectual
Property
• Other services:
• Research and development (R&D)
• Professional and management consulting
• Technical. trade related. and other business services
• Government services
The determinants of goods and service

- Exchange rate
- Inflation rate
- Non - residents’ income
- World exported goods prices
- Foreign countries tariffs and quotas
- International trade policy: import ban,
limitation, licence
- Effects of all aboved - mentioned factors
Primary Income: Classification
The following types of primary income are distinguished in the
balance of payments:
• Compensation of employees
• Investment income
• Dividends
• Reinvested earnings
• Interest
• Investment income attributable to policyholders in
insurance, standardized guarantees, and pension funds
• Other primary income (new to BPM6)
• Rent
• Taxes and subsidies on product and production
Investment Income: Classification

• Follows functional classification:

• Direct investment
• Portfolio investment
• Other investment
• Reserve assets

• Financial derivatives and employee stock options do not give rise to

investment income
 Other Primary Income
Rent:
Covers income receivable for putting natural resources at the
disposal of another institutional unit (BPM6 11.85)
• For use of land
• For extracting mineral deposits and other subsoil assets
• For fishing, forestry, and grazing rights
Taxes and subsidies on production
• Taxes and subsidies on products and production are
classed as primary income, not current transfers (BPM6
11.91–11.94)
• Consistent with the SNA
Current and Capital Transfers
Current transfers consist of all transfers that are not capital
transfers (BPM6, 12.14). Types of current transfers:
• Current taxes on income, wealth, etc.
• Social contributions
• Social benefits
• Net nonlife insurance premiums
• Nonlife insurance claims
• Current international cooperation
• Personal transfers
• Other current transfers
CA - Questions
1. Which transaction is NOT recorded in BOP?
- Vietnam exports goods to Russia
- Japanese Gov grants aids for Yen Bai residents in flood
region
- Samsung Vietnam repatriates profit to its home
country
- Vietnam is granted debt forgiveness from IMF
CA - Questions
2. Who is Vietnamese resident?
- Belgium Embassy in Hanoi, Vietnam
- World Bank representative office in Hanoi
- Citi Bank branch in Hanoi
- Lao’s students at BA
CA - Questions
3. Which transaction is categorized in “secondary
income transaction”?
- Sam sung VN repatriates profits to its home country
- Siemen (a Germany group) grants aids, facilities to
build hubs at Bach Khoa university
- Vietnamese in Russia transfer money to his relative in
Vietnam in RUR
- Vin group invests in Odesa, Russia
CA - Questions

Calculate CA, given: CA = TB + Se + SI + PI

(200 - 350) + (145 - 200) + (15 - 60)

Export goods 200 Import goods 350

Receipts from Export 145 Payments for Import 200

of services of Services
Receipts from 15 Unilateral current 60
unilateral current transfer payments
transfers
1. Acquisitions and Disposals of
Nonproduced, Nonfinancial Assets

2. Capital transfers
Non - produced, Non - financial Assets
- Natural resources include land, mineral rights, forestry
rights, water, fishing rights, air space, and electromagnetic
spectrum.
- Contracts, leases, and licenses covers those contracts,
leases, and licenses that are recognized as economic
assets: intangible assets. Eg: marketable operating
leases, permissions to use natural resources, permissions
to undertake certain activities
- Marketing assets consist of items such as brand names,
mastheads, trademarks, logos, and domain names.
Capital transfers
- Capital transfers are transfers in which the ownership
of an asset (other than cash or inventories) changes
from one party to another; or which obliges one or
both parties to acquire or dispose of an asset (other
than cash or inventories); or where a liability is forgiven
by the creditor (BPM6 13.19)
- Current transfer directly affect the level of disposable
income and influence the consumption of goods or
services (BPM6 12.14)
Capital Account - Question
Which one is “non - financial, non - produced
transaction”?
a. Buy a put option for Google share
b. Buy ownership for salt mine exploration in Belarus
C. Savills brand (the England real estate group) offer office
for rent in Danang
d. Vingroup issues international bonds
➢ The financial account records transactions that
involve financial assets and liabilities and that take
place between residents and nonresidents.
- Direct investment
- Portfolio investment
- Derivatives
- Other investment
➢ Financial assets consist of claims and the gold
bullion component of monetary gold.
➢ Financial instruments consist of the full range
of financial contracts made between institutional
units.
Direct investment
- Direct investment is a category of cross-border
investment associated with a resident in one
economy having control or a significant degree of
influence on the management of an enterprise
that is resident in another Economy
- FDI investor
- Control or influence: more than 50% of voting
right
IMF regulation? more than 10% of voting right
Portfolio investment

- Portfolio investment relationships arise through

the ownership of voting power in one direct
investment enterprise that owns voting power in
another enterprise or enterprises, that is, an
entity is able to exercise indirect control or
influence through a chain of direct investment
relationships.
 FPD vs PI

Criteria FDI PI
Control Control/significant Voting
degree of influence power
Profit FDI profit Dividend
Risk Less More
Duration Long term Short term
Nature Stable Volatile
 Q/A
1. Transaction “a Singapore Fund buys Vietnamese
Government bonds” is categorized as:
A. Direct investment
B. Derivatives
C. Portfolio investment
D. Other investment

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 Errors and Omissions
❖ Omissions is the sum of official financing
balance, the current account and capital account
but has opposite sign.
OM = - (CA + KA + FA + OFB)

❖ Causes:
- Mis reporting transactions
- Sample data
- Tax evasion
❖ OM/GDP: lager or smaller? High quality of reporting
and surveilance
Company Logo
❖ BOP with OM = 0 tell us WHAT? www.themegallery.com
 Overall Balance
❖ the overall balance is the sum of current
account capital account and financial
account.
BOP = OB + OFB = 0
OB = CA + KA + FA
In fact:
OB = CA + KA + FA + OM = - OFB = - dR change in
reserves

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1.Reserve assets

2. Credit with the IMF

3. Exceptional finance
- Reserve assets are those external assets that are
readily available to and controlled by monetary
authorities for meeting balance of payments financing
needs, for intervention in exchange markets to affect
the currency exchange rate, and for other related
purposes (such as maintaining confidence in the
currency and the economy, and serving as a basis for
foreign borrowing).
- Monetary authorities encompass the central bank
- Control: only external claims actually owned by the
monetary authorities can be classified as reserve
assets.
 - Availability for use: A reserve asset is liquid in that the
asset can be bought, sold, and liquidated for foreign
currency (cash) with minimum cost and time, and without
unduly affecting the value of the asset
- Reserve assets:
Monetary gold
SDR holdings
Reserve position in the IMF
Foreign currency and foreign currency - denominated
deposits, securities
Company Logo www.themegallery.com
 Reserve assets - Questions
1. Calculate reserve assets, given: (unit: million USD)
a. Reserve assets decreases by 350, and borrows 200
from IMF
b. SBV buys 230 million USD, and pays back IMF 180
2. Which one is not included in “Reserve assets and
related items”
SDR holdings
Reserve position in the IMF
Non monetary gold
Foreign currencies

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 BOP - Question
Calculate the missing data: BOP = CA + KA +
FA + OM +OFB(R) = 0
Category Value (in million USD)
1. Current account - CA + 1500
2. Capital account - KA ?
3. Financial account - FA - 2780
4. OM - 650
5. Reserve assets and related +6300
items - R
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3.3. Double - entry principles

Double - entry principle

Examples
Double - entry principle

Double - entry principle is applied on

the manner of residents’ perspectives

Double-entry accounting system means

every recorded transaction between
residents and non-residents is represented
by two entries with equal absolute values
and opposite signs.

The sum of all credit entries equalizes the sum

of all debit entries. Thus BOP = 0
Double - entry principle
• Principle 1:
- All receipts reflect inflows with a credit (+)
- All payments reflect outflows with a dedit (-)
Credit/Foreign currency supply Debit/ Foreign currency
(+) demand (-)
▪ Export goods ▪ Import goods
▪ Export services ▪ Import services
▪ Receipts from primary ▪ Payment for primary income
income
▪ Increase foreign ▪ Decrease foreign
debts/liabilities debts/liabilities
▪ Decrease foreign ▪ Increase foreign
claims/assets claims/assets
▪ OM ▪ OM
▪ Reserve assets decrease ▪ Reserve assets increase
59
Double - entry principle
• Principle 2:
- All economic transactions that create foreign currency
supply are designated credit (+)
- All economic transactions that create foreign currency
demand are designated debit (-)
• Principle 3:
- Inflows capital are recorded (+):
+ Decrease foreign claims/assets
+ Increase foreign debts/liabilities
- Outflows capital are recorded (-):
+ Increase foreign claims/assets
+ Decrease foreign debts/liabilities

60
1. CA: Thu (+); Chi (-)
2. FA: Luồng tiền vào (+); Luồng tiền ra (-)
3. OB
- Nếu OB = CA + KA + FA + OM > 0 ghi (+):
OFB (-). Quốc gia dùng tiền để:
+ Tăng TSC ở nước ngoài: dòng tiền ra (-)
+ Tăng dự trữ ngoại hối mua ngoại tệ vào (-)
- Nếu OB < 0 ghi (-): OFB (+). Quốc gia dùng tiền
để bù đắp thâm hụt:
+ Bán tài sản dự trữ: cung ngoại tệ tăng (+)
+ Đi vay IMF, NHTW khác (+): TSN tăng
+ Nhờ NHTW nước khác can thiệp hộ
 Examples

Vietnam exports goods to EU worth $100 million and

imports goods from EU worth $50 million. The rest of
money is used to pay the United States for the debt.

BOP Vietnam

CA
- Export goods: +100
- Import goods: -50

FA
- Liabilities decrease: -50
 Examples
Vin group issues international bonds worth 100 million
USD. This value is financed an advanced payment for
importing goods from Thailand

BOP Vietnam

FA
- Increase liabilities: +100
- Increase assets in Thailand: - 100
 Examples

Hoa Phat imports steel from Italia worth 10 million EUR.

60% of the value is made at the time of signing contract.
The rest is dealt after 3 months commencing the date of
goods receipt.

BOP Vietnam
CA
- Import goods: -100
FA
- Decrease assets: +60
- Increase liabilities: + 40
 Examples

Vietnam Petrolimex corporation issues international

bonds worth $50 million. It uses $30 million to pay for
importing machines, and deposits the rest of money in
short term in Hong Kong.

BOP Vietnam
CA
- Import goods: - 30
FA
- Liabilities increase (issues bonds): + 50
- Assets increase (deposits in HK) : -20
 Examples

Hải Phát import goods worth 200 million JPY. In which, 20%
value is freight and insurance. The rest is goods value

BOP Vietnam

CA
- Import goods: -160
- Freight and insurance payment: - 40
FA
- Decrease assets: + 200