3.15. Items in the financial account and international investment position statement are classified on a number of bases. The main ones are type of investment, assets and liabilities, instrument of investment, sector, and original contractual maturity of financial instruments.
3.16. A comparison of the international investment position statement and the balance of payments financial account shows two minor differences. First, in the financial account the primary classification is by type of investment (direct, portfolio, other investment, and reserve assets), whereas in the international investment position the asset and liability classification takes precedence. Second, in the category of direct investment in the financial account, reinvested earnings are shown separately whereas, in the international investment position statement, where no separate market price valuation of reinvested earnings can exist, the reinvested earnings are grouped into a composite category for equity and reinvested earnings.
Type of investment
3.17. The type of investment used in Australia’s balance of payments and international investment position consists of four broad categories:
- Direct investment capital refers to capital provided to or received from an enterprise by an investor in another country (i.e. an individual, enterprise or group of related individuals or enterprises) who is in a direct investment relationship with that enterprise. A direct investment relationship exists if the investor has an equity interest in an enterprise, resident in another country, of 10 per cent or more of the ordinary shares or voting stock. The direct investment relationship extends to branches, subsidiaries and to other businesses where the enterprise has significant shareholding. Chapter 12 sets out the direct investment definition in detail.
- Portfolio investment refers to transactions in equity and debt securities (apart from direct investment and reserve assets). Debt securities comprise bonds and notes, money market instruments and financial derivatives. In comparison with direct investment, it indicates investment where the investor is not assumed to have any appreciable say in the operation of the enterprise.
- Other investment is a residual category that captures transactions not classified to direct investment, portfolio investment or reserve assets of the compiling economy. Other investment covers trade credits, loans (including financial leases), currency and deposits, and a residual category for any other assets and liabilities.
- Reserve assets refer to those foreign financial assets that are available to, and controlled by, the monetary authorities such as the Reserve Bank of Australia for financing or regulating payments imbalances. Reserve assets comprise: monetary gold, Special Drawing Rights, reserve position in the IMF, and foreign exchange held by the Reserve Bank.
Assets and liabilities
3.18. A financial asset is generally in the form of a financial claim on the rest of the world that is either represented by a contractual obligation (such as a loan) or is evidenced by a security (such as a share certificate). Two financial assets - monetary gold and Special Drawing Rights in the IMF - are not claims on the rest of the world. They are, however, included in international investment assets because they are readily available for payment of international obligations. A liability represents a financial claim of the rest of the world on Australia. Assets and liabilities in the international investment position statement are components of the balance sheet of an economy with the rest of the world. In the financial account the asset and liability classifications in essence reflect, respectively, transactions in claims on non-residents (assets) and in claims by non-residents (liabilities).
3.19. In the international investment position, the difference between assets and liabilities is the net international investment position, also referred to as the net liability position in Australia’s case.
3.20. For direct investment, in both the financial account and international investment position the main classification is by direction of investment, i.e. direct investment abroad and direct investment in Australia. Direct investment abroad is derived by netting liabilities of the Australian direct investors to their direct investment enterprises against claims on their direct investment enterprises abroad. Similarly, direct investment in Australia is derived after netting claims of the Australian direct investment enterprises against their liabilities to those direct investors abroad.
Instrument of investment
3.21. Several instruments of investment are also identified. Some of these are only applicable to one type of capital. For example, the instrument reinvested earnings is only applicable to direct investment, while monetary gold and Special Drawing Rights are only used for reserve assets.
3.22. The major instruments and grouping of instruments identified in balance of payments and international investment statistics include:
Each of these categories is described in box 11.3.
3.23. To make statistical presentations less cluttered, similar instruments may be combined into groups or combined with certain types of investment. For example:
- monetary gold;
- Special Drawing Rights;
- foreign exchange;
- reserve position in IMF;
- reinvested earnings;
- debt securities;
- trade credit;
- loans; and
- other assets/liabilities.
- trade credit, loans, deposits, and other forms of finance including all debt securities, but excluding equity capital and reinvested earnings, between non-financial enterprises in a direct investment relationship, are combined and shown only as other direct capital. Similar aggregation applies to finance between a financial enterprise and a non-financial enterprise and between financial enterprises only in case of permanent debt;
- bonds, bills, notes, money market instruments and financial derivatives within portfolio investment are shown separately but under a heading of debt securities; and
Table 3.4 shows the instrument classification used within each of the types of investment.
- a number of financial assets held by the Reserve Bank, and available for use as reserve assets (currency and deposits, bills, bonds, notes and money market instruments), are grouped under the category foreign exchange.
Foreign equity and debt
|3.4 LIST OF INSTRUMENTS WITHIN EACH TYPE OF INVESTMENT |
Other direct capital (a)
|bonds and notes|
money market instruments
Currency and deposits
|Special drawing rights|
|Reserve position in the IMF|
|currency and deposits|
(a) Includes trade credit, loans, and other assets and liabilities.
3.24. At a broader level, instruments may be combined to show foreign equity and foreign debt. Foreign equity includes equity capital, reinvested earnings and equity securities. Foreign debt is a residual item containing all other instruments. They may be compiled on a gross basis (e.g. foreign debt/assets and liabilities) or on a net basis (e.g. net foreign debt).
3.25. Transactor units within an economy may be grouped together into institutional sectors. Units within the same institutional sector may be expected to behave similarly in their financial and other dealings and in response to differing economic and political stimuli. The principle of classification by sector, or sectorisation, in the financial account and international investment position is to identify the sector of the domestic creditor for assets and the sector of the domestic debtor for liabilities.
3.26. Four sectors are distinguished in the standard components of the ABS balance of payments and international investment statistics: general government; Reserve Bank; depository corporations; and other. These sectors are explained in box 11.2. Within the financial account and international investment position, sectorisation is applied to portfolio investment and other investment only. The classification is excluded from direct investment, as the domestic sector of the direct investor/investee is not considered important for explaining the behaviour of direct investment.
3.27. Within the current and capital accounts, sectorisation is also applied to current and capital transfers, where a split between general government and other is used.
Other financial classifications
3.28. Other classifications in the financial account and international investment position include the domicile of liabilities issued by residents, drawings and repayments for long-term liabilities in the form of both trade credits and loans, the residual maturity structure of financial claims and liabilities, and the currency of assets and liabilities.