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5331.0 - Balance of Payments and International Investment Position, Australia, Concepts, Sources and Methods, 1998  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 22/09/1998   
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Contents >> Chapter 1. Introduction

Purpose of this Publication

1.1. The balance of payments is one of Australia’s key economic statistics. Put simply, the balance of payments measures the economic transactions between Australian residents and the rest of the world. It also draws a series of balances between inward and outward transactions, provides an overall net flow of transactions between Australian residents and the rest of the world and reports how that flow is funded. Economic transactions include:

      • exports and imports of goods, such as agricultural products, minerals, other raw materials, machinery and transport equipment, computers, white goods and clothing;
      • exports and imports of services such as international transport, travel and business services;
      • income flows, such as dividends and interest earned by foreigners on investments in Australia and by Australians investing abroad;
      • financial flows, such as investment in shares, debt securities and loans; and
      • transfers, which are offsetting entries to any one-sided transactions listed above, such as foreign aid and funds brought by migrants to Australia.

1.2. In more recent years, with the growing interest in the level of foreign investment and debt, more emphasis is being placed on Australia’s international investment position. These statistics measure the level (or stock) of foreign investment in Australia and Australian investment abroad at the end of a period. The difference between foreign investment in Australia and Australian investment abroad is referred to as Australia’s net international investment position. International investment position statistics may be split to show, separately, Australia’s foreign debt and equity investment. The latter provides a measure of the foreign ownership of Australian enterprises (through share holdings) and of Australian ownership of foreign enterprises. Viewed more broadly, the international investment position statistics provide a reconciliation of the stock of investment at two points in time.

1.3. This publication aims to provide, for Australia’s balance of payments and international investment position statistics, a comprehensive understanding of their:
      • underlying conceptual framework;
      • classification of data items;
      • presentation and publication;
      • data sources and methods;
      • data quality; and
      • relationship to broader economic statistics as defined in the system of national accounts.


Users and Uses of Statistics

1.4. A wide spectrum of audiences requires information about balance of payments and international investment position concepts, sources and methods. This ranges from users with broad, general needs for information about the main aggregates to those with highly specialised needs relating to particular data items. The main categories of users, starting from those with the broadest interest, and their likely needs and uses, are set out in box 1.1.

1.5. For students and others who only need a broad understanding of the balance of payments and international investment position statistics, the ABS publications Measuring Australia’s Economy (Cat. no. 1360.0) and Statistical Concepts Reference Library (Cat. no. 1361.0.30.001), provide a brief overview of the concepts, structure and classifications of these and the other major economic statistics published by the ABS. The present concepts, sources and methods document should prove a useful extension, but for the most part it may be too detailed for this audience. These users should read Chapters 2 to 5, 15 and 16, but may avoid the more detailed material. Some years ago the ABS published the Guide to Australian Balance of Payments (Cat. no. 5362.0), aimed at the more general user. That document is still relevant and helpful, but needs to be updated because there have been changes to some of the key concepts, classifications and presentations of the statistics. The ABS plans to update the publication at a later date.

1.1 USERS AND USES OF BALANCE OF PAYMENTS AND INTERNATIONAL INVESTMENT POSITION STATISTICS
  • Students at upper high school level or undergraduate level at university - the need is for a broad understanding of the conceptual framework, how the numbers are put together, and the main outputs (publication tables, written and graphic analysis, and explanatory notes) to gain an appreciation of Australia’s economic relationships with the rest of the world;
  • Financial journalists - the need is for a broad understanding of the conceptual framework, how the numbers are put together, and the main outputs, to support media comment on Australia’s economic relationships with the rest of the world. These users may need to delve deeper on particular aspects;
  • Teachers / teaching academics - a broad understanding of the conceptual framework, how the numbers are put together, and the main outputs, to support teaching about Australia’s economy and its relationship with the rest of the world. These users may also need to delve deeper on particular aspects;
  • Financial sector economists, national and international investors, public sector economists in other countries, and international rating agencies - a reasonably detailed understanding of the conceptual framework, the sources and how the numbers are put together, to support their interpretation of the statistics and advice to their organisations and clients;
  • International agencies such as the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), the World Bank and the United Nations Statistics Division - while uses vary by agency, generally these agencies require a reasonably detailed understanding of all aspects of the statistics and their uses encompass monitoring the extent of country adherence to international standards and practices, the compilation of country groupings and world economic statistics, and modelling work to support the preparation of country reports;
  • Academic researchers - a reasonably detailed understanding of the conceptual framework, the sources, and how the numbers are put together, with more detail on particular accounts/items to support research and modelling;
  • Balance of payments compilers in other countries - a reasonably detailed understanding of Australian sources and methods, with more detail on particular accounts/items, to compare with their own practices;
  • The Commonwealth Treasury, the Reserve Bank of Australia and other public sector economists - similar to the previous category, but needing more detail in some areas, to support their interpretation of the numbers and forecasting of the external sector and other national accounting aggregates; and
  • Balance of payments and national accounts compilers in the ABS - a detailed understanding of concepts, sources and methods, supported by considerable detail on current and historical practice regarding particular accounts and data items, and areas of possible future change.

1.6. The present document is aimed mainly at the more detailed user of balance of payments and international investment position statistics. However, it is not a complete description of the ABS balance of payments and international investment position methodology. That task would require a much larger publication. Also, given the constantly changing economic environment and the need for frequent evaluation of and changes at the margin to data sources and methods, this publication would quickly become out of date. Rather, this publication aims to provide a substantial guide to what the ABS does to compile balance of payments and international investment position statistics. Even so, the publication will become out of date over time, and users should keep abreast of changes to data sources and methods which are announced from time to time in the quarterly and annual balance of payments and international investment position publications (Cat. nos 5302.0 and 5363.0). It is intended to update the present publication periodically.


International Statistical Standards

1.7. The ABS has always attempted to follow, wherever possible, the international standards relating to balance of payments and international investment position statistics. The reasons for this are several. First, domestic and foreign analysts will be assured that Australia’s official balance of payments and international investment position statistics comply with objective, coherent international standards that reflect current, global analytic needs. Second, Australia is a member of the international community and international users need comparable data for comparison between countries. Third, Australia, as a formal member of organisations such as the IMF and OECD, needs to submit its various economic statistics in conformity with standards set by those organisations. Fourth, a method of data validation is for Australia to compare and reconcile its data with those of other countries. For this purpose statistics need to be as comparable as possible.

1.8. To facilitate such consistency and to provide guidelines for its members, the IMF has issued the Balance of Payments Manual, the first edition of which appeared in 1948 and the most recent (fifth) edition in 1993. The conceptual framework of the Australian balance of payments corresponds to that underlying the fifth edition of the IMF Manual, hereafter referred to as BPM5. BPM5 was implemented in Australia’s balance of payments accounts and international investment position statistics from the September quarter 1997. (The ABS Information Paper: Implementing New International Statistical Standards in ABS International Accounts Statistics, 1997 (Cat. no. 5364.0), explains changes in Australia’s balance of payments statistics that occurred with the switchover to the BPM5 basis. A series of tables in the information paper show the classifications used in previous balance of payments and international investment position statistics, along with those currently used.)

1.9. A process of reviewing the existing international standards started in the mid 1980s with the specific objective of harmonising, to the maximum extent possible, the statistical concepts, definitions, statistical units, classifications and terminology. Release of the revised standards started in 1993 with BPM5 and the third edition of the System of National Accounts (SNA93). BPM5 was prepared by the IMF in close cooperation with national compilers and with the Statistical Office of the European Communities, the OECD, the United Nations and the World Bank. Those five organisations jointly published SNA93. The IMF is working on a Manual on Monetary and Financial Statistics and is redeveloping its Manual on Government Finance Statistics. Both of these international standards are expected to be harmonised, to the maximum extent possible, with SNA93. In addition, common key concepts and definitions embodied in SNA93 align with those used in the International Standard Industrial Classification and with those used by the International Labour Organisation for population and related measures.


Structure of this Publication

1.10. Chapter 2 explains the concepts and terms used in balance of payments and international investment position statistics. It also explains the double entry accounting system that underscores the statistics, concepts of territory and resident, economic transactions, the valuation and time of recording of transactions, the reconciliation of balance of payments and international investment position statistics, and other important conceptual issues.

1.11. Statistics need to be arranged in a coherent structure to support their use for a wide variety of purposes. The balance of payments statement provides a classification of economic transactions, and similarly the international investment position statistics are broken down by various levels of classification. Chapter 3 explains the nature of these classifications and describes the more important ones. Some of the lesser classifications are left to later chapters.

1.12. Chapter 4 outlines the ABS publication strategy for balance of payments and international investment position statistics. It also explains the presentation of the statistics, commencing with the summary balance of payments and international investment position statistics, and moving to more detailed statistics and the use of analytic measures such as seasonal adjustment, trend and chain volume measures.

1.13. Chapter 5 provides an overview of the balance of payments and international investment position compilation process, indicates the ABS strategy for the collection of data, and describes the use of estimation and data models to compile these statistics. It provides a summary of the data sources and data models used.

1.14. Chapters 6 to 10 describe in some detail the concepts, additional classifications, sources and methods applicable to the major components of the current and capital accounts of the balance of payments. A table is shown at the end of each chapter summarising the data sources and estimation methods applicable. Chapter 6 describes the goods component of the current account; Chapter 7 describes services; Chapter 8 income; Chapter 9 current transfers; and Chapter 10 describes the capital account.

1.15. Chapter 11 elaborates, in more detail than in Chapter 2, on the balance of payments financial account and its close relationship to the international investment position. It provides a background for the next three chapters, which explain direct investment (Chapter 12), portfolio investment (Chapter 13), and other investment and reserve assets (Chapter 14).

1.16. Chapter 15 examines the quality of balance of payments and international investment position statistics. It provides an analysis of the accuracy and reliability of the statistics and the factors influencing quality.

1.17. Chapter 16 explains the relationship between the balance of payments and international investment position statistics and broader economic statistics which are articulated in the system of national accounts. This is an important chapter for those wishing to have a better understanding of the linkages between the external sector and other sectors of the economy.

1.18. While the balance of payments and international investment position statistics measure economic transactions and the stock of assets and liabilities between Australian residents and non-residents, they can also measure transactions and stocks of investment between Australian residents and the residents of a single other country. In other words, transactions and the stock of investment may be classified by partner country or groupings of partner countries. Chapter 17 examines the issues involved in compiling and classifying the balance of payments and international investment position by partner country.

1.19. Chapter 18 describes some emerging issues in Australia’s international statistics. These include possible developments in data sources, new challenges such as globalisation and internet commerce, and issues associated with international statistical cooperation.

1.20. The appendixes detail the data sources used in the compilation of the components of the balance of payments and international investment position (Appendix 1), and list selected data models used in the compilation of these components (Appendix 2).


Earlier Concepts, Sources and Methods Publications

1.21. The first comprehensive concepts, sources and methods publication for the balance of payments was published by the ABS in 1981 under the title Balance of Payments, Australia, Concepts, Sources and Methods (Cat. no. 5331.0); a second edition was published in 1990. A summary publication Balance of Payments, Australia, Summary of Concepts, Sources and Methods (Cat. no. 5351.0) was published in 1988 and again in 1996. A related publication Foreign Investment, Australia, Summary of Concepts, Sources and Methods (Cat. no. 5355.0) was published in 1991. Each of these publications still serves as a useful reference to the history of balance of payments and international investment position (previously foreign investment) statistics in Australia. The present publication revises and updates these previous publications.





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