5331.0 - Balance of Payments and International Investment Position, Australia, Concepts, Sources and Methods, 1998  
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Contents >> Chapter 16. The balance of payments and relationship to the national accounts >> Relations between national accounts and balance of payments concepts and classifications

16.5. Because the balance of payments, including the international investment position, forms an integral part of the national accounts, there is complete concordance between them in concept and classification, although the extent of cross-classifications may differ between the two systems.

16.6. The balance of payments and national accounts identify resident producers and consumers identically, and both invoke the same concepts of economic territory and centre of economic interest. Both use market prices as the primary concept of valuation of transactions and they adopt identical concepts of accrual accounting. The systems use identical conversion procedures to convert transactions, which take place in foreign currency, to Australian currency.

16.7. While for some purposes it would be convenient if classifications used in the rest of the world accounts and the balance of payments accounts were identical, differences between the two are justifiable because, on occasion, they serve different purposes. For example, in the balance of payments financial account, precedence is given to classification of transactions by type of investment (i.e. direct, portfolio, reserve assets, other), whereas in the rest of the world financial account the instrument of investment is the primary classification. More important is the fact that concepts, definitions and classifications are consistent between the two systems.

The production, income and capital accounts of the national accounts

16.8 The national accounts tables reflect the basic aspects of economic life (production, income, consumption, accumulation and wealth). The tables which follow show summarised versions of the main accounts in the national accounts publications. The tables illustrate the main structure of the national accounts aggregates with particular reference to external transactions. An important element of the system is that in each table a balance is derived which is carried through to the next account.

16.9. For many analysts, Gross Domestic Product (GDP) is the key economic aggregate as it measures the total value added for the Australian economy in any period. GDP may be measured as:

      • the total value of output less the cost of goods and services used in the production process (intermediate consumption) - this is referred to as the production approach;
      • the value of income accruing from the production process to each of the factors of production (plus net taxes on production and imports) - this is referred to as the income approach;or
      • total final expenditure on goods and services during the period - the expenditure approach.

Conceptually these measures are equal, but because different and imperfect data sources are used to measure each approach, the measures may differ in practice, which is reflected in the statistical discrepancy item. From the September quarter 1998 the national accounts will be benchmarked to balanced annual supply and use tables. This will ensure that, except for the latest year, the three measures of GDP will be equal on an annual basis from 1994-95, though there will still be a statistical discrepancy between the quarterly estimates based on the three approaches.

16.10. Table 16.1 shows the Gross Domestic Product Account for the whole economy showing the components of the expenditure approach and the income approach to measuring GDP, while table 16.2, the Production Account, shows the derivation of GDP using the production approach. (1) The expenditure based measure of GDP is derived as final consumption expenditure by government and households, plus investment in fixed capital formation and changes in inventories, plus exports minus imports of goods and services, plus (or minus) the statistical discrepancy. Exports and imports are the same as the balance of payments components, exports and imports of goods and services. The income based measure of GDP shows the components of factor income, namely compensation of employees, gross operating surplus and mixed incomes, plus taxes less subsidies on production and imports. The production based measure of GDP is shown in table 16.2 as total gross output at purchasers’ prices less intermediate consumption. For the purpose of discussion here, all values are in current prices.
    1. Tables 16.1 to 16.7 are extracts, with some minor changes, from the Information Paper: Implementation of Revised International Standards in the Australian National Accounts, 1997 (Cat. no. 5251.0). Tables 16.8 to 16.11 show the comparable rest of the world tables.
16.11. Table 16.3 shows the National Income and Use of Income Account, showing the derivation of gross national income, gross disposable income and use of gross disposable income. Gross national income is equivalent to GDP plus primary income receivable from non-residents less primary income payable to non-residents. These primary income items are the same as the balance of payments income components which are used in the derivation of gross saving (gross disposable income less consumption) and net saving (gross saving less consumption of fixed capital). Table 16.3 illustrates how the various balance of payments income and current transfers components affect the nation’s saving. To derive gross disposable income, net secondary income receivable from non-residents is added to gross national income; secondary income items are equivalent to the net current transfer components in the balance of payments. The segment of table 16.3 dealing with use of gross disposable income shows the derivation of gross saving (gross disposable income less consumption) and net saving (gross saving less consumption of fixed capital). Table 16.3 illustrates how the various balance of payments income and current transfers components affect the nation’s saving.

16.12. Table 16.4, the National Capital Account, shows the link between gross saving and net lending/ borrowing (to/from the rest of the world). The latter is derived as gross saving plus net capital transfers from non-residents less investment in fixed capital and inventories and the net acquisitions of non-produced, non-financial assets from non-residents. The items net capital transactions and net acquisitions of non-produced non-financial assets are both sourced from the balance of payments capital account. The capital account was introduced into the balance of payments to emphasise this clear relationship between the balance of payments and the national accounts.

The financial account and balance sheet of the national accounts

16.13. Net lending/borrowing is also the balance shown in table 16.5, the Financial Account. The financial account shows how the net lending/borrowing is financed through a combination of transactions in financial assets and liabilities. As table 16.5 is a summary account for the economy, transactions between resident sectors are offset and eliminated. Therefore table 16.5 is also equivalent to the balance of payments financial account. However, there are some important differences in classification emphasis between table 16.5 and the balance of payments financial account. In table 16.5 the emphasis is on instrument of investment (currency and deposits, securities, loans, equity, etc.), while in the balance of payments financial account, the emphasis is on type of investment (direct investment, portfolio investment, etc.). Both presentations give emphasis to the asset and liability classification.

16.14. It is worth noting that, if table 16.5 were expanded to include the financial transactions taking place between the various resident sectors, it would show the full financial account for the economy (which is published quarterly in Australian National Accounts: Financial Accounts (Cat. no. 5232.0)).

16.15. Table 16.6, the National Closing Balance Sheet, shows Australia’s non-financial assets (fixed assets, inventories, tangible and intangible non-produced assets (such as land, copyright, etc.)), financial assets, and liabilities and net worth at the end of the period. As table 16.6 is a summary account for the economy, financial assets and liabilities only measure financial claims by residents on non-residents and liabilities by residents to non-residents. In other words, in this table the financial assets and liabilities components are the international investment position statement for Australia. Claims and liabilities between resident sectors have been offset and eliminated. Again, there are some important classification differences between table 16.6 and the international investment position statement. In table 16.6 the emphasis is on instrument of investment, while in the international investment position statement the emphasis is on type of investment. Both presentations give emphasis to the asset and liability classification.

16.16. Table 16.7, the Balance Sheet Accounts and Accumulation and Revaluation Accounts, shows in summary form the reconciliation of the opening stock of assets and liabilities with transactions and other changes. This is also the approach used to reconcile the financial transactions in the balance of payments with the opening and closing positions of the international investment position statement.

Rest of the world accounts of the national accounts

16.17. There are four accounts for the rest of the world in the national accounts. These are:

      • table 16.8, the External Income and Use of Income Account;
      • table 16.9, the External Capital Account;
      • table 16.10, the External Financial Account; and
      • table 16.11, the External Balance Sheet Accounts and Accumulation and Revaluation Accounts.

Each of these will be shown in the annual publication, Australian System of National Accounts (Cat. no. 5204.0). However, in the quarterly publication, Australian National Accounts: National Income, Expenditure and Product (Cat. no. 5206.0), the first two accounts will be combined into one and the last two tables will not appear. The External Financial Account will appear in Australian National Accounts: Financial Accounts (Cat. no. 5232.0). As mentioned in paragraph 16.3, these accounts are required to close the system of national accounts and, while essentially the same as the balance of payments accounts and international investment position statement, they are compiled from the perspective of the non-resident transactor. Table 16.8 is essentially the current account of the balance of payments, table 16.9 the capital account, table 16.10 the financial account, and table 16.11 the international investment position and reconciliation statement. The reader should be able to readily identify the counterpart entries in tables 16.1 and 16.3 to 16.7.

16.18. The various relationships among the key aggregates may be expressed algebraically. The equations in table 16.12 show the relationships between the current account balance (CAB) and saving and investment, and between net foreign investment (NFI) and saving, investment and net capital account transactions (NCT). The numbers included in tables 16.1 to 16.11 were taken from illustrative tables provided in SNA93. As SNA93 only provides illustrative numbers selectively, not all the tables shown have them.

16.1
GROSS DOMESTIC PRODUCT ACCOUNT (example data only)

$m

Final consumption expenditure
1,399
General government
(G)
368
Household (incl. NPISH (a))
(C)
1,031
Gross fixed capital formation
(IF)
376
Domestic final demand
1,775
Changes in inventories
(IV)
38
Gross national expenditure
(GNE)
1,813
Exports of goods and services
(X)
540
Less imports of goods and services
(M)
499
Statistical discrepancy
0
Gross domestic product (expenditure approach)
GDP
1,854
Compensation of employees
762
Gross operating surplus and mixed income
901
Gross domestic product at factor cost
1,663
Taxes less subsidies on production and imports
191
Statistical discrepancy
0
Gross domestic product (income approach)
GDP
1,854

(a) Non Profit Institutions Serving Households.

Source: Extract from table A1 of Cat. no. 5251.0.


16.2
PRODUCTION ACCOUNT (example data only)
$m

Total gross output at basic values
3,604
Taxes less subsidies on products
133
Output at purchasers' prices
3,737
Less intermediate consumption
1,883
Statistical discrepancy
0
Gross domestic product (production approach)
GDP
1,854

Source:
Extract from table A2 of Cat. no. 5251.0.


16.3
NATIONAL INCOME AND USE OF INCOME ACCOUNT (example data only)
$m

Compensation of employees
762
Gross operating surplus and mixed income
901
Taxes less subsidies on production and imports
191
Gross domestic product (income approach)
GDP
1,854
Primary income receivable from non-residents
Compensation of employees
6
Property income
63
Less primary income payable to non-residents
Compensation of employees
2
Property income
38
Gross national income
GNI
1,883
Net secondary income receivable from non-residents (current transfers)
-29
Gross disposable income
GNDY
1,854
Use of gross disposable income
Final consumption expenditure
1,399
General government
(G)
368
Households (incl NPISHs)
(C)
1,031
Net saving
233
Consumption of fixed capital
222
Use of gross disposale income
1,854

Source:
Extract from table A4 of Cat. no. 5251.0.


16.4
NATIONAL CAPITAL ACCOUNT (example data only)
$m

Net saving
233
Consumption of fixed capital
222
Capital transfers
Receivable from non-residents
1
Less payable to non-residents
4
Gross saving and capital transfers
452
Gross fixed capital formation
(IF)
376
Changes in inventories
(IV)
38
Acquisitions less disposals of non-produced non-financial assets
0
Statistical discrepancy
0
Net lending (+)/net borrowing (-)
38
Total capital accumulation and net lending (+)/ net borrowing (-)
452

Source: Extract from table A5 of Cat. no. 5251.0.


16.5
FINANCIAL ACCOUNT (example data only)
$m

Net lending (+)/net borrowing (-)
38
Statistical discrepancy
0
Net change in financial position
38
Changes in assets
Monetary gold and SDRs
-1
Currency and deposits
-2
Short-term securities other than shares
4
Long-term securities other than shares
14
Derivatives
2
Loans and placements
37
Equity
3
Insurance technical reserves
0
Other accounts receivable
30
Net acquisition of financial assets
87
Changes in liabilities (including equity)
Currency and deposits
11
Short-term securities other than shares
2
Long-term securities other than shares
2
Derivatives
1
Loans and placements
10
Equity
3
Insurance technical reserves
0
Other accounts payable
20
Net incurrence of liabilities
49

Source: Extract from table A6 of Cat. no. 5251.0.


16.6
NATIONAL CLOSING BALANCE SHEET (example data only)

$m

Assets
Non-financial assets
Produced assets
6,336
Fixed assets
Inventories
Non-produced assets
4,068
Tangible non-produced assets
Intangible non-produced assets

Financial assets
Monetary gold and SDRs
0
Currency and deposits
116
Securities and other shares
134
Loans and placements
80
Shares and other equity
118
Insurance technical reserves
26
Other accounts receivable
155
Total financial assets
629

Total assets
11,033

Liabilities and net worth

Liabilities
Currency and deposits
114
Securities other than shares
99
Loans and placements
54
Shares and other equity
6
Insurance technical reserves
25
Other accounts payable
89

Total liabilities
387

Net worth
10,646

Total liabilities and net worth
11,033

Source: Extract from table A7 of Cat. no. 5251.0.


16.7
BALANCE SHEET ACCOUNTS AND ACCUMULATION AND REVALUATION ACCOUNTS
Opening
balance
sheet
Net capital formation/ financial transactions
Other
changes
Closing
Balance
Sheet
$m
$m
$m
$m

Assets
Non-financial assets
Produced assets
Fixed assets
No illustrative figures have been included in this table
Inventories
Total produced assets
Non-produced assets
Tangible non-produced assets
Intangible non-produced assets
Total non-produced assets

Financial assets
Monetary gold and SDRs
Currency and deposits
Short-term securities other than shares
Long-term securities other than shares
Loans and placements
Equity
Insurance technical reserves
Other accounts receivable
Total financial assets

Total assets

Liabilities and net worth

Liabilities
Currency and deposits
Short-term securities other than shares
Long-term securities other than shares
Loans and placements
Equity
Insurance technical reserves
Other accounts payable

Total liabilities

Net worth

Total liabilities and net worth

Source: Extract from table A8 of Cat. no. 5251.0.


16.8
EXTERNAL INCOME AND USE OF INCOME ACCOUNT (example data only)

$m

Income of non-residents
Imports of goods by residents
392
Imports of services by residents
107
Total imports of goods and services
499
Compensation of employees
2
Property income
38
Other current transfers
39
Total income of non-residents
578
Use of income by non-residents
Exports of goods by residents
462
Exports of services by residents
78
Total exports of goods and services
540
Compensation of employees of residents
6
Property income of residents
63
Other current transfers received by residents
10
Current external balance
-41
Total use of income by non-residents
578



16.9
EXTERNAL CAPITAL ACCOUNT (example data only)
$m

Current external balance
-41
Capital transfers receivable by residents
1
Capital transfers payable by residents
4
Net capital transfers receivable by residents
3
Gross saving and capital transfers
-38
Total acquisitions less disposals of non-produced, non-financial assets
0
Net lending (+)/ net borrowing (-)
-38



16.10
EXTERNAL FINANCIAL ACCOUNT (example data only)

$m

Acquisition of assets by non-residents
Currency and deposits
11
Short-term securities other than shares
2
Long-term securities other than shares
3
Loans and placements
10
Equity
2
Insurance technical reserves
0
Other accounts receivable
21
Net acquisition of assets by non-residents
49
Incurrence of liabilities by non-residents
Monetary gold and SDRs
-1
Currency and deposits
-2
Short-term securities other than shares
5
Long-term securities other than shares
15
Loans and placements
37
Equity
3
Insurance technical reserves
0
Other accounts payable
30
Net acquisition of liabilities by non-residents
87
Statistical discrepancy
0
Net lending (+)/borrowing (-) by non-residents
-38



16.11
EXTERNAL BALANCE SHEET AND ACCUMULATION AND REVALUATION ACCOUNTS

Opening balance sheet
Financial transactions
Other changes
Closing balance sheet
$m
$m
$m
$m

Assets of non-residents
Currency and deposits No illustrative figures have been
included in this table
Short-term securities other than shares
Long-term securities other than shares
Loans and placements
Equity
Insurance technical reserves
Other accounts receivable
Total financial assets
Total assets of non-residents
Liabilities and net foreign investment of non-residents
Monetary gold and SDRs
Currency and deposits
Short-term securities other than shares
Long-term securities other than shares
Loans and placements
Equity
Insurance technical reserves
Other accounts payable
Total liabilities
Net foreign investment by non-residents
Total liabilities and net foreign investment



16.12
RELATIONSHIPS AMONG KEY AGGREGATES
1
GDP (Gross Domestic Product)
=
C + G + I + X - M
Explanation
From table 16.1, we know that GDP
  • equals consumption by households (C) and government (G),
  • plus investment in fixed capital and inventories (I) or where separately identified, investment in fixed capital (IF) and investment in inventories (IV),
  • plus exports less imports of goods and services (X-M)
  • 2
    GNDY (Gross National Disposable Income)
    =
    GDP + NY + NCT
    Explanation
    From table 16.3 we know that gross national disposable income (GNDY)
  • equals GDP
  • plus net income receivable from non-residents (NY)
  • plus net current transfers receivable from non-residents (NCT)
  • 3
    GNDY
    =
    C + G + I + X - M + NY + NCT
    Explanation
    For GDP in equation 2, substitute C + G + I + X - M from equation 1
    4
    CAB (Current Account Balance)
    =
    X - M + NY + NCT
    Explanation
    From the balance of payments we know that the current account balance
  • equals exports
  • minus imports of goods and services (X-M)
  • plus net income from abroad (NY)
  • plus net current transfers from abroad (NCT)
  • 5
    GNDY
    =
    C + G + I + CAB
    Explanation
    Same as equation 3 with
    CAB replacing X - M + NY + NCT (see equation 4)
    6
    S (Gross Saving)
    =
    GNDY - C - G
    Explanation
    From table 16.3 we know that gross saving (S)
  • equals GNDY
  • minus household & government expenditure (C + G)
  • 7
    S
    =
    I + CAB
    Explanation
    From equations 5 and 6 we know that
    S = C + G + I + CAB - C - G
    and C and G cancel out
    8
    CAB
    =
    S - I
    9
    NFI (Net Foreign Investment)
    =
    CAB + NKT
    =
    S - I + NKT
    =
    net lending/borrowing
    Explanation
    NFI (net foreign investment)
  • equals current account balance (CAB)
  • plus net capital account transactions (i.e. net capital transfers) (NKT)
  • less net purchases of non-financial, non-produced assets)
  • equals gross saving
  • less investment + net capital account transactions
  • equals net lending/borrowing.





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