CBS - Lesson 8 - 23 - October 2022

External Statistics
LESSON #8
Central Banks’ Statistics

Post-Graduation in Statistical Systems
2022|2023
Lesson 12: 23rd October 2023
1. International Investment Position

2. External Debt

Interno 2
Post-Graduation in Statistical Systems, 2022|2023 Interno -- Banco
Banco de
de Portugal
Portugal
International Investment Position
General overview
 International Investment Position (IIP) statistical statement that

shows at a point in time the value of: financial assets of residents of
an economy (claims on nonresidents) or gold bullion held as reserve
assets; and the liabilities of residents of an economy to nonresidents
 Net position in the IIP - difference between the assets and liabilities -
represents a net claim on or a net liability to the rest of the world
 The IIP represents a subset of the assets and liabilities included in the
national balance sheet
 The concept of ownership of assets in the IIP is based on economic
ownership (the party who has the risks and rewards of holding the
asset)

Interno 3
Banco de
de Portugal
Portugal
General overview
 Valuation at…
market prices as if they were acquired in market transactions on the
balance sheet reporting date
market-value equivalent is needed if financial assets /liabilities are
not traded in financial markets or are traded only infrequently. It will
be necessary to estimate fair values that approximate market prices
Recent transaction price Net asset value
Present value and price-to-earnings ratios Market capitalization method
Own funds at book value Apportioning global value.
nominal value for non-negotiable items (positions on loans, deposits

and accounts receivable/payable)
Interno 4
Banco de
de Portugal
Portugal
General overview
 Dimensions for the classification of the IIP
Functional category - direct investment, portfolio investment, financial derivatives (other than
reserves) and ESOs, other investment and reserve assets
Financial instrument - according to the broad groupings (equity and investment fund shares, debt
instruments, and other financial assets and liabilities)
Institutional sector of resident - central bank, deposit-taking corporations except the central bank,
general government, other sectors (other financial corporations and nonfinancial subsectors -
nonfinancial corporations, households, and NPISHs)
Maturity (in the case of debt instruments) - short term or long-term, by original and remaining
maturity
Currency - domestic or foreign currency, for debt and for equity and (in the case of financial
derivatives) to receive or pay foreign currency
Interest rate structure (in the case of debt instruments) - variable or fixed-rate

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Banco de
de Portugal
Portugal
General overview

Interno 6
Banco de
de Portugal
Portugal
Specific issues – Direct investment
 Specific issues - Direct investment
 Shares and other equity can be valued at their current prices
when regularly traded on stock exchanges /other financial markets
 When there is no observable market prices for equity positions -
unlisted shares/other equity an estimation is used
Listed companies Market price

Capital
OFBV* (Own Funds at Book
Unlisted companies
Value)
Valuation
Nominal value +
Debt
Accrued not paid
instruments
interest
*OFBV = Paid-up capital + Reserves + Cumulated reinvested earnings+ Holding gains or losses
Interno 7
Banco de
de Portugal
Portugal
Specific issues – Direct investment

Interno 8
Banco de
de Portugal
Portugal
Specific issues – Portfolio investment

Interno 9
Banco de
de Portugal
Portugal
Financial Derivatives and Employee Stock Options

Interno 10
Banco de
de Portugal
Portugal
Specific issues – Other investment
 Specific issues – Other investment

 Valuation of nonnegotiable instruments - nominal value
 Nonnegotiable instruments include loans, deposits, and other accounts
receivable/payable. The primary valuation is nominal value (not adjusted
for expected losses /changes in interest rates). The use of nominal values
is partly influenced by pragmatic concerns about data availability and
consistency in reporting by debtors and creditors
 In the case of other equity included in other investment, valuation
methods for unlisted direct and portfolio investment equity may be
used
 Accrued interest not yet paid (also includes FISIM) should be included in
the outstanding amount of the financial asset or liability

Interno 11
Banco de
de Portugal
Portugal
 Specific issues – Other investment (cont.)

 The nominal value can be reduced by a writeoff, restructuring, or debt
forgiveness - Liabilities are canceled or written off, in part or in full, by
the creditor as uncollectible, usually because of the bankruptcy or
liquidation of the debtor
 In a formal debt reorganization, the old liability is regarded as being
extinguished and a new liability created
 While nominal value is the primary valuation method for nonnegotiable
instruments, it provides an incomplete view of the financial position of
the creditor. Consequently, additional items are included for loans: fair
value, nonperforming loans, and loan loss (bad debt) provisions

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Banco de
de Portugal
Portugal

Interno 13
Banco de
de Portugal
Portugal

Interno 14
Banco de
de Portugal
Portugal

Interno 15
Banco de
de Portugal
Portugal

Interno 16
Banco de
de Portugal
Portugal
 Specific issues – Reserves
 At the appropriate reference dates, reserve assets are valued in the main
at current market prices. Monetary gold is valued at the prevailing
market price, SDRs are valued at market rates calculated by the IMF,
and deposits and loans are valued at nominal values
 Monetary gold
 Transactions in gold bullion as reserve assets between monetary
authorities and with international financial institutions are recorded
as transactions in gold bullion
 Transactions with gold bullion as reserve assets with all other
counterparts are recorded as other changes in volume
 Monetization (Demonetization) change in the classification of gold
bullion from nonmonetary (monetary) to (non)monetary.
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Banco de
de Portugal
Portugal

Interno 18
Banco de
de Portugal
Portugal
Specific issues
 Importance of the International Investment Position analysis:
Assess economic relations with the rest of the world (rates of profitability)
Monitor developments in external relations between countries
Measure degree of financial openness
Sustainability and vulnerability of the economy vis-a-vis the rest of the
world (indicator of external debt sustainability)
Indicator of financial stability
Facilitates international comparison of countries’ IIP, sectoral composition
of the financial investment and the external financing
Sources of external financing
Maturities analysis

Interno 19
Banco de
de Portugal
Portugal
External debt
General overview
 Gross external debt, at any given time, is the outstanding amount of

those actual current, and not contingent, liabilities that require
payment(s) of principal and/or interest by the debtor at some
point(s) in the future and that are owed to nonresidents by residents
of an economy
 As an economy increasingly integrates with the rest of the world, so
analysis of the external liability position, and gross external debt
position in particular, needs to take into account positions in external
assets
 The net external debt position is equal to gross external debt less
gross external assets in debt instruments

Interno 20
Banco de
de Portugal
Portugal
External debt
General overview
 Provided that debt securities are valued at market value, the net
external debt position equals the net IIP position, excluding all equity
(equity shares and other equity) and investment fund shares assets
and liabilities, all financial derivatives and ESOs assets and liabilities,
and gold bullion
 Gross External Debt provides an important measure of the exposure to the
international financial debt markets
Sustainability analysis (e.g, external debt / GDP): i) High ratio may imply a
greater burden of debt servicing; ii) growing ratio may suggest a
country/economy is on an unsustainable path
Maturity mismatch
External debt (and reserves) affect a country’s external vulnerability
Monitoring the risks to financial stability (large imbalances)
Interno 21
Banco de
de Portugal
Portugal
Exercise
Exercise In March a company “A” which is resident in country “A” buys MEUR 100
corresponding to 20% of the shares of firm “B” resident in country “B” and buys
MEUR 20 (5% of the shares) of firm “C”, resident in “C”
i) Caracterize the type of relations that are established: a) between “A” and “B”;
between “A” and “C”. Assume the firm “A” has a deposit in country “B” since
January (MEUR200) in USD (exchange rate eur to usd is 0.6). Record BoP / IIP of
country “A“ in March
ii) In June the following situations occur: a) Firm “B” lends MEUR 10 to firm “A”
and firm “C” lends MEUR 5 to firm “A”; b) Firm “A” acquires more 6% of the
shares of firm “C” for MEUR 2; c) the profit of the company “B” was MEUR 1 of
which MEUR 0.5 were paid in dividends to shareholders and the remain was
retained by the enterprise. Record BoP / IIP of country “A “ in June
iii) In September, the firm “A” recognizes that cannot pay the loan provided from
firm “C” (MEUR5)
Interno 22
Banco de
de Portugal
Portugal
Exercise
In December, the shares of firm “C” increased its valuation by MEUR 1 and the
Exchange rate eur to usd is now 0.7. In addition firm “B” buys 10% of the shares
of firm “D” located in country “D” by 7 MEUR.
iv) What type of relation was established between company “A” and company
“D”? Use FDIR to answer to the question. Would your answer to the previous
question be diferent if you use PMM instead? Please justify.
v) Record bop / iip in december in the perspective of country “A”

Interno 23
Banco de
de Portugal
Portugal
Questions, comments ...
João Falcão Silva

jmsilva@novaims.unl.pt | jmfsilva@bportugal.pt
Interno 24
Banco de
de Portugal
Portugal

CBS - Lesson 8 - 23 - October 2022

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External Statistics

Central Banks’ Statistics

1. International Investment Position

Central Banks’ Statistics

 International Investment Position (IIP) statistical statement that

Central Banks’ Statistics

Present value and price-to-earnings ratios Market capitalization method

Own funds at book value Apportioning global value.

nominal value for non-negotiable items (positions on loans, deposits

 Dimensions for the classification of the IIP

Central Banks’ Statistics

Central Banks’ Statistics

Listed companies Market price

Central Banks’ Statistics

Central Banks’ Statistics

Central Banks’ Statistics

 Specific issues – Other investment

Central Banks’ Statistics

 Specific issues – Other investment (cont.)

Central Banks’ Statistics

Central Banks’ Statistics

Central Banks’ Statistics

Central Banks’ Statistics

Central Banks’ Statistics

Central Banks’ Statistics

Central Banks’ Statistics

 Gross external debt, at any given time, is the outstanding amount of

Central Banks’ Statistics

Central Banks’ Statistics

João Falcão Silva

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