ebt d xternal e · 2017. 3. 27. · external debt statistics guide for compilers and users...

EXTERNAL DEBT

STATISTICS

GUIDE FOR COMPILERS AND USERS

INTERNATIONAL MONETARY FUNDExternal Debt Statistics:Guide for Compilers and Users

Bank for International Settlements

Commonwealth Secretariat

Eurostat

International Monetary Fund

Organisation for Economic Co-operation and Development

Paris Club Secretariat

United Nations Conference on Trade and Development

World Bank

EXTERNAL DEBT

STATISTICS

GUIDE FOR COMPILERS AND USERS

INTERNATIONAL MONETARY FUND

2003



Eurostat


Organisation for Economic Co-operation and Development

Paris Club Secretariat


World Bank

© 2003 International Monetary Fund

Cataloging-in-Publication Data

External debt statistics : guide for compilers and users. — Washington, D.C. :International Monetary Fund, 2003.

p. cm.

Includes bibliographical references.ISBN 1-58906-060-1

1. Debts, External — Statistics. 2. Debts, External — Statistical methods. I. International Monetary Fund.HJ8011.E75 2003

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Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiEvolution of This Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiAcknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii

Abbreviations and Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv

1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1The Grey Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Conceptual Approach in the Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Structure of the Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

PART I: CONCEPTUAL FRAMEWORK

2 The Measurement of External Debt: Definition and Core Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Definition of External Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Core Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Appendix: Accrual of Interest Costs—How Should This Be Implemented? . . . . . . . . . . . 17

3 Identification of Institutional Sectors and Financial Instruments . . . . . . . 25Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Institutional Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Instrument Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

4 Presentation of the Gross External Debt Position . . . . . . . . . . . . . . . . . . . . 33Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33Presentation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34Memorandum Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

5 Public and Publicly Guaranteed External Debt . . . . . . . . . . . . . . . . . . . . . . 39Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39Presentation of Public and Publicly Guaranteed External Debt Position . . . . . . . . . . . . . . 40

6 Further External Debt Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . 42Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Sectors, Maturity, and Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

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Specific Characteristics of External Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Debt-Service and Other Payment Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

7 Further Presentation Tables of External Debt . . . . . . . . . . . . . . . . . . . . . . 49Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49External Debt by Short-Term Remaining Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49Debt-Service Payment Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50Foreign Currency and Domestic Currency External Debt . . . . . . . . . . . . . . . . . . . . . . . . . 55Interest Rates and External Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63External Debt by Creditor Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63Net External Debt Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65Reconciliation of External Debt Positions and Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66Traded Debt Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67Cross-Border Trade-Related Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

8 Debt Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72Types of Debt Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73Presentation of Data on Debt Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80Other Transactions Relating to Debt Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

9 Contingent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83Why Measure Contingent Liabilities? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84Measuring Contingent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

PART II: COMPILATION—PRINCIPLES AND PRACTICE

10 Overview of Data Compilation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93Coordination Among Official Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94Legal Backing for Data Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95Collection Techniques at Different Stages of Liberalization . . . . . . . . . . . . . . . . . . . . . . . 95Dissemination of External Debt Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

11 Government and Public Sector Debt Statistics . . . . . . . . . . . . . . . . . . . . . . 99Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99How Should Data Be Collected and Compiled by the Debt Office? . . . . . . . . . . . . . . . . . 99Basic Details and Terms of the Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101How Should Information Be Stored? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102How Can the Debt Office Validate Data? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102Appendix: Functions of the Government Debt Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

12 Banks and Other Sectors’ External Debt Statistics . . . . . . . . . . . . . . . . . . . 108Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

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Other Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109Appendix: Estimating Position Data with Transactions Information . . . . . . . . . . . . . . . . . 114

13 Traded Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119General Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119Key Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120Nonresident Investment in Domestically Issued Securities: Potential Respondents . . . . . 122Issues of Securities by Residents in Foreign Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125Information on Securities Involved in Reverse Security Transactions . . . . . . . . . . . . . . . . 125Possible Mismeasurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126Periodic Position Surveys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126Counterpart Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126

14 Country Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128Austria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135Chile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149New Zealand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160Turkey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164Uganda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

PART III: USE OF EXTERNAL DEBT STATISTICS

15 Debt Sustainability: Medium-Term Scenarios and Debt Ratios . . . . . . . . . 171Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171Medium-Term Debt Scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172Debt Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172

16 External Debt Analysis: Further Considerations . . . . . . . . . . . . . . . . . . . . . 177Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177Composition of External Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177The Role of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180The Role of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180Relevance of Financial Derivatives and Repurchase Agreements (Repos) . . . . . . . . . . . . 181Information on the Creditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183

PART IV: WORK OF INTERNATIONAL AGENCIES

17 External Debt Statistics from International Agencies . . . . . . . . . . . . . . . . . 187Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187Bank for International Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187International Monetary Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

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Organisation for Economic Co-operation and Development . . . . . . . . . . . . . . . . . . . . . . . 190World Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194Joint BIS-IMF-OECD-World Bank Statistics on External Debt . . . . . . . . . . . . . . . . . . . . 197

18 External Debt Monitoring Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201Commonwealth Secretariat’s Debt Recording and Management System (CS-DRMS) . . . . 201UNCTAD’s Debt Management and Financial Analysis System (DMFAS) . . . . . . . . . . . . 203

19 Provision of Technical Assistance in External Debt Statistics . . . . . . . . . . 210Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210Commonwealth Secretariat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210European Central Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211International Monetary Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211Organisation for Economic Co-operation and Development . . . . . . . . . . . . . . . . . . . . . . . 212United Nations Conference on Trade and Development . . . . . . . . . . . . . . . . . . . . . . . . . . 213World Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213

AppendicesI. Specific Financial Instruments and Transactions: Classifications . . . . . . . . . . . . . . 219

Part 1. Financial Instruments: Description and Classification in the Gross External Debt Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219

Part 2. Classification of Specific Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 237II. Reverse Security Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242

III. Glossary of External Debt Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247IV. Relationship Between the National Accounts and the International

Investment Position (IIP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270V. Heavily Indebted Poor Countries (HIPC) Initiative and Debt

Sustainability Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287

Boxes2.1. The Choice of a Recording Basis: The Case for Accrual Accounting . . . . . . . . . . . 122.2. General Methods for Estimating Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164.1. SDDS and GDDS Specifications Regarding Dissemination

of External Debt Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337.1. High-Frequency Debt-Monitoring Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 518.1. Sovereign Bond Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 758.2. Paris Club and Commercial Bank Debt Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

13.1. Security Databases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12214.1. European Union (EU): Statistics on the Excessive Deficit Procedure . . . . . . . . . . . 12717.1. Joint BIS-IMF-OECD-World Bank Statistics on External Debt . . . . . . . . . . . . . . . 198

Tables2.1. Present Value and the Accrual of Interest Costs: Example 1 (Simple Case) . . . . . . 192.2. Present Value and the Accrual of Interest Costs: Example 2

(Discounted Principal) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202.3. Present Value and the Accrual of Interest Costs: Example 3

(Zero-Coupon Instrument) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213.1. Standard Components of the IIP: Direct Investment . . . . . . . . . . . . . . . . . . . . . . . . 273.2. Standard Components of the IIP: Portfolio Investment . . . . . . . . . . . . . . . . . . . . . . 283.3. Standard Components of the IIP: Financial Derivatives . . . . . . . . . . . . . . . . . . . . . . 29

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Contents

3.4. Standard Components of the IIP: Other Investment . . . . . . . . . . . . . . . . . . . . . . . . . 303.5. Standard Components of the IIP: Reserve Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 324.1. Gross External Debt Position: By Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344.2. Periodic Interest Costs That Have Accrued and Are Not Yet Payable:

Outstanding Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364.3. Financial Derivatives Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364.4. Equity Liability Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374.5. Debt Securities Acquired Under Reverse Security Transactions: Positions . . . . . . . 375.1. Gross External Debt Position: Public and Publicly Guaranteed Debt

and Nonguaranteed Private Sector Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405.2. Gross External Debt Position: Public Sector Debt and Publicly Guaranteed

Private Sector Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417.1. Gross External Debt Position: Short-Term Remaining Maturity—Total Economy . . . 507.2. Gross External Debt Position: Short-Term Remaining Maturity—By Sector . . . . . 507.3. Debt-Service Payment Schedule: By Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 527.4. Debt-Service Payment Schedule: Public and Publicly Guaranteed Debt

and Nonguaranteed Private Sector Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 567.5. Gross External Debt Position: Foreign Currency and Domestic Currency Debt . . . 577.6. Gross External Foreign Currency and Foreign-Currency-Linked Debt Position . . . 587.7. Projected Payment Schedule in Foreign Currency Vis-à-Vis Nonresidents:

Selected Institutional Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 617.8. Gross External Debt Position: Interest Rate Composition . . . . . . . . . . . . . . . . . . . . 627.9. Gross External Debt Position: Average Interest Rates . . . . . . . . . . . . . . . . . . . . . . . 63

7.10. Gross External Debt Position: Creditor Sector Information . . . . . . . . . . . . . . . . . . . 647.11. Net External Debt Position: By Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 657.12. Gross External Debt Position: Reconciliation of Positions and Flows . . . . . . . . . . . 687.13. Gross External Debt Position: Traded Debt Instruments—Reconciliation

of Nominal and Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 707.14. Gross External Debt Position: Resident-Issued Debt Securities Owned

by Nonresidents—Location of Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 717.15. Gross External Debt Position: Cross-Border Trade-Related Credit . . . . . . . . . . . . . 718.1. Nominal Value Debt Reduction Arising from Debt Reorganizations . . . . . . . . . . . . 738.2. Evolution of Paris Club Rescheduling Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 789.1. Fiscal Risk Matrix with Illustrative Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 859.2. Gross External Debt Position: Ultimate Risk Basis . . . . . . . . . . . . . . . . . . . . . . . . . 88

11.1. Information To Be Compiled on Each Instrument . . . . . . . . . . . . . . . . . . . . . . . . . . 10011.2. What a Computer-Based Debt-Management System (CBDMS) Should Do . . . . . . 10311.3. Some Recommended Functions of a Debt Office . . . . . . . . . . . . . . . . . . . . . . . . . . 10413.1. Inward Security Investment: Potential Respondents—Advantages

and Disadvantages for Positions and Transactions Data . . . . . . . . . . . . . . . . . . . 12114.1. Outstanding External Loan Claims of BIS Reporting Institutions on Chile,

as at End-June 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13914.2. Adjusted Data for Outstanding External Loan Claims of BIS Reporting

Institutions on Chile, as at End-June 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13914.3. Outstanding External Claims of BIS Reporting Institutions on Chile,

as at End-June 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14014.4. India’s External Debt and Key Debt Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14214.5. India’s Central Government Guarantees on External Debt . . . . . . . . . . . . . . . . . . . 14314.6. Indicators of Nonresident Deposits in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14614.7. Total Philippine External Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16314.8. Uganda’s External Debt Obligation by Creditor as at June 30, 2000 . . . . . . . . . . . . 167

vii

Contents

15.1. Overview of Debt Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17417.1. Coverage of BIS International Banking Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . 18817.2. Coverage of BIS International Security Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . 18917.3. Example of Joint BIS-IMF-OECD-World Bank Statistics on External Debt . . . . . . 19918.1. Major Functions of the Commonwealth Secretariat Debt Recording

and Management System (CS-DRMS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202A2.1. External Debt: Recording of Reverse Security Transactions . . . . . . . . . . . . . . . . . . 246A4.1. Classification by Sector in 1993 SNA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271A4.2. Link Between the Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271A4.3. Rest of the World Balance Sheet by Counterpart Sector . . . . . . . . . . . . . . . . . . . . . 277A4.4. Comparison of Breakdowns by Financial Instrument . . . . . . . . . . . . . . . . . . . . . . . 279A4.5. Correspondence of 1993 SNA Tables with BPM5 and IIP Components:

Account V—Rest of the World Account, V.III—External Accumulation Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282

A4.6. Correspondence of 1993 SNA Tables with BPM5 and IIP Components:Account V—Rest of the World Account, V.IV—External Assets and Liabilities Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285

A5.1. Data Needed by a HIPC Country Compiler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292

Figures10.1. Data Suppliers and Collection Tools in Different Policy Environments . . . . . . . . . 9711.1. Organizational Chart of a Government Debt Office . . . . . . . . . . . . . . . . . . . . . . . . 10614.1. Israel: Report Form on Loans Received by Local Residents

from Foreign Residents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14814.2. New Zealand: Foreign Currency Liabilities—Questionnaires for Banks

and Nonbank Corporate Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15419.1. World Bank Technical Assistance (TA) in Institutional Capacity Building

in Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215A4.1. Simplified Version of Balance Sheet Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272A4.2. Balance Sheets of the Total Economy and the Rest of the World . . . . . . . . . . . . . . 273A4.3. Detailed Version of Balance Sheet Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275A4.4. Sectoral Breakdown in 1993 SNA and in IIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281A5.1. Enhanced HIPC Initiative Flow Chart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289A5.2. Steps Toward a Debt Sustainability Analysis (DSA) . . . . . . . . . . . . . . . . . . . . . . . . 291

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297

viii

This volume, External Debt Statistics: Guide for Compilers and Users (the Guide), has been preparedunder the joint responsibility of our eight organizations, through the mechanism of the Inter-AgencyTask Force on Finance Statistics. The preparation of the Guide, under way since mid-1999, was basedon the broad range of experience of our institutions in close consultation with national compilers ofexternal debt and balance of payments statistics.

International financial crises in the late 1990s underscored the importance of reliable and timely statis-tics on external debt as a critical element for the early detection of countries’ external vulnerability.Against this background, improving the quality and timeliness of key external debt data and promotingconvergence of recording practices have been the focus in the preparation of the Guide. The Guide is auseful source of reference both for national compilers and users of external debt statistics.

The Guide updates the previous international guidelines on external debt statistics, External Debt:Definition, Statistical Coverage and Methodology, published by four of our organizations in 1988.During the 1990s, new statistical guidelines for national accounts and balance of payments statisticswere established, and a substantial growth in financial flows between private sector institutionsoccurred, including the use of debt instruments and financial derivatives to manage and redistributerisk. The concepts set out in the Guide are harmonized with those of the System of National Accounts1993 and the fifth edition of the IMF’s Balance of Payments Manual, also published in 1993.

We recommend that countries adopt the Guide as the basis for compiling and disseminating externaldebt statistics.

Foreword

ix

Malcolm D. KnightGeneral ManagerBank for International Settlements

Donald C. McKinnonCommonwealth Secretary-GeneralThe Commonwealth Secretariat

Yves FranchetDirector-GeneralStatistical Office of the European Communities

(Eurostat)

Horst KöhlerManaging DirectorInternational Monetary Fund

Donald J. JohnstonSecretary-GeneralOrganisation for Economic Co-operation and

Development

Delphine d’AmarzitSecretary-GeneralThe Paris Club Secretariat

Rubens RicuperoSecretary-GeneralThe United Nations Conference on Trade

and Development

James D. WolfensohnPresidentThe World Bank Group

The need for comprehensive, comparable, and reliable information on external debt to inform policymak-ers, financial markets, and other users of statistics has long been recognized. This was once again rein-forced by the international financial crises in the 1990s. Because they carry obligations to make futurepayments, external debt liabilities have the potential to create circumstances that render an economy vul-nerable to solvency and liquidity problems. Moreover, as experience has shown, external vulnerability canhave widespread economic costs, and not just for the initially affected economy. It is clear, therefore, thatexternal debt needs to be measured and monitored. To this end, External Debt Statistics: Guide for Com-pilers and Users (the Guide) provides guidance on (1) the concepts, definitions, and classifications of ex-ternal debt data, (2) the sources and techniques for compiling these data, and (3) the analytical uses ofthese data. The Guide is intended to be of use to both compilers and users of external debt statistics.

Evolution of This Guide

The previous international guidance on external debt statistics, External Debt: Definition, Statistical Cov-erage and Methodology (the “Grey Book”), was published in 1988 by the Bank for International Settle-ments (BIS), International Monetary Fund (IMF), Organisation for Economic Co-operation and Develop-ment (OECD), and World Bank. This publication provided a common definition of external debt.However, since its publication there have been new international statistical guidelines for national ac-counts and balance of payments statistics—the System of National Accounts 1993 (1993 SNA) and thefifth edition of the IMF’s Balance of Payments Manual (BPM5); a tremendous growth in private sector fi-nancial flows, especially to private sector debtors; and, associated with these financial flows, an increaseduse of instruments such as debt securities and financial derivatives to manage and redistribute risk.

Against this background, the Guide provides a comprehensive conceptual framework, derived from the1993 SNA and BPM5, for the measurement of gross external debt of the public and private sectors. Itdraws on many of the concepts introduced in the Grey Book and is intended to provide clear guidancethat can be applied consistently across the different sectors of an economy and across the different debtinstruments used for borrowing. Thereafter, the Guide provides a scheme for classifying external debtby instruments and sectors that is developed into a presentation table for the gross external debt position.Data disseminated using this presentation table, and employing the concepts outlined earlier in theGuide, are essential for providing a comprehensive and informed picture of the gross external debt posi-tion for the whole economy. For countries in which there is a particular interest in public sector debt, thesector information can be rearranged to give focus to public and publicly guaranteed debt, consistentwith the approach used by the World Bank’s Debtor Reporting System. Such a presentation may be ofcentral importance where public sector external debt is dominant, although vigilance in monitoring pri-vate sector debt liabilities is necessary because experience has shown that these can grow rapidly.

Further, from the evidence of the international financial crises of the 1990s, and from the experience ofmany countries, additional data series may be vital to assist in identifying potential vulnerability to sol-vency and liquidity problems arising from the gross external debt position. The important need for data ondebt-maturity profiles and currency breakdowns has been highlighted in international forums and, togetherwith improving coverage of private sector debt liabilities, has helped to motivate preparation of the Guide.

Preface

xi

Preface

So, the Guide provides additional conceptual guidance, and presentation tables, for data series such as thedebt-service schedule (especially relevant for liquidity analysis), the currency composition of debt, andother series known from experience to be of analytical use. The Guide also explains the concept of netexternal debt—that is, a comparison of the stock of external debt with holdings of external financial assetsof similar instrument type—and incorporates financial derivative positions into external debt analysis.

Drawing on the broad range of experience in the international agencies involved in its production, theGuide provides advice on the compilation of external debt statistics, and the analytical use of suchdata. This advice is not intended to be comprehensive, but rather provides an overview of the issues.The work of international agencies in the field of external debt is outlined. Because the Guide is pri-marily intended to be a source of reference for both compilers and users of external debt statistics, cer-tain sections will be more relevant for some audiences than others. For instance, the first section dis-cusses complex conceptual measurement issues and provides detailed advice as a source ofreference—this guidance is intended particularly for the compiler. In contrast, the section on the use ofexternal debt data is directed toward both users and compilers. It is hoped that by this approach theGuide will contribute to better external debt statistics and an improved understanding of the complexissues involved in both compiling and analyzing them.

Acknowledgments

The production of the Guide has been jointly undertaken by the international agencies that participatein the Inter-Agency Task Force on Finance Statistics (TFFS), in close consultation with national com-pilers of external debt and balance of payments statistics. The TFFS is one of the interagency taskforces formed under the aegis of the United Nations Statistical Commission and the AdministrativeCommittee on Coordination—Sub-Committee on Statistical Activities, and was set up in 1992. It wasreconvened in 1998 to coordinate work among the participating agencies to improve the methodologi-cal soundness, transparency, timeliness, and availability of data on external debt and internationalreserve assets. The TFFS was chaired by the IMF, and the work on the Guide involved representativesfrom the BIS, the Commonwealth Secretariat, the European Central Bank (ECB), Eurostat, the IMF,the OECD, the Paris Club Secretariat, the United Nations Conference on Trade and Development(UNCTAD), and the World Bank. The core participants in the TFFS’s work on the Guide are listedbelow (affiliations are those in effect at the time of preparation of the Guide). Their expert contribu-tions and comments made possible the production of the Guide.

Chair Mrs. Carol S. Carson (IMF)BIS Mr. Karsten von KleistCommonwealth Secretariat Dr. Raj KumarECB Mr. Remigio Echeverría

Mr. Jean GalandMr. Reimund Mink

Eurostat Mr. Eduardo Barredo-CapelotIMF Mr. Neil Patterson

Mr. Roger PownallMr. Robert HeathMr. John MotalaMr. Christian MulderMr. Eduardo Valdivia-Velarde

OECD Mr. Brian HammondMs. Deborah GuzMrs. Jane Saint-Sernin

Paris Club Secretariat Mr. Jérôme WalterUNCTAD Mr. Enrique Cosio-PascalWorld Bank Ms. Punam Chuhan

xii

Preface

The preparation of the Guide was primarily undertaken in the IMF. Mr. Robert Heath (Senior Econo-mist, Balance of Payments and External Debt Division II, Statistics Department) was the primarydrafter and also coordinated and edited the contributions of TFFS participants, national agencies, andother experts. The work was supervised by Mr. Neil Patterson (Assistant Director, Balance of Pay-ments and External Debt Division I, Statistics Department) and Mr. Roger Pownall (Chief, Balance ofPayments and External Debt Division II, Statistics Department).

The Guide benefited from the written contributions of other experts in the participating agencies; inparticular, Mr. Jean Kertudo (BIS); Mr. Dev Useree, Mr. Andrew Kitili, and Mr. Jose Maurel (all Com-monwealth Secretariat); Ms. Silvia von Ledebur (ECB); Mr. Marco Committeri, Mr. Richard Harmsen,Mr. Damoni Kitabire, Mr. René Piché, Mr. Sukhwinder Singh, and Ms. Beatrice Timmermann (allIMF); Mr. Steve Cutts (OECD); Mr. Pal Borresen (UNCTAD); and Mr. Paul Beckerman, Mr. Misha V.Belkindas, Mr. Anthony Richard Howe Bottrill, Ms. Hana Polackova Brixi, Ms. Nevin Fahmy,Mr. Sundarshan Gooptu, Mr. Frederick Henry Jensen, Ms. Marie-Helene Le Manchec, Mr. Deepak K.Mishra, and Ms. Gloria R. Moreno (all World Bank). Mr. Eduardo Valdivia-Velarde (Senior Econo-mist, Balance of Payments and External Debt Division II, Statistics Department, IMF) was responsiblefor overseeing the preparation of the Guide in its final stages through publication, coordinating finalcomments, and refining the text. Ms. Elva Harris and Ms. Marlene Pollard (Statistics Department,IMF) provided administrative support in preparing the manuscript, and Mr. James McEuen (ExternalRelations Department, IMF) copyedited the final manuscript and coordinated publication of the Guide.

Also, the TFFS acknowledges, with gratitude, the contributions of many compilers and users of exter-nal debt statistics in member countries. Responses to requests for comments on the draft Guide postedon the Internet in March 2001 came from many official agencies and others in countries across theworld, and the text benefited enormously from these views. In addition, the following agencies, listedalphabetically by country, provided the case studies of country experience in various aspects of thecompilation and use of external debt data. These case studies are set out in Chapter 14.

Australia Australian Bureau of StatisticsAustria Oesterreichische NationalbankCanada Statistics CanadaChile Central Bank of ChileIndia Ministry of Finance and Reserve Bank of IndiaIsrael Bank of IsraelMexico Department of Public CreditNew Zealand Statistics New ZealandPhilippines Bangko Sentral ng PilipinasTurkey Central Bank of TurkeyUganda Bank of Uganda

Carol S. CarsonDirectorStatistics DepartmentInternational Monetary Fund

xiii

ADB Asian Development BankAfDB African Development BankBIS Bank for International SettlementsBOP Balance of paymentsBOPSY Balance of Payments Statistics Yearbook (IMF)BPM5 Balance of Payments Manual, fifth edition (IMF)CBDMS Computer-based debt-management systemCIRR Commercial Interest Reference Rate (OECD)CMFB Committee on Monetary, Financial and Balance of Payments Statistics (EU)CPIS Coordinated Portfolio Investment Survey (IMF)CRS Creditor Reporting System (OECD)CS-DRMS Commonwealth Secretariat’s Debt Recording and Management SystemDAC Development Assistance Committee (OECD)DMFAS Debt Management and Financial Analysis System (UNCTAD)DOD Disbursed and outstanding debtDRS Debtor Reporting System (World Bank)DSM Plus Debt Sustainability Module Plus (World Bank)ECB European Central BankESA95 European System of Accounts, ESA 1995EU European UnionGDDS General Data Dissemination SystemGDP Gross domestic productGNF Global note facilityGrey Book External Debt: Definition, Statistical Coverage and Methodology (Bank for

International Settlements, International Monetary Fund, Organisation forEconomic Co-operation and Development, and World Bank, 1988)

HIPC Initiative Initiative for heavily indebted poor countriesIADB Inter-American Development BankIBRD International Bank for Reconstruction and DevelopmentIBS International Banking Statistics (BIS)IDA International Development AssociationIFMS Integrated Financial Management SystemIFS International Financial Statistics (IMF)IIP International investment positionIMF International Monetary FundISIN International security identification numberLIBOR London interbank offered rateMEFMI Macroeconomic and Financial Management Institute for Eastern and Southern

AfricaMOF Multiple options facilityNIF Note issuance facility

Abbreviations and Acronyms

xv

Abbreviations and Acronyms

NNA National numbering agencyNPISH Nonprofit institutions serving householdsODA Official development assistanceOECD Organisation for Economic Co-operation and DevelopmentOTC Over-the-counter [markets]Repo Repurchase agreementRUF Revolving underwriting facilitySDDS Special Data Dissemination StandardSDR Special drawing rights (IMF)1993 SNA System of National Accounts 1993SPE Special purpose entityTFFS Inter-Agency Task Force on Finance StatisticsUNCTAD United Nations Conference on Trade and Development

xvi

1.1 The purpose of the External Debt Statistics:Guide for Compilers and Users (the Guide) is toprovide comprehensive guidance for the measure-ment and presentation of external debt statistics. Italso provides advice on the compilation of these dataand on their analytical use. The intention is to con-tribute to both an improvement in, and a greaterunderstanding of, external debt statistics. In doingso, the Guide is responding to the concerns of mar-kets and policymakers for better external debt statis-tics to help assess external vulnerabilities at a timewhen increasing international capital flows areresulting in greater market interdependence.

The Grey Book

1.2 Previous guidance on the measurement of grossexternal debt was provided in External Debt: Defini-tion, Statistical Coverage and Methodology (the“Grey Book”), published jointly in 1988 by theBank for International Settlements (BIS), Interna-tional Monetary Fund (IMF), the Organisation forEconomic Co-operation and Development (OECD),and the World Bank. The Grey Book provided anagreed definition of what constituted external debt,with the intention of encouraging a greater consis-tency of approach in the measurement of externaldebt:

Gross external debt is the amount, at any given time, ofdisbursed and outstanding contractual liabilities of resi-dents of a country to nonresidents to repay principal,with or without interest, or to pay interest, with or with-out principal.

1.3 The measure of external debt using this defini-tion is commonly known as disbursed and outstand-ing debt (DOD) and is valued on a nominal-valuebasis. Under this definition, there must be a contrac-tual liability to make principal or interest payments,or both. The contractual liability—used in the widesense of entailing a legal obligation—must be a

claim of a nonresident on a resident to qualify as ex-ternal debt, and only that part of the liability that isoutstanding and disbursed qualifies as debt.

1.4 The DOD approach is a basic cornerstone of ex-ternal debt statistics and provides the conceptualbasis for the majority of the existing external debtcompilation systems, including those of countriesusing the Commonwealth Secretariat and UnitedNations Conference on Trade and Development(UNCTAD) debt-management systems, and those ofthe OECD and World Bank. It has facilitated vulner-ability, debt-sustainability, and creditworthinessanalyses and can provide a transparent standard forcomparable statistics across countries. For instance,the World Bank’s Global Development Finance andthe OECD’s External Debt Statistics present and an-alyze data on a DOD basis.

1.5 To a considerable extent, the Grey Book reflectsthe traditional focus of external debt statistics, whichis on borrowing from banks and governmentsources, often by the public sector. For the purposesof public debt management, a DOD measure of ex-ternal debt allows a debt manager to determine howmuch is owed, to make budgetary projections, and toinform policymakers of the borrowing position in re-lation to any authorized limits. Also, DOD can serveas a baseline for debt managers to analyze the im-pact of exchange rate movements and indexation ofprincipal on the stock of debt outstanding. In a num-ber of countries, DOD is typically a measure derivedfrom a debt-management system that records con-tractual obligations on existing debt, which are es-sential for cash-flow management and for imple-menting payments.

Conceptual Approach in the Guide

1.6 Depending on the stage of economic develop-ment, borrowing by the public sector from banks and

1. Overview

1

External Debt Statistics Guide

government sources may still remain the focus ofexternal debt analysis for a number of countries. Butfor many countries, the growth during the 1990s ofcross-border private sector capital flows, the expo-sure of the private sector to foreign borrowing, thewidespread issuance of debt securities, and the useof financial derivatives and similar instruments,have necessitated a wider scope of external debtanalysis. In other words, in addition to the traditionalfocus, a need has increasingly arisen to monitor thecross-border financial borrowing activities of thenonbank private sector, including external borrowingby all sectors of the economy in the form of debtsecurities.

1.7 In responding to these developments, the Guideintroduces a comprehensive conceptual frameworkthat is derived from that contained in the System ofNational Accounts 1993 (1993 SNA)1 and the IMF’sBalance of Payments Manual, fifth edition (BPM5)2

for measuring the gross external debt position. Thisapproach facilitates consistency and comparabilityamong external debt statistics and other macroeco-nomic statistics, such as balance of payments, the in-ternational investment position (IIP), and nationalaccounts. Under this conceptual framework, externaldebt includes all liabilities as defined in the 1993SNA (excluding equity liabilities and financial deriv-atives) that are owed to nonresidents, and the totalamount of such liabilities is presented as the grossexternal debt position.

1.8 This new conceptual framework draws on manyof the concepts introduced in the Grey Book. Forinstance, external debt continues to include thoseinstruments that are owed to nonresidents, requirepayments of interest and/or principal, and are out-

standing. Thus, compilation systems developed toproduce data on the basis of the Grey Book, particu-larly for the public sector, can be a statistical build-ing block for the measurement of the gross externaldebt position outlined ahead. But the new frameworkalso discusses and clarifies many items not discussedor decided in the Grey Book, particularly in respectto the range of instruments that are classified as ex-ternal debt.

1.9 Tables are provided for the presentation of thegross external debt position, and related data, bothfor the whole economy and by sector of debtor.Using the concepts provided in Chapters 2 and 3,data compiled and presented in the format of thetable in Chapter 4 provide a comprehensive and in-formed picture of the gross external debt position forthe whole economy. Subsequently in Chapter 5, thegross external debt position is presented in a tablethat highlights the role of the public sector, a tableparticularly relevant for countries where the publicsector is centrally involved in external debt borrow-ing activity, as a borrower and/or guarantor.

1.10 Further, the Guide provides additional ac-counting principles to assist in compiling data seriesof analytical use in understanding the gross externaldebt position. The priority that individual countriesgive to compiling each of these data series will varydepending on circumstances. But such data series asthe debt-service schedule—that is, a schedule thatprovides information on the expected amountsand timing of future payments—and the foreigncurrency composition of external debt—one indica-tion of the exposure of the economy to movementsin the exchange rate—can reveal essential informa-tion on potential external vulnerabilities facingan economy. Similarly, the Guide advises on themeasurement and presentation of the net externaldebt position—gross external debt less externalassets in the form of debt instruments. For econo-mies whose private sector is active in internationalfinancial markets, this concept, and indeed, thatof the net asset position of the IIP,3 is particularlyrelevant in assessing sustainability of the externalposition.

2

1The 1993 SNA was published jointly by the Commission of theEuropean Communities (Eurostat), IMF, OECD, United Nations,and World Bank. The 1993 SNA is a comprehensive, consistent,and flexible set of macroeconomic accounts intended to meet theneeds of government and private sector analysts, policymakers,and decision takers. Also, it is the point of reference in establish-ing standards for related statistics, such as government financeand monetary and financial statistics.

2BPM5 was published by the IMF in 1993 and provides interna-tional guidelines for the compilation of data for an articulated setof international accounts encompassing the measurement of exter-nal transactions (balance of payments), on the one hand, and thestock of financial assets and liabilities (the international invest-ment position, or IIP), on the other. There is harmonization to themaximum extent possible with the national accounts as articulatedin the 1993 SNA.

3The IIP of an economy is the balance sheet of the stock of ex-ternal financial assets and liabilities, with the difference being thenet asset (or liability) position. The IIP is described in Chapter 17and its standard components are set out in Chapter 3.

1 • Overview

Structure of the Guide

1.11 The Guide is presented in four parts:(I) Conceptual Framework—covering Chapters

2–9; (II) Compilation: Principles and Practice—

Chapters 10–14; (III) Use of External Debt Statistics—Chapters 15

and 16; and (IV) Work of International Agencies—Chapters 17–19.

There are also several appendices.

Conceptual Framework

1.12 The structure of Part I is as follows:• Chapter 2 provides a definition for gross external

debt and explains in detail the accounting principlesrequired for the measurement of the gross externaldebt position. Chapter 3 discusses the identificationof institutional sectors and financial instruments.

• Chapter 4 sets out a table for the presentation ofthe gross external debt position. Highest priority isgiven to institutional sectors, followed by maturityand then type of instrument. Chapter 5 provides atable for the presentation of data on public andpublicly guaranteed external debt.

• Chapter 6 provides further accounting principlesfor compiling additional data series of analyticaluse in understanding the gross external debt posi-tion. Chapter 7 provides further presentation tables(for example, a debt-service payment schedule andforeign currency debt tables).

• Chapter 8 discusses the dissemination of appropri-ate information on the impact of debt reorganizationon external debt. Chapter 9 considers contingent lia-bilities and provides a table for the presentation ofexternal debt on an ultimate-risk basis.

Compilation: Principles and Practice

1.13 Chapter 10 provides an overview of compila-tion methods, and Chapters 11, 12, and 13 cover

compilation methods for government and public sec-tor data; banks and “other sectors” data; and data ontraded securities, respectively. Chapter 14 containscase studies of country experience in the compila-tion of external debt statistics.

Use of External Debt Statistics

1.14 Chapters 15 and 16 cover the analytical use ofexternal debt data. These chapters are included tohelp compilers place their work in context and to as-sist users in interpreting the range of informationthat can be available. Chapter 15 briefly describesdebt-sustainability analysis and explains some of themost commonly used debt ratios. Chapter 16 high-lights the need to analyze external debt data in abroad context.

Work of International Agencies

1.15 Chapter 17 sets out the external debt data avail-able from the BIS, IMF, OECD, and the WorldBank, all of which have been developed to meet spe-cific analytical needs. Chapter 18 covers the debt-monitoring systems of the Commonwealth Secre-tariat and UNCTAD. Chapter 19 discusses technicalassistance activities in external debt statistics, andrelated macroeconomic statistics, of the internationalagencies involved in production of the Guide.

Appendices

1.16 Appendix I provides detailed definitions andclassifications of debt instruments, and specifictransactions. Appendix II discusses reverse securitytransactions and how they should be recorded in thegross external debt position. Appendix III provides aglossary of external debt terms. Appendix IV de-scribes the relationship between the national ac-counts and the IIP. Finally, Appendix V explains theInitiative for Heavily Indebted Poor Countries (theHIPC Initiative).

3

PART I

Conceptual Framework

Introduction

2.1 This chapter begins by updating the definitionof external debt so that it is consistent with the con-cepts of 1993 SNA and BPM5. The definition of ex-ternal debt remains based on the notion that if a resi-dent has a current liability to a nonresident thatrequires payments of principal and/or interest in thefuture, this liability represents a future claim on theresources of the economy of the resident, and so isexternal debt of that economy. Such an approachprovides a comprehensive measure of external debtthat is consistent across the range of debt instru-ments regardless of how they may be structured. Thefocus of the definition remains on gross liabilities—that is, excluding any assets.

2.2 A common theme throughout the Guide is thatanalysis of the gross external debt position of aneconomy requires information that, as far as possi-ble, is compatible with related data series bothwithin and among countries. Compatibility en-hances the analytical usefulness and the reliabilityof data by allowing interrelationships with otherrelated macroeconomic data series to be examinedand comparisons across countries to be undertakenon a clear and consistent basis. Also, compatibilityencourages the rationalization of collection proce-dures, through the integration of domestic and ex-ternal debt data (thus lowering of the costs of dataproduction). For these reasons, this chapter intro-duces accounting concepts for the measurement ofexternal debt that are drawn from the 1993 SNA andBPM5.

Definition of External Debt

2.3 The Guide defines gross external debt as follows:Gross external debt, at any given time, is the out-standing amount of those actual current, and notcontingent, liabilities that require payment(s) ofprincipal and/or interest by the debtor at some

point(s) in the future and that are owed to nonresi-dents by residents of an economy.

Outstanding and Actual Current Liabilities

2.4 For a liability to be included in external debt itmust exist and be outstanding. The decisive consid-eration is whether a creditor owns a claim on thedebtor. Debt liabilities are typically establishedthrough the provision of economic value—that is,assets (financial or nonfinancial including goods),services, and/or income—by one institutional unit,the creditor, to another, the debtor, normally under acontractual arrangement.1 Debt liabilities can also becreated by the force of law,2 and by events that re-quire future transfer payments.3 Debt liabilities in-clude arrears of principal and interest. Commitmentsto provide economic value in the future cannot es-tablish debt liabilities until items change ownership,services are rendered, or income accrues; for in-stance, amounts yet to be disbursed under a loan orexport credit commitment are not to be included inthe gross external debt position.

Principal and Interest

2.5 The provision of economic value by the creditor,or the creation of debt liabilities through othermeans, establishes a principal liability for the debtor,which, until extinguished, may change in value overtime. For debt instruments alone, for the use of the

2. The Measurement of External Debt:Definition and Core Accounting Principles

7

1In many instances, such as cash purchases by households inshops, economic value is provided against immediate payment, inwhich instance no debt liability is created.

2These liabilities could include those arising from taxes, penal-ties (including penalties arising from commercial contracts), andjudicial awards at the time they are imposed. However, in some in-stances an issue will arise about whether a government has juris-diction to impose such charges on nonresidents.

3These include claims on nonlife insurance companies, claimsfor damages not involving nonlife insurance companies, andclaims arising from lottery and gambling activity.


principal, interest can (and usually does) accrue onthe principal amount, resulting in an interest cost forthe debtor. When this cost is paid periodically, ascommonly occurs, it is known in the Guide as an in-terest payment. All other payments of economicvalue by the debtor to the creditor that reduce theprincipal amount outstanding are known as principalpayments.

2.6 For long-term debt instruments, interest costspaid periodically are defined as those to be paid bythe debtor to the creditor annually or more fre-quently; for short-term instruments (that is, with anoriginal maturity of one year or less), interest costspaid periodically are defined as those to be paid bythe debtor to the creditor before the redemption dateof the instrument.

2.7 The definition of external debt does not distin-guish between whether the payments that are re-quired are principal or interest, or both. For instance,interest-free loans are debt instruments although nointerest is paid, while perpetual bonds are debt in-struments although no principal is to be repaid. Inaddition, while it may normally be expected thatpayments will be made in the form of financial as-sets, such as currency and deposits, the definitiondoes not specify the form in which payments need tobe made. For instance, payments could be made inthe form of goods and services. It is the future re-quirement to make payments, not the form of thosepayments, that determines whether a liability is adebt instrument or not.

2.8 Also, the definition does not specify that thetiming of the future payments of principal and/or in-terest need be known for a liability to be classified asdebt. In many instances, the schedule of payments isknown, such as on debt securities and loans. How-ever, in other instances the exact schedule of pay-ments may not be known. For example, the timing ofpayment might be at the demand of the creditor,such as non-interest-bearing demand deposits; thedebtor may be in arrears, and it is not known whenthe arrears will actually be paid; or the timing of apayment may depend on certain events, such as theexercise of an embedded put (right to sell) or call(right to buy) option. Once again, it is the require-ment to make the payment that determines whetherthe liability is debt, rather than the timing of the pay-ment. So, the liabilities of pension funds and life in-surance companies to their nonresident participants

and policyholders are regarded as debt of those insti-tutions because at some point in time a payment isdue, even though the timing of that payment may beunknown.

Residence

2.9 To qualify as external debt, the debt liabilitiesmust be owed by a resident to a nonresident. Resi-dence is determined by where the debtor and cred-itor have their centers of economic interest—typically, where they are ordinarily located—and notby their nationality. The definition of residence is ex-plained in more detail later in this chapter and is thesame as in BPM5 and the 1993 SNA. Clarification ofthe determination of residence for entities legallyincorporated or domiciled in “offshore centers” isprovided.

Current and Not Contingent

2.10 Contingent liabilities are not included in the de-finition of external debt. These are defined as arrange-ments under which one or more conditions must befulfilled before a financial transaction takes place.4

However, from the viewpoint of understanding vul-nerability, there is analytical interest in the potentialimpact of contingent liabilities on an economy and onparticular institutional sectors, such as government.For instance, the amount of external debt liabilitiesthat an economy potentially faces may be greater thanis evident from the published external debt data ifcross-border guarantees have been given. Indeed, theGuide encourages countries to set up systems to mon-itor and disseminate data on contingent liabilities, asis discussed in more detail in Chapter 9.

Relationship with Instruments in the 1993 SNA

2.11 From the viewpoint of the national accounts,the definition of external debt is such that it includesall financial liabilities recognized by the 1993 SNAas financial instruments—except for shares andother equity, and financial derivatives—that areowed to nonresidents. Shares and other equity areexcluded because they do not require the payment of

8

4The exclusion of contingent liabilities does not mean that guar-anteed debt is excluded, but rather that the guaranteed debt is at-tributed to the debtor not the guarantor (unless and until the guar-antee is called).

2 • The Measurement of External Debt

principal or interest. For the same reason, financialderivatives, both forwards and options, are ex-cluded—no principal amount is advanced that is re-quired to be repaid, and no interest accrues on any fi-nancial derivative instrument. Both forwards andoptions are described in more detail in Chapter 3.Nonetheless, an overdue obligation to settle a finan-cial derivatives contract would, like any arrears, be adebt liability because a payment is required. Mone-tary gold and IMF special drawing rights (SDRs) arefinancial assets included in the 1993 SNA but are notdebt instruments because they are, by convention,assets without a corresponding liability.

Core Accounting Principles

2.12 This section considers the concepts of resi-dence, time of recording, valuation, the unit ofaccount and exchange rate conversion, and maturity.Unless otherwise specified, these concepts are ap-plicable throughout the Guide.

Residence5

2.13 Debt liabilities of residents that are owed tononresidents are to be included in the presentation ofan economy’s gross external debt position. Debt lia-bilities owed to residents are excluded. Hence the def-inition of residence is central to the definition of ex-ternal debt. In the Guide, as in the BPM5 and the 1993SNA, an institutional unit—that is, an entity such as ahousehold, corporation, government agency, etc., thatis capable, in its own right, of owning assets, incur-ring liabilities, and engaging in economic activitiesand in transactions with other entities—is a residentof an economy when it has its center of economic in-terest in the economic territory of that country.

2.14 To determine residence, the terms “economicterritory” and “center of economic interest” also re-quire definition. A country’s economic territory con-sists of a geographic territory administered by a gov-ernment; within this geographic territory, persons,goods, and capital circulate freely. Economic territorymay not be identical with boundaries recognized forpolitical purposes, although there is usually a closecorrespondence. For maritime countries, geographicterritory includes any islands subject to the same fis-cal and monetary authorities as the mainland. Interna-

tional (multilateral) organizations have their own ter-ritorial enclave(s) over which they have jurisdictionand are not considered residents of any national econ-omy in which the organizations are located or conductaffairs; although employees of these bodies are resi-dents of the national economy—specifically, of theeconomies in which they are expected to maintaintheir abodes for one year or more.

2.15 An institutional unit has a center of economicinterest and is a resident unit of a country when,from some location (dwelling, place of production,or other premises) within the economic territory ofthe country, the unit engages and intends to continueengaging (indefinitely or for a finite but long periodof time) in economic activities and transactions on asignificant scale. The location need not be fixed aslong as it remains within the economic territory. Forstatistical purposes, the conduct or intention to con-duct economic activities for a year or more in aneconomic territory normally implies residence ofthat economy. But the one-year period is suggestedonly as a guideline and not as an inflexible rule.

2.16 In essence, an institutional unit is a resident ofthe economy in which it is ordinarily located. For in-stance, a branch or subsidiary is resident in the econ-omy in which it is ordinarily located, because it en-gages in economic activity and transactions from thatlocation, rather than necessarily the economy inwhich its parent corporation is located. Unincorpo-rated site offices of major construction and similarprojects, such as oil and gas exploration, that takeover a year to complete and are carried out and man-aged by nonresident enterprises will, in most in-stances, meet the criteria of resident entities in theeconomy in which they are located, and so can haveexternal debt (although the claims on the office by theparent might well represent an equity investment).6

2.17 The residence of offshore enterprises—includ-ing those engaged in the assembly of componentsmanufactured elsewhere, those engaged in trade andfinancial operations, and those located in specialzones—is attributed to the economies in which theyare located. For instance, in some countries, banks,including branches of foreign banks, that are li-censed to take deposits from and lend primarily, or

9

5See also BPM5, Chapter IV.

6The classification of parent claims on unincorporated branchesis discussed in more detail in Chapter 3, in the section on directinvestment.


even only, to residents of other economies are treatedas “offshore banks” under exchange control and/orother regulations. These banks usually face differentsupervisory requirements and may not be required toprovide the same amount of information to supervi-sors as “onshore” banks. Nonetheless, the liabilitiesof the offshore banks should be included in the ex-ternal debt statistics of the economy in which theyare located, provided that the liabilities meet the def-inition of external debt.

2.18 Similar issues can arise with “brass plate com-panies,” “shell companies,” or “special purpose enti-ties” (SPEs). These entities may have little physicalpresence in the economy in which they are legally in-corporated or legally domiciled (for example, regis-tered or licensed), and any substantive work of theentity may be conducted in another economy. In suchcircumstances, there might be debate about where thecenter of economic interest for such entities lies. TheGuide attributes external debt to the economy inwhich the entity, which has the liabilities on its bal-ance sheet, and so on whom the creditor has a claim,is legally incorporated, or in the absence of legal in-corporation, is legally domiciled. So, debt issues onthe balance sheet of entities legally incorporated ordomiciled in an offshore center are to be classified asexternal debt of the economy in which the offshorecenter is located. Any subsequent on-lending of thefunds raised through such debt issues to a nonresi-dent, such as to a parent or subsidiary corporation, isclassified as an external asset of the offshore entityand external debt of the borrowing entity.

2.19 In some economies, separate identification ofthe gross external debt (and external assets) of resi-dent “offshore banks” and other “offshore entities”is necessary because of the potential size of their lia-bilities relative to the rest of the economy.

2.20 In contrast, a nonresident may set up an agencyin the resident economy usually to generate businessin that economy. So, for instance, a resident agentmay arrange for its parent foreign bank to lend fundsto a fellow resident (the borrower). Unless the agenttakes the transactions between the borrower and thecreditor bank onto its own balance sheet, the bor-rower records external debt and not the agent. This isbecause the debtor/creditor relationship is betweenthe lending bank and the borrowing entity, with theagent merely facilitating the transaction by bringingthe borrower and lender together. If the agent does

take the transactions onto its balance sheet then it,not the final borrower, should record external debtfrom its parent foreign bank.

2.21 A regional central bank is an international finan-cial organization that acts as a common central bankfor a group of member countries. Such a bank has itsheadquarters in one country and usually maintains na-tional offices in each of the member countries. Eachnational office acts as central bank for that countryand is treated as a resident institutional unit in thatcountry. The headquarters, however, is an interna-tional organization, and thus a nonresident from theperspective of the national central banks. However, forstatistics relating to the economic territory of thewhole group of member countries, the regional centralbank is a resident institutional unit of this territory.

Time of Recording7

2.22 The guiding principle for whether claims andliabilities exist and are outstanding is determined atany moment in time by the principle of ownership.The creditor owns a claim on the debtor, and thedebtor has an obligation to the creditor.8 Transactionsare recorded when economic value is created, trans-formed, exchanged, transferred, or extinguished.

2.23 When a transaction occurs in assets, both fi-nancial and nonfinancial, the date of the change ofownership (the value date), and so the day the posi-tion is recorded, is when both creditor and debtorhave entered the claim and liability, respectively, intheir books. This date may actually be specified toensure matching entries in the books of both parties.If no precise date can be fixed, the date on which thecreditor receives payment or some other financialclaim is decisive. For example, loan drawings are en-tered in the accounts when actual disbursements aremade, and so when financial claims are established,and not necessarily when an agreement is signed.

2.24 For other transactions, when a service is ren-dered, interest accrues, or an event occurs that cre-ates a transfer claim (such as under nonlife insur-ance), a debt liability is created and exists untilpayment is made or forgiven. Although not usual,like interest, service charges can accrue continu-

10

7See also BPM5, Chapter VI.8Thus, the Guide does not recognize any unilateral repudiation

of debt by the debtor.


ously. Although equity securities are not debt instru-ments, dividends once they are declared payable arerecorded in other debt liabilities until paid.

2.25 The Guide recommends that interest costs ac-crue continuously on debt instruments, thus match-ing the cost of capital with the provision of capital.This recommendation is consistent with the ap-proach taken in related international statistical man-uals and in commercial accounting standards (seeBox 2.1). For interest costs that accrue in a recordingperiod, there are three measurement possibilities:(1) they are paid within the reporting period, inwhich instance there is no impact on the gross exter-nal debt position; (2) they are not paid because theyare not yet payable (referred to hereafter as “interestcosts that have accrued and are not yet payable”)—for example, interest is paid each six months on aloan or security, and the gross external debt positionis measured after the first three months of this pe-riod—in which instance the gross external debt posi-tion increases by the amount of interest that has ac-crued during the three-month period; and (3) theyare not paid when due, in which instance the grossexternal debt position increases by the amount of in-terest costs that have accrued during the period andare in arrears at the end of the period.

Interest costs that have accrued and are not yet payable

2.26 Traditionally, external debt-recording systemshave not recorded as external debt interest costs thathave accrued and are not yet payable. At the time ofpublication of this Guide, the preference of manydebt compilers remains to continue to exclude suchinterest costs from the gross external debt position.This is for two reasons. First, for countries with afew large external loans, borrowed at irregular peri-ods, that have annual or semiannual interest pay-ments, significant variation over time in the debtstock could arise from the inclusion of interest coststhat have accrued and are not yet payable. Second,from a practical viewpoint, for some countries theinclusion of such interest costs in the gross externaldebt position could take some time to implement be-cause it could involve a significant change to theirpresent compilation system.

2.27 It is thus recognized that the recording of inter-est costs accruing on deposits and loans may have tofollow national practices and be classified under

other debt liabilities. Nonetheless, for those countriesthat can do so, the Guide recommends including in-terest costs that have accrued and are not yet payableas part of the value of the underlying instruments.That is, the accrual of interest costs not yet payablecontinuously increases the principal amount out-standing of the debt instrument until these interestcosts are paid. This is consistent with the approach inthe 1993 SNA and BPM5. However, in order to main-tain comparability of external debt statistics acrosstime and across countries and to identify the variationintroduced by the timing of recording of interestcosts that have accrued and are not yet payable, theGuide requires that countries recording such interestcosts complete the memorandum item identifying thesectoral and maturity breakdown of the item (as de-scribed in Chapter 4, paragraphs 4.8 and 4.9).

2.28 When bond securities (including deep-discountand zero-coupon bonds), bills, and similar short-termsecurities are issued at a discount (or at a premium),the difference between the issue price and its face orredemption value at maturity is treated, on an accrualbasis, as interest (negative interest) over the life of thebond. When issued at a discount, the interest costs thataccrue each period are recorded as being reinvestedin the bond, increasing the principal amount out-standing. This approach can be described as the capi-talization of interest; it is not a holding gain for the se-curity owner. When issued at a premium, the amountaccruing each period reduces the value of the bond.

Arrears

2.29 When principal or interest payments are notmade when due, such as on a loan, arrears are created(a short-term liability that is included under otherdebt liabilities). But to ensure that the debt is notcounted twice, there is a corresponding reduction inthe appropriate debt instrument (for example, a loan).So, the nonpayment, when due, of principal and/or in-terest results in a reduction in the amount outstandingof the appropriate instrument, such as a loan, and anincrease in arrears, leaving the external debt positionunchanged. Arrears should continue to be reportedfrom their creation—that is, when payments are notmade9—until they are extinguished, such as when theyare repaid, rescheduled, or forgiven by the creditor.

11

9In some instances arrears arise for operational reasons ratherthan from a reluctance or inability to pay. Nonetheless, in princi-ple such arrears, when outstanding at the reference date, should berecorded as arrears.


2.30 If debt payments are guaranteed by a thirdparty, and the debtor defaults, the original debtorrecords an arrear until the creditor invokes the con-tract conditions permitting the guarantee to becalled. Once the guarantee is called, the debt pay-ment is attributed to the guarantor, and the arrear of

the original debtor is extinguished, as though repaid.Depending on the contractual arrangements, in theevent of a guarantee being called, the debt is notclassified as arrears of the guarantor but instead isclassified as a short-term other debt liability untilany grace period for payment ends.

12

Meaning of the Term “Recording Basis”

In the context of a macroeconomic statistical system, recordingbases are defined mainly according to the time at which transac-tions are recorded in that system. Alternative recording basesare possible because for many transactions there can be a timelag between the change of ownership of the underlying item, thedue date for payment, and the actual date for payment. Also,given the nature of the different recording bases the transac-tions and positions captured by them will also differ.Thus, an im-portant consideration in choosing a recording basis is the infor-mation intended to be conveyed in the statistical system. Forexternal debt statistics, the intention is to provide users of thesedata with a comprehensive measure of external debt liabilities atthe end of the reporting period, and to allow them to identifythe types of flows during the reporting period that affect thesize and composition of these liabilities. Consequently, the Guideintroduces the use of the accrual recording basis, for reasonsexplained below.

Main Types of Recording Bases

Three types of recording bases have most commonly been usedin macroeconomic statistical systems: cash recording; due-for-payment recording; and accrual recording. In practice, variationson each of these main bases are often found.

With cash recording, transactions are recorded when a paymentis made or received, irrespective of when the assets involvedchange ownership. In its strictest form, only those flows that in-volve cash as the medium of exchange are included (that is, cashinflows and outflows).The stocks recorded at the end of the re-porting period in such a system are restricted to cash balances.But in practice, cash reporting basis is often modified to includeother balances such as debt balances. In other words, when cashis disbursed on a debt instrument, an outstanding debt stock isrecorded, and subsequent repayments of principal, in cash, re-duce that outstanding debt.

A due-for-payment recording basis records transactions when re-ceipts or payments arising from the transaction fall due, ratherthan when the cash is actually received or paid. The due-for-payment basis can be considered as a modification of the cashbasis. In addition to cash balances, the due-for-payment basis

takes into account amounts due or overdue for payment.Typi-cally, a due-for-payment basis of recording will record debtstocks on the basis of the redemption amount of the outstand-ing liability—the amount due for payment at maturity.2 Thisamount may differ from the amount originally disbursed for avariety of reasons, including discounts and premiums betweenthe issue and redemption price, repayment of principal, andrevaluation of the debt due to indexation. Also, this recordingbasis will capture debt arising from some noncash transactions,such as arrears and the assumption of debt from one entity toanother (for example, to the government).

On an accrual recording basis, transactions are recorded wheneconomic value is created, transformed, exchanged, transferred,or extinguished. Claims and liabilities arise when there is achange of ownership. The accrual reporting basis thus recog-nizes transactions in the reporting period in which they occur,regardless of when cash is received or paid, or when paymentsare due. Gross external debt positions at the end of a reportingperiod depend on the stock of gross external debt at the begin-ning of the period, and transactions and any other flows thathave taken place during the period.3 The accrual recording basisrecords what an entity owes from the perspective of economic,not payment, considerations.

The different approaches of the three recording bases can be il-lustrated by the example of a loan, on which interest costs arepaid periodically until the loan is repaid at maturity. The initialloan disbursement would be recorded in all three recordingbases at the same time—that is, when the disbursement ismade.All three systems would record a debt liability.4 However,on an accrual reporting basis, interest costs are recorded as ac-cruing continuously, reflecting the cost of the use of capital, andincreasing the outstanding amount of the debt liability duringthe life of the loan, until the interest costs become payable. Buton a cash or due-for-payment basis, no such increase wouldarise.

Interest payments on the loan and repayment of principal at ma-turity are recognized at the same time in all three systems, pro-

Box 2.1. The Choice of a Recording Basis: The Case for Accrual Accounting1

1This box draws on Efford (1996), which was prepared in the con-text of the development of the Government Finance Statistics Manual,IMF (2001).

2This is the approach taken in the IMF’s A Manual on GovernmentFinance Statistics (1986); see p. 217.

3In the 1993 SNA, economic flows in financial assets and liabilitiesare limited to those financial assets and liabilities for which eco-nomic value can be demonstrated or observed.

4On the basis of the descriptions above of the cash, due-for-payment, and accrual reporting bases. For each reporting basis, therecan be modifications of approach.


Valuation10

2.31 The Guide recommends that debt instrumentsare valued at the reference date at nominal value,

and, for traded debt instruments, at market value aswell. The nominal value of a debt instrument is ameasure of value from the viewpoint of the debtorbecause at any moment in time it is the amount thatthe debtor owes to the creditor. This value is typi-cally established by reference to the terms of a con-

13

Box 2.1 (concluded)

10See also BPM5, Chapter V.

vided that these payments are made in the reporting period inwhich they are due. But if payments are not made when due, ar-rears would be recorded on the due-for-payment and accrualrecording bases, but not on the cash basis (although in practice,a cash-based system might well be modified to include arrears).In the due-for-payment and accrual recording bases, a debt pay-ment would be recorded as though made by the debtor, with anassociated increase in (short-term) liabilities (arrears). Arrearsare reduced when the payment is actually made. On a cash basis,no transactions would be recorded until the (overdue) paymentis actually made; no arrears are recorded.

Thus, from the above example it can be seen that the accrualrecording basis will record transactions at the same time as orbefore the cash and due-for-payment bases, and the due-for-pay-ment basis would record transactions at the same time as or be-fore the cash basis. For positions, on a cash basis, only amountsdisbursed in cash and repaid in cash are taken into account; on adue-for-payment basis, amounts disbursed and repaid in cash arerecognized along with any outstanding liabilities arising fromnoncash transactions—such as arrears; the accrual recordingbasis, in contrast, recognizes all existing liabilities regardless ofwhether cash has been disbursed or repaid, or payment is dueor not.

Measuring External Debt Positions

Disadvantages of Cash and Due-for-Payment Bases

Both the cash and the due-for-payment bases have deficienciesin providing a comprehensive measure of gross external debtpositions.

The cash recording basis contains information “only” on debtarising from cash flows; noncash transactions are not covered(for example, the provision of goods and services on which pay-ment is delayed, and liabilities not met are not recognized, suchas arrears). Thus, it provides insufficient coverage of externaldebt.Though the due-for-payment approach, as an extension ofthe cash basis, includes noncash transactions such as arrears andindexation, it still provides an incomplete measure of externaldebt. For instance, on a due-for-payment recording basis, pay-ments not yet due for goods and services already delivered arenot considered debt (unless, for example, there is a contractualagreement to extend trade credit). Also, interest is not recordeduntil due for payment, regardless of whether interest is in theform of a discount to the face value on issuance or in the formof interest payments (that is, paid periodically).

Advantage of an Accrual Basis

The accrual recording basis, which has long been used as thebasis for commercial accounting, provides the most comprehen-sive information of the bases described, because it measures ex-ternal debt on the basis of whether a creditor has ownership ofa financial claim on a debtor.The accrual basis provides the mostconsistent measure of external debt, both in terms of coverageand size, in that it is indifferent (1) to the form of payment—debt can be created or extinguished through cash and/or non-cash payments (that is through the provision of value); (2) to thetime of payment—debt is created or extinguished dependent onthe time at which ownership of a claim is established or relin-quished; and (3) to whether the future payments required onexisting liabilities are in the form of principal or interest.5 As fi-nancial markets continue to innovate, this consistency ofapproach helps to ensure that the size and coverage of externaldebt is determined foremost by economic, and not payment,considerations.6

Finally, recording external debt on an accrual basis has the ad-vantage of being consistent with other macroeconomic statisti-cal systems, such as the 1993 SNA and the BPM5, both of whichemploy an accrual basis of recording.These systems provide in-formation on the types of economic flows during the reportingperiod that affect the size and composition of external debt.The Government Finance Statistics Manual (IMF, 2001) and theMonetary and Financial Statistics Manual (IMF, 2000d) are also onan accrual recording basis. Besides enhancing comparability ofinformation across different sets of macroeconomic statisticsfor data users, the adoption of a common recording basiswould also contribute to a reduction in compilation coststhrough the ability to use common data series in related statis-tical systems.

5In principle, under an accrual reporting basis the stock of exter-nal debt at any one moment in time reflects past transactions andother economic flows, and, provided that the same valuationmethod is employed, equals the discounted value of future pay-ments of interest and principal. For instance, if financial marketsconvert interest into principal, such as through stripped securities,the process of conversion has no impact on the measured stock ofexternal debt because no new debt is created (although on a mar-ket value basis there could be valuation consequences arising fromsuch a conversion).

6Although information on payment arrangements might well bevaluable in its own right.


tract between the debtor and creditor, and it is fre-quently used to construct debt ratios, such as thosedescribed in Chapter 15. The market value of atraded debt instrument is determined by its prevail-ing market price, which, as the best indication of thevalue that economic agents currently attribute to spe-cific financial claims, provides a measure of the op-portunity cost to both the debtor and the creditor.11 Itis the valuation principle adopted in the 1993 SNAand BPM5.

2.32 The nominal value of a debt instrument reflectsthe value of the debt at creation; any subsequent eco-nomic flows, such as transactions (for example, re-payment of principal); valuation changes (includingexchange rate and other valuation changes other thanmarket price changes); and any other changes. Con-ceptually, the nominal value of a debt instrument canbe calculated by discounting future interest and prin-cipal payments at the existing contractual interestrate(s) 12 on the instrument; these interest rates maybe fixed rate or variable rate. For fixed-rate instru-ments and instruments with contractually predeter-mined interest rates, this principle is straightforwardto apply because the future payment schedule and therate(s) to apply are known,13 but it is less straightfor-ward to apply to debt liabilities with variable ratesthat change with market conditions. The appendix atthe end of this chapter provides examples of calculat-ing the nominal value of a debt instrument by dis-counting future payments of interest and principal.

2.33 Face value has been used to define nominalvalue in some instances, since face value is the undis-counted amount of principal to be repaid. While ofinterest in showing amounts contractually due to bepaid at a future date, the use of face value as nominal

value in measuring the gross external debt positioncan result in an inconsistent approach across all in-struments and is not recommended. For instance, theface value of deep-discount bonds and zero-couponbonds includes interest costs that have not yet ac-crued, which is counter to the accrual principle.

2.34 The market value of a traded debt instrumentshould be determined by the market price for that in-strument prevailing on the reference date to whichthe position relates. The ideal source of a marketprice for a traded debt instrument is an organized orother financial market in which the instrument istraded in considerable volume and the market priceis listed at regular intervals. In the absence of such asource, market value can be estimated by discount-ing future payment(s) at an appropriate market rateof interest. If the financial markets are closed on thereference date, the market price that should be usedis that prevailing on the closest preceding date whenthe market was open. In some markets the marketprice quoted for traded debt securities does not takeaccount of interest costs that have accrued but arenot yet payable, but in determining market valuethese interest costs need to be included.

Nontraded debt instruments

2.35 As does BPM5, the Guide recommends thatdebt instruments that are not traded (or tradable) inorganized or other financial markets—such as loans,currency and deposits, and trade credit—be valuedat nominal value only.14 The nominal value of a debtinstrument could be less than originally advanced ifthere have been repayments of principal, debt for-giveness, or other economic flows, such as arisingfrom indexation, that affect the value of the amountoutstanding. The nominal value of a debt instrumentcould be more than originally advanced because, forexample, of the accrual of interest costs, or othereconomic flows.

2.36 For debt instruments that accrue no interest—for example, liabilities arising because dividends are

14

11In the HIPC Initiative (see Appendix V), a representative mar-ket rate is used to discount future payments. This provides anothermeasure of opportunity cost and is specific to countries in thatprogram.

12A single rate is usually used to discount payments due in allfuture periods. In some circumstances, using different rates forthe various future payments may be warranted. Even if a singlerate of discount is used, dependent on the time until due, a differ-ent discount factor applies to each payment. For example, at arate of discount of 10 percent, the discount factor for paymentsone year hence is 0.909 (or 1/(1 + 0.1)) and for payments twoyears hence is 0.826 (or 1/(1 + 0.1)2) and so on. See also the ex-ample in Table 2.1.

13For a debt liability on which the interest rate steps up or downby contractually predetermined amounts over its life, the time pro-file of the discount factors to be applied to future payments wouldbe nonlinear, reflecting these step changes.

14International statistical manuals consider that for nontradedinstruments, nominal value is an appropriate proxy for marketvalue. Nonetheless, the development of markets, such as for creditderivatives linked to the credit risk of individual entities, is in-creasing the likelihood that market prices can be estimated evenfor nontraded instruments. As these markets extend, considerationmight be given to compiling additional information on market val-ues of nontraded debt.


declared but not yet payable—the nominal value isthe amount owed. If there is an unusually longtime15 before payment is due on an outstanding debtliability on which no interest costs accrue, then thevalue of the principal should be reduced by anamount that reflects the time to maturity and an ap-propriate existing contractual rate, and interest costsshould accrue until actual payment is made.

2.37 For some debt, such as a loan, repayment maybe specified in a contract in terms of quantities ofcommodities or other goods to be paid in install-ments over a period of time. At inception the valueof the debt is equal to the principal advanced. Therate of interest, which will accrue on the principal, isthat which equates the present value of the requiredfuture provision of the commodity or other good,given its current market price, to the principal out-standing. Conceptually, this type of contract isequivalent to the indexation of a loan, and so the ini-tial rate of interest that accrues will change as themarket price of the specified item changes, subjectto any contractual arrangement (for example, limitsin monetary terms on the maximum and minimumvalue that is to be paid by the debtor). When pay-ments are made in the form of the good or commod-ity, the value of the principal outstanding will be re-duced by the market value of the good or commodityat the time the payment is made.

2.38 In contrast, the value of the commodities, othergoods, or services to be provided to extinguish atrade credit liability, including under barter arrange-ments, is that established at the creation of the debt;that is, when the exchange of value occurred. How-ever, as noted above, if there is an unusually longtime before payment, the value of the principalshould be reduced by an amount that reflects thetime to maturity and an appropriate existing contrac-tual rate, and interest costs should accrue until actualpayment is made.

2.39 The Guide recognizes the debt liabilities ofpension funds and insurance companies to their non-resident participants and policyholders. The debt lia-bility for a defined-benefit pension scheme is thepresent value of the promised benefits to nonresi-

dents; while for a defined-contribution scheme thedebt liability is the current market value of the fund’sassets prorated for the share of nonresidents’ claimsvis-à-vis total claims.16 For life insurance, the debtliability is the value of the reserves held against theoutstanding life insurance policies issued to nonresi-dents. The debt liability to nonresidents of nonlifeinsurance companies is the value of any prepay-ments of premiums by nonresidents, and the presentvalue of amounts expected to be paid out to nonresi-dents in settlements of claims, including disputed,but valid, claims.

2.40 For arrears, the nominal value is equal to thevalue of the payments—interest and principal—missed, and any subsequent economic flows, such asthe accrual of additional interest costs.

2.41 For nontraded debt instruments where thenominal value is uncertain, the nominal value can becalculated by discounting future interest and princi-pal payments at an appropriate existing contractualrate of interest.

Traded debt instruments

2.42 The Guide recommends that debt instrumentstraded (or tradable) in organized and other financialmarkets be valued at both nominal and marketvalue.17 For a traded debt instrument, both nominaland market value can be determined from the valueof the debt at creation and subsequent economicflows, except that market valuation takes account ofany changes in the market price of the instrument,whereas nominal value does not.

2.43 For debt securities that are usually tradable butfor which the market price is not readily observable,by using a market rate of interest the present value ofthe expected stream of future payments associatedwith the security can be used to estimate marketvalue. This and other methods of estimating marketvalue are explained in Box 2.2. For unlisted securi-ties, the price reported for accounting or regulatory

15

15What constitutes an unusually long time in this context willdepend on the circumstances. For instance, for any given time pe-riod, the higher the level of interest rates, the greater is the oppor-tunity cost of delayed payment.

16In a defined-benefit scheme, the level of pension benefitspromised by the employer to participating employees is guaran-teed and usually determined by a formula based on participants’length of service and salary. In a defined-contribution scheme, thelevel of contributions to the fund by the employer is guaranteed,but the benefits that will be paid depend on the assets of the fund.

17This includes debt securities acquired under reverse transac-tions (see Table 4.5 in Chapter 4).


purposes might be used, although this method is lesspreferable than those mentioned above. Similarly,for deep-discount or zero-coupon bonds, the issueprice plus amortization of the discount could be usedin the absence of a market price.

2.44 If arrears are traded on secondary markets, assometimes occurs, then a separate market valuecould be established.

Nondebt instruments

2.45 Positions in financial derivatives, equity secu-rities, and equity capital and reinvested earnings onforeign direct investment are not included in thegross external debt position because they are notdebt instruments, but they are recognized by theGuide as memorandum items to the position. Theseinstruments are to be valued at market value.

2.46 The market value of a forward financial deriv-atives contract is derived from the difference be-tween the agreed-upon contract price of an underly-ing item and the prevailing market price (or marketprice expected to prevail) of that item, times thenotional amount, appropriately discounted. Thenotional amount—sometimes described as the nom-inal amount—is the amount underlying a financialderivatives contract that is necessary for calculatingpayments or receipts on the contract. This amountmay or may not be exchanged. In the specific caseof a swap contract, the market value is derived fromthe difference between the expected gross receiptsand gross payments, appropriately discounted; thatis, its net present value. The market value for a for-ward contract can therefore be calculated usingavailable information—market and contract pricesfor the underlying item, time to maturity of the con-tract, the notional value, and market interest rates.From the viewpoint of the counterparties, the valueof a forward contract may become negative (liabil-ity) or positive (asset) and may change both in mag-nitude and direction over time, depending on themovement in the market price for the underlyingitem. Forward contracts settled on a daily basis,such as those traded on organized exchanges—andknown as futures—have a market value, but becauseof daily settlement it is likely to be zero value ateach end-period.

2.47 The price of an option depends on the poten-tial price volatility of the price of the underlyingitem, the time to maturity, interest rates, and the dif-ference between the contract price and the marketprice of the underlying item. For traded options,whether they are traded on an exchange or not, thevaluation should be based on the observable price.At inception the market value of a nontraded optionis the amount of the premium paid or received. Sub-sequently nontraded options can be valued with theuse of mathematical models, such as the Black-Scholes formulas, that take account of the factorsmentioned above that determine option prices. In

16

When market-price data are unavailable for tradable instruments,there are two general methods for estimating market value or, as it issometimes called, fair value:• Discounting future cash flows to the present value using a market

rate of interest; and• Using market prices of financial assets and liabilities that are similar.

The first general method is to value financial assets and liabilities bybasing market value on the present, or time-discounted, value of future cashflows. This is a well-established approach to valuation in both theoryand practice. It calculates the market value of a financial asset or liabil-ity as the sum of the present values of all future cash flows. Marketvalue is given by the following equation:

(Cash flow)tDiscounted present value = ∑n

t=1–––––––––

(1 + i)t

where (Cash flow)t denotes the cash flow in a future period (t), n de-notes the number of future periods for which cash flows are expected,and i denotes the interest rate that is applied to discount the futurecash flow in period t.

The method is relatively easy to apply in valuing any financial asset orliability if the future cash flows are known with certainty or can be es-timated, and if a market interest rate (or series of market interestrates) is observable.

Directly basing market value on the market price of a similar financialinstrument is a well-used technique when a market price is not directlyobservable. For example, the market price of a bond with five-year re-maining maturity might be given by the market price of a publiclytraded five-year bond having comparable default risk. In other cases, itmay be appropriate to use the market price of a similar financial instru-ment, but with some adjustment in the market value to account for dif-ferences in liquidity and/or risk level between the instruments.

In some cases, the financial asset or liability may possess some charac-teristics of each of several other financial instruments, even though itscharacteristics are not generally similar to any one of these instru-ments. In such cases, information on the market prices and other char-acteristics (for example, type of instrument, issuing sector, maturity,credit rating, etc.) of the traded instruments can be used in estimatingthe market value of the instrument.

Box 2.2. General Methods for EstimatingMarket Value


the absence of a pricing model, the price reportedfor accounting or regulatory purposes might beused. Unlike forwards, options cannot switch fromnegative to positive value, or vice versa, but they re-main an asset for the owner and a liability for thewriter of the option.

2.48 For equity securities that are listed in orga-nized markets or are readily tradable, the value ofoutstanding stocks should be based on marketprices. The value of equity securities not quoted onstock exchanges or not traded regularly should beestimated by using prices of comparable quotedshares as regards past, current, and prospectiveattributes such as earnings and dividends. Alter-natively, the net asset values of enterprises to whichthe equities relate could be used to estimate marketvalues if the balance sheets of the enterprisesare available on a current-value basis, but this isnot a preferred method given the possibly large dif-ference between balance sheet and equity marketvaluations.

2.49 For equity capital and reinvested earnings re-lated to foreign direct investment, it is recognizedthat, in practice, balance sheet values of direct in-vestment enterprises or direct investors are generallyutilized to determine their value. If these balancesheet values are on a current market value basis, thisvaluation would be in accordance with the marketvalue principle, but if these values are based onhistorical cost and not current revaluation, theywould not conform to the principle. If historical costfrom the balance sheets of direct investment enter-prises (or investors) is used to determine the value ofequity capital and reinvested earnings, compilersare also encouraged to collect data from enterpriseson a current market value basis. In instances wherethe shares of direct investment enterprises are listedon stock exchanges, the listed prices should be usedto calculate the market value of shares in thoseenterprises.

Unit of Account and Exchange RateConversion

2.50 The compilation of the gross external debt po-sition statement is complicated by the fact that the li-abilities may be expressed initially in a variety ofcurrencies or in other standards of value, such asSDRs. The conversion of these liabilities into a ref-erence unit of account is a requisite for the construc-

tion of consistent and analytically meaningful grossexternal debt statistics.

2.51 From the perspective of the national compiler,the domestic currency unit is the obvious choice formeasuring the gross external debt position. Such aposition so denominated is compatible with thenational accounts and most of the economy’s othereconomic and monetary statistics expressed in thatunit. However, if the currency is subject to signifi-cant fluctuation relative to other currencies, a state-ment denominated in domestic currency could be ofdiminished analytical value because valuationchanges could dominate interperiod comparisons.

2.52 The most appropriate exchange rate to be usedfor conversion of external debt (and assets) denomi-nated in foreign currencies into the unit of account isthe market (spot) rate prevailing on the referencedate to which the position relates. The midpoint be-tween buying and selling rates should be used. Forconversion of debt in a multiple rate system,18 therate on the reference date for the actual exchangerate applicable to specific liabilities (and assets)should be used.

Maturity

2.53 For debt liabilities, it is recommended that thetraditional distinction between long- and short-termmaturity, based on the formal criterion of originalmaturity, be retained. Long-term debt is defined asdebt with an original maturity of more than one yearor with no stated maturity. Short-term debt, whichincludes currency, is defined as debt repayable ondemand or with an original maturity of one year orless. If an instrument has an original maturity of oneyear or less it should be classified as short-term,even if the instrument is issued under an arrange-ment that is long-term in nature.

Appendix: Accrual of Interest Costs—How Should This Be Implemented?

2.54 The Guide introduces the idea of includinginterest costs that have accrued and are not yet

17

18A multiple exchange rate system is a scheme for which thereare schedules of exchange rates, set by the authorities, used toapply separate exchange rates to various categories of transactionsor transactors.


payable in the gross external debt position. Thisannex presents the theoretical framework for the ac-crual of interest costs, and a more detailed discus-sion on how to apply the accrual principle, by typeof instrument.

2.55 Because the focus of the Guide is on positionstatistics, the debate about whether the rate at whichinterest should accrue on market-traded instrumentsshould be based on the current market value of thedebt (the so-called creditor approach) or as stipu-lated in the original contract (the so-called debtorapproach) is not relevant. This is because the marketvalue position to be reported is based on the marketprice of the instrument, and that value shouldinclude any interest costs that have accrued and arenot yet payable.19 Given this, unless otherwisestated, this annex focuses on nominal value.

2.56 At the outset, it is worth noting some key prin-ciples for applying the accrual of interest costs prin-ciple in both the nominal and market value presenta-tions of external debt:• All financial instruments bearing interest are in-

cluded;• The accrual of interest costs can be calculated by

the straightline or compound interest method;• All instruments issued at a discount are treated in a

similar manner; and• The accrual of interest costs also applies to variable-

rate and index-linked instruments.

Theoretical Framework for the Accrual of Interest Costs

2.57 Three examples, drawn from work undertakenby Statistics Canada (see Laliberté and Tremblay,1996), are provided to illustrate the theoreticalframework for the accrual of interest costs. Theseexamples, and the discussion on accruing interestcosts on a straightline or compound basis that imme-diately follows, provide an explanation of the basicprinciples.

2.58 The first example is that of a simple instru-ment that is issued and redeemed at the same price

and pays fixed annual interest at the end of eachyear; the second example is of an instrument issuedat a price that is at a discount to the redemptionprice, and that also makes annual interest payments;and the third example is of an instrument issued ata discount that has no interest payments. These ex-amples have general applicability throughout theGuide, in that they explain how future payments canbe discounted to produce the stock of external debtat any moment in time.

Example 1: Present Value and the Accrual of Interest Costs—Simple Case

2.59 In this simple example, a debt instrument isissued with a five-year maturity, a principal amountof $100, and annual payments of $10 each year asinterest. That is, the interest rate on the instrumentis fixed at 10 percent a year. Given this, as seen inTable 2.1, in present value terms the payment of$10 in a year’s time is worth 10/(1+ 0.1), or 9.09;the payment of $10 in two years’ time is worth10/(1 + 0.1)2, or 8.26; and so on. In present valueterms, the principal amount advanced to be repaid atmaturity is worth 100/(1 + 0.1)5, or 62.09. The pres-ent value for each payment is provided in the left-hand column, and it can be seen that the presentvalue of all future payments equals the issue priceof $100.

2.60 Because interest costs accrue at 10 percent ayear on a continuous basis, and are added to the prin-cipal amount, after six months of the first year theprincipal amount has increased. It equals the $100principal amount due to be paid at maturity, plus halfof the year’s interest payment, $5 (calculated on astraightline basis), or plus just under half, $4.88(calculated on a compound basis). Any payments ofinterest, or principal, would reduce the amountoutstanding.

2.61 Alternatively, the principal amount outstand-ing after six months could be calculated by dis-counting all future payments. The present value ofeach payment after six months is presented inparentheses in the left-hand column. After sixmonths, each of the values in the left-hand columnhas increased because the payments are closer tobeing made, and time is being discounted at a rateof 10 percent a year. The discounted value of eachpayment after six months can be seen to sum to$104.88, the same amount outstanding as with

18

19If an economy was disseminating a debt-service ratio withfuture interest and principal payments calculated using thecurrent yield on debt, then if the market value of external debtrises, part of the future interest payments could become principalpayments.


the compound approach to accruing interest costs.One practical advantage of maintaining a systemthat discounts each payment to its present valueis that if the instrument is stripped (see below)—that is, all payments traded separately—the compi-lation system will already be prepared for such asituation.

2.62 Unless there are early repayments that reducethe amount of principal outstanding—for instance,with certain types of asset-backed securities, partialrepayments of principal could occur at any time—the amounts described above would be recorded inthe gross external debt position; that is, after sixmonths with a contractual interest rate of ten per-cent per annum, the amount outstanding would be$104.88 (or $105 on a straightline basis).

2.63 The rate relevant for discounting all the pay-ments to a market value would be implicit in themarket price, or to put it another way, the marketvalue amount would equal future payments dis-counted at the current market rate of interest for thatdebt instrument. The market value of external debtshould include any interest costs that have accruedand are not yet payable.

Example 2: Present Value and the Accrualof Interest Costs—Discounted Principal

2.64 The second example concerns the more com-plex case of instruments issued at a discount tothe redemption value. These instruments willinclude securities, and any other instrumentswhere the issue price is less than the redemption

price.20 In this instance, both the coupon paymentsand the difference between the issue price and theredemption price determine the rate at which inter-est costs accrue. Table 2.2 presents the calculationsinvolving an instrument similar to that in the firstexample above—that is, issued with the same 10percent yield, but “only” having annual interest pay-ments of $8. The difference between the 10 percentyield and the yield implied by coupon payments isreflected in the discount between the issue price andredemption price. Once again, from the left-handcolumn of the table it can be seen that discountingall the future payments by 10 percent, including theprincipal amount, provides the issue price of$92.40.

2.65 How is the accrual of interest costs calcu-lated? Simply, interest costs accrue at a yield of 10percent each year, of which $8 is paid out in interestpayments and the rest is reinvested (or capitalized)into the original principal amount. The principalamount grows from year to year, due to the contin-ued reinvestment of interest costs that have accrued,and as a consequence, so does the absolute amountof interest costs that accrue each year. As with thefirst example, the present value of each payment

19

Table 2.1. Present Value and the Accrual of Interest Costs: Example 1 (Simple Case)

Present Value in 2001 2002 2003 2004 2005 2006

9.09 (9.54)* 10/(1+0.1)8.26 (8.66) 10/(1+0.1)2

7.52 (7.89) 10/(1+0.1)3

6.83 (7.16) 10/(1+0.1)4

6.21 (6.51) 10/(1+0.1)5_______ ________ _________ _________ __________ __________ ___________37.91 (39.76) 10/(1+0.1) 10/(1+0.1)2 10/(1+0.1)3 10/(1+0.1)4 10/(1+0.1)5

+62.09 (65.12) 100/(1+0.1)5_______ ________=100.00 (104.88)

*(9.54) = The present value of the payment six months after issuance of the debt instrument.

20For instruments issued at a discount, issue price is a genericterm that means the value of principal at inception of the debt; re-demption price is similarly a generic term that means the amountof principal to be paid at maturity. This is because some instru-ments are “issued” without a price as such (for instance, tradecredit). In such instances, the issue price equals the economicvalue provided (that is, of goods or services provided) and the re-demption price equals the amount owed when the debt liability isdue to be paid.


after six months is presented in parentheses in theleft-hand column. In the position data, the amountoutstanding can be seen to be $96.91 after sixmonths.

Example 3: Present Value and the Accrualof Interest—Zero-Coupon Instrument

2.66 The third example covers zero-coupon instru-ments. If the instrument is issued at discount andhas no coupon, then the principal amount increasesin value over time by the implicit yield on the secu-rity at issuance, derived from the difference be-tween the issue price and the redemption price. Inthe example below, the zero-coupon instrument isissued at $62.09 and is to be redeemed at $100; thedifference implies a 10 percent yield. As can beseen in Table 2.3, the principal amount grows eachyear because of the continued reinvestment of inter-est costs that accrue, and so after the first year theamount outstanding has increased by 10 percent to$68.30, by a further 10 percent in year two to$75.13, and so on until redemption at $100 at theend of year five.21

Straightline or compound interest

2.67 In calculating the accrual of interest costs by astraightline approach, an equal amount of the inter-est costs to be paid is attributed to each period—forexample, $5 for the first six months in the first

example above. For bonds with interest payments(that is, annual or more frequent), on secondarymarkets the buyer of the bond pays to the seller theamount accrued since the last payment, accordingto a very simple arithmetic proportionality. Formany international loans, debt-monitoring systemsrecord the accrual of interest costs on a straightlinebasis.

2.68 However, the accrual of interest costs can alsobe calculated on a compound basis—that is, con-tinuously adding the accrued interest costs not yetpayable to the principal amount each period,and applying to that amount the interest yield onthe debt in order to calculate the interest costsfor the next period. This method is the theo-retically preferred approach because it relatesthe cost to the provision of capital and allowsreconciliation between amounts accrued and thediscounted value of future payments. Such anapproach is commonly used when informationon individual instruments owned by nonresidentsis unknown, and so to calculate the accrual ofinterest costs an average yield is applied to posi-tions. Of course, in such instances the theoreticalbenefit of using a yield is offset by the approxi-mation of applying an average yield to a range ofinstruments.

2.69 Differences in methods may well have a smalleffect on the gross external debt position. However,as is evident from the first example, for each instru-ment the straightline approach will overestimate theposition in the short term. For fixed-rate instruments,this will be gradually “unwound” as the time of theinterest payment approaches.

20

Table 2.2. Present Value and the Accrual of Interest Costs: Example 2 (Discounted Principal)

Present Value in2001 2002 2003 2004 2005 2006

7.27 (7.62)* 8/(1+0.1)6.61 (6.93) 8/(1+0.1)2

6.01 (6.30) 8/(1+0.1)3

5.46 (5.73) 8/(1+0.1)4

4.97 (5.21) 8/(1+0.1)5______ ______ ________ ________ _________ _________ ___________30.31 (31.79) 8/(1+0.1) 8/(1+0.1)2 8/(1+0.1)3 8/(1+0.1)4 8/(1+0.1)5

+62.09 (65.12) 100/(1+0.1)5______ ______=92.40 (96.91)

*(7.62) = The present value of the payment six months after issuance of the debt instrument.

21A worked example of accruing interest on a zero-coupon bondin the balance of payments is given in the IMF’s Balance of Pay-ments Textbook (1996), paragraphs 400 and 401, p. 83.


Specific Instruments22

Fixed-rate instruments

Loans

2.70 For loans (except interest-free loans) interestcosts are recorded as accruing continuously, increas-ing the value of the loan outstanding, until paid.When loans have been rescheduled and a new(moratorium) interest rate agreed between the debtorand creditor, interest costs should accrue on therescheduled debt at the new moratorium interestrate. It is recognized that interest costs that accrue onloans may have to follow national practices and beclassified under other debt liabilities.

Deposits

2.71 For deposits, interest may be credited to theaccount (reinvested) at certain times, such as theend of a given period. In the Guide, interest costsaccrue continuously and become part of principalon a continuous basis. It is recognized that interestcosts that accrue on deposits may have to follow na-tional practices and be classified under other debtliabilities.

2.72 For some deposits, such as time or savingsdeposits, a given rate of interest may be paid onlyunder the condition of a minimum holding period.An early liquidation, if contractually allowed, isbalanced by a reduction in the rate of interest paidto the holder. For recording the accrual of interestcosts, the rate of interest to use is the maximum ratethat the depositor could receive in the normal courseof the contract (that is, respecting the arrangementsabout maturity or notice). In the event, if the

arrangements are not fully respected, the amount ofinterest costs that accrued previously are correctedin line with the rate the depositor actually received.As the revised amount is in all likelihood globallyvery small compared with the total interest costs fordeposits, for practical reasons the correction couldbe included in the last period of compilation (as op-posed to revising back data).

Securities

2.73 For securities for which the issue and redemp-tion prices are the same, interest costs accrue in thesame manner as for loans.

Instruments issued at a discount

2.74 Instruments for which the issue price is lessthan the redemption price are all treated in the sameway. This includes nontraded instruments where theamount to be paid is greater than the economic valueprovided at inception of the debt. The method of ac-crual for instruments issued at a discount or pre-mium was described in paragraph 2.28 above.

2.75 For short-term negotiable instruments,23

issuance at a discount is very frequent. Generallythese instruments are akin to zero-coupon bonds(example 3 above), and so the treatment of suchinstruments is the same. Without information onindividual securities, one practical approach is tobase estimates of the accrual of interest costs onaverage maturities and average rates of interest atissuance.

2.76 External debt, particularly general govern-ment debt, could be issued in the form of fungiblebonds (also named linear bonds). In this case, secu-

21

Table 2.3. Present Value and the Accrual of Interest Costs: Example 3 (Zero-Coupon Instrument)

Present Value in 2001 2002 2003 2004 2005 2006

100/(1 + 0.1) 62.09 (1 + 0.1) 62.09 (1 + 0.1)2 62.09 (1 + 0.1)3 62.09 (1 + 0.1)4 62.09 (1 + 0.1)5

= 62.09 = 68.30 = 75.13 = 82.64 = 90.90 = 100

22This text has drawn upon that in Eurostat (2000), the ESA95Manual on Government Deficit and Debt.

23A negotiable financial instrument is one whose legal owner-ship is capable of being transferred from one unit to another unitby delivery or endorsement.


rities are issued under one similar “line” (in termsof coupon amounts and payment dates, and finalredemption price and maturity date) in tranches,generally issued during a rather short period butsometimes over a longer one. Each tranche is issuedat a specific issue price according to the prevailingmarket conditions. Fungible bonds may be seen as agood example of instruments with two interestcomponents: the coupon (representing the interestpayment), and the difference between the issueprice and redemption price. Thus, in principle eachtranche should be identified separately because thenominal interest rate might well differ from trancheto tranche given the different market conditionsthat existed when they were issued. Once issued,however, the tranches may mix and so may nottrade separately on secondary markets, nor be iden-tified separately in portfolios. If so, it is necessaryto estimate a weighted-average interest rate result-ing from issuing different tranches, updated at eachnew issue, and apply this to the amount owed tononresidents.24

Stripped securities

2.77 Stripped securities are securities that have beentransformed from a principal amount with interestpayments into a series of zero-coupon bonds, with arange of maturities matching the interest paymentdates and the redemption date of the principalamount. The essence of stripping was describedin the first example above: the coupon paymentamounts are separately traded. In itself, the act ofstripping does not affect the nominal value of thedebt outstanding for the issuer of the securities thathave been stripped.

2.78 There are two types of stripping. First, if thestripped securities are issued by a third party, whohas acquired the original securities and is usingthem to “back” the issue of the stripped securities,then new funds have been raised by the third party,with the interest rate determined at the time ofissuance.

2.79 On the other hand, if the owner of the originalsecurity has asked the settlement house or clearing

house in which the security is registered to “issue”strips from the original security, the strips replacethe original security and remain the direct obligationof the issuer of the original security. In the gross ex-ternal debt position on a nominal value basis, it isunrealistic from a practical point of view to take intoaccount the rate prevailing at the issuance of eachstrip. Rather, since stripping provides no additionalfunding to the issuer and there is no impact on theoriginal cost of borrowing, fully determined at theissuance time (in the case of fixed-rate) or followingrules that cannot be changed (in the case of variable-rate), it is assumed that stripping does not changethe cost of borrowing. So, unlike other zero-couponbonds, the interest rate used for calculating theaccrual of interest costs for strips is not the rate pre-vailing at the time of stripping, but rather the origi-nal cost of borrowing—that is, on the underlyingsecurity.

2.80 In some countries, strips of interest paymentsmay refer to coupons of several bonds, with differentnominal amounts but paid at the same date. In thiscase, best efforts should be made to use theweighted-average nominal interest rate of the differ-ent underlying bonds to calculate the accrual ofinterest costs on the stripped securities.

Arrears

2.81 Interest that accrues on arrears (both principaland interest arrears) is known as late interest. Forarrears arising from a debt contract, interest costsshould accrue at the same interest rate as on the orig-inal debt, unless the interest rate for arrears wasstipulated in the original debt contract, in which casethis stipulated interest rate should be used. The stip-ulated rate may include a penalty rate in addition tothe interest rate on the original debt. For other ar-rears, in the absence of other information, interestcosts accrue on these arrears at the market rate ofinterest for overnight borrowing. Also, any addi-tional charges relating to past arrears, agreed by thedebtor and creditor at the time the arrears arerescheduled, and to be paid by the debtor to the cred-itor, should be regarded as an interest cost of thedebtor at the time the agreement is implemented. Ifan item is purchased on credit and the debtor fails topay within the period stated at the time the purchasewas made, any extra charges incurred should be re-garded as an interest cost and accrue until the debt isextinguished.

22

24A creditor might focus on the prevailing market interest rate,or the rate prevailing when they purchased the security, and hencemight record the claim at a value different from that recorded bythe debtor.


Variable-rate instruments

Interest-rate-linked instruments

2.82 For loans, deposits, and securities, the sameprinciples as with fixed-rate instruments apply, ex-cept that in the absence of firm information, the ac-crual of interest costs should be estimated and addedto the gross external debt position, using the most re-cent relevant observation(s) of the reference index.Revisions to back data should be undertaken whenthe amount of interest costs that have accrued isknown with certainty.

2.83 In addition, if the interest rate can vary onlyunder the condition of a minimum change in theindex and/or within specific upward limits, any esti-mate of the accrual of interest costs should take ac-count of any such conditions. If there is a link be-tween the nature of the rate index and the frequencyof interest payments—for example, interest is in-dexed on a quarterly basis and is normally paidevery quarter with a delay of one quarter—then theexact amount paid to the owners of the securitiesmay well be known in advance, and so can be ac-crued with certainty. This is known as interest being“predetermined.”

Index-linked instruments

2.84 External debt might be indexed to indices otherthan interest rate indices. Examples include indexingto the price of a commodity, an exchange rate index,a stock exchange index, or the price of a specific se-curity, and so on. Principal as well as interest pay-ments may be indexed. The index can apply continu-ously over all or part of the life of the instrument.Any change in value related to indexation is recordedas an interest cost, and so affects the principalamount outstanding until paid. The impact of the in-dexation on the principal amount is recorded on acontinuous basis for the period during which the in-dexing is operative.

2.85 The method of calculation is the same asthat for variable-rate interest discussed above; thatis, the accrued amount should be estimated usingthe most recent relevant observation(s) of the refer-ence index and added to the gross external debtposition. For instance, if in the first example aboveinterest payments were indexed, and movement inthe index after six months suggested that interestpayments would increase to $12 a year, then theinterest costs accrued to date would be $6 on a

straightline basis (or $5.80 on a compound basis),and the amount outstanding $106 ($105.80). Revi-sions to back data are undertaken when the amountof interest costs that have accrued is known withcertainty.

2.86 As mentioned above, a loan that is repayable incommodities or other goods in installments over aperiod of time (see paragraph 2.37) is conceptuallyequivalent to an indexed loan. At inception the prin-cipal amount outstanding is the value of principaladvanced; as with other debt instruments, interestcosts will accrue on this amount, increasing itsvalue. At any moment in time, the interest rate thataccrues is that which equates the market value of thecommodities or other goods to be paid with the prin-cipal amount then outstanding; as the market priceof the commodity or other good changes, so will theimplicit interest rate.

2.87 Index-linked instruments may include a clausefor a minimum guaranteed redemption value. Anyestimate of the accrual of interest costs should takeaccount of such conditions. For instance, if strict ap-plication of the index had the effect of reducing theamount outstanding to less than the minimum, itwould not be relevant to record any reduction belowthe minimum guaranteed redemption value. Nor-mally, the current market price of debt instrumentstakes into account such a clause.

Instruments with grace periods

2.88 Some debt instruments may have a grace pe-riod during which no interest payments are to bemade. Provided that the debtor can repay, withoutpenalty, the same amount of principal at the end ofthe grace period as at the beginning, no interest costsaccrue during the grace period. This remains trueeven if the rate of interest applied in a second and/orsubsequent time period is adjusted (for example,there is a step up), so that the final yield is roughlysimilar to normal conditions over the total life of theinstrument.

Instruments with embedded derivatives

2.89 Some instruments may have embedded deriva-tives that could, if exercised, affect the rate of inter-est. For such instruments, interest costs should ac-crue, and be included in the gross external debtposition, as “normal.” If the financial derivative is

23


exercised and so affects the interest rate, this shouldbe reflected in the rate at which interest accrues—for example, in a structured note with a maximuminterest rate, when, and as long as, the maximum isreached and so the financial derivative is “exer-cised,” interest costs should accrue at the maximumrate and no more. The market price of debt instru-ments should reflect the likelihood of the financialderivative being exercised.

Foreign currency instruments

2.90 Interest costs should accrue (or not) in foreigncurrency on an instrument denominated in foreigncurrency, adding to the outstanding principal amount,until paid or in arrears. The principal amount in for-eign currency should be converted into the unit of ac-count at the midpoint between the buying and sellingmarket (spot) rates on the reference date to which theposition relates.

24

Introduction

3.1 In the Guide, as in the 1993 SNA and BPM5, in-stitutional units, and the instruments in which theytransact, are grouped into categories so as to enhancethe analytical usefulness of the data. Institutionalunits are grouped into institutional sectors, and fi-nancial instruments are classified by their nature intoinstrument categories. However, the classificationsof institutional sectors and financial instruments aredetermined by the analytical needs of external debtstatistics and so can differ from other macroeco-nomic datasets. For instance, the central bank, an in-stitutional unit, is an institutional subsector in the1993 SNA but may not necessarily undertake allmonetary authority activities (such as currency is-suance or international reserve management) in aneconomy. In the Guide, all the monetary authority-type activities are included together in the monetaryauthorities sector regardless of whether they are ac-tually undertaken in the central bank or not. Giventhe importance of ensuring compatibility and consis-tency across related macroeconomic datasets, the in-stitutional sectors defined in the Guide can be recon-ciled with those in the BPM5.

3.2 The institutional sector breakdown groups insti-tutional units with common economic objectives andfunctions: general government, monetary authori-ties, banks, and other sectors. These sectors are de-fined in this chapter, as are the subsectors of othersectors: nonbank financial corporations, nonfinan-cial corporations, and households and nonprofit in-stitutions serving households. BPM5 does not pro-vide definitions of the subsectors of other sectors.

3.3 On the classification of financial instruments,the Guide gives prominence to four categories of in-struments in particular: debt securities, trade credit,loans, and currency and deposits. There is also another debt liabilities category; this would includeitems such as accounts payable. This chapter ex-

plains the nature of these types of financial instru-ments in the context of the BPM5 functional cate-gories from which they are drawn. Further, Appen-dix I defines specific financial instruments andtransactions and provides classification guidance; ittherefore should be consulted in conjunction withthis chapter.

Institutional Sectors

3.4 The institutional sector presentations below areconsistent with the 1993 SNA except that, in linewith BPM5, the Guide has a slightly different defini-tion for the general government and central banksectors.1

3.5 The monetary authorities sector is a functionalconcept used in the balance of payments that coversthe central bank (or currency board, monetaryagency, etc.) and any other operations that are usu-ally attributable to the central bank but are carriedout by other government institutions or commercialbanks. Such operations include the issuance of cur-rency; maintenance and management of interna-tional reserves, including those resulting from trans-actions with the IMF; and the operation of exchangestabilization funds.

3.6 The general government sector, with the excep-tion noted in the previous paragraph, is defined con-sistently with the definition of that sector in the 1993SNA. The government of a country consists of thepublic authorities and their agencies, which are enti-ties established through political processes that exer-cise legislative, judicial, and executive authoritywithin a territorial area. The principal economicfunctions of a government are (1) to assume respon-

3. Identification of Institutional Sectorsand Financial Instruments

25

1Institutional sectors are also described in detail in Chapter IVof the 1993 SNA.


sibility for the provision of goods and services to thecommunity on a nonmarket basis, either for collec-tive or individual consumption, and (2) to redistrib-ute income and wealth by means of transfer pay-ments. An additional characteristic of government isthat these activities must be financed primarily bytaxation or other compulsory transfers. General gov-ernment consists of (i) government units that exist ateach level—central, state, or local—of governmentwithin the national economy; (ii) all social securityfunds operated at each level of government; and(iii) all nonmarket nonprofit institutions that are con-trolled and mainly financed by government units.Public corporations, and unincorporated enterprisesthat function as if they were corporations (so-calledquasi-corporations) are explicitly excluded from thegeneral government sector and are allocated to thefinancial or nonfinancial corporate sectors, as appro-priate. A quasi-corporation can be owned by a resi-dent or nonresident entity but typically will keep aseparate set of accounts from its parent and/or, ifowned by a nonresident, be engaged in a significantamount of production in the resident economy over along or indefinite period of time.

3.7 The banking sector is identical with the “other(than the central bank) depository corporations”subsector of the financial corporate sector in the1993 SNA.2 Included are all resident units engagingin financial intermediation as a principal activityand having liabilities in the form of depositspayable on demand, transferable by check, or other-wise used for making payments, or having liabilitiesin the form of deposits that may not be readilytransferable, such as short-term certificates of de-posit, but that are close substitutes for deposits andare included in measures of money broadly defined.Thus, in addition to commercial banks, the bankingsector encompasses institutions such as savingsbanks, savings and loan associations, credit unions

or cooperatives, and building societies. Post officesavings banks or other government-controlled sav-ings banks are also included if they are institutionalunits separate from the government.

3.8 The other sectors category comprises nonbankfinancial corporations, nonfinancial corporations,and households and nonprofit institutions servinghouseholds subsectors.

3.9 The nonbank financial corporations subsectorcomprises insurance corporations and pension funds,other nonbank financial intermediaries, and financialauxiliaries. These types of institutions are all resi-dent subsectors in the 1993 SNA. Insurance corpora-tions consist of incorporated, mutual, and other enti-ties whose principal function is to provide life,accident, sickness, fire, and other types of insuranceto individual units or groups of units through thepooling of risk. Pension funds are those that are con-stituted in such a way that they are separate institu-tional units from the units that create them and areestablished for purposes of providing benefits on re-tirement for specific groups of employees (and, per-haps, their dependents). These funds have their ownassets and liabilities and engage in financial transac-tions on the market on their own account. Other fi-nancial intermediaries consist of all resident corpo-rations or quasi-corporations primarily engaged infinancial intermediation, except for banks, insurancecorporations, and pension funds. The types of corpo-rations included under this heading are security deal-ers, investment corporations, and corporations en-gaged in personal finance and/or consumer credit.Financial auxiliaries consist of those resident corpo-rations and quasi-corporations that engage primarilyin activities closely related to financial intermedia-tion but that do not themselves perform an interme-diation role, such as security brokers, loan brokers,and insurance brokers.

3.10 The nonfinancial corporations subsector con-sists of resident entities whose principal activity isthe production of market goods or nonfinancialservices. This sector is defined consistently withthe definition in the 1993 SNA. The sector includesall resident nonfinancial corporations; all residentnonfinancial quasi-corporations, including thebranches or agencies of foreign-owned nonfinancialenterprises that are engaged in significant amountsof production on the economic territory on a long-term basis; and all resident nonprofit institutions

26

2Covering both the deposit money corporations (S.1221) andother (S.1222) subsectors of the 1993 SNA. In the IMF’s Monetaryand Financial Statistics Manual (2000d), other depository corpo-rations are defined to include only those financial intermediariesissuing deposits and close substitutes that are included in the na-tional definition of broad money, which may exclude (include) in-stitutional units that are included (excluded) within the 1993 SNAdefinition. Rather than as banks, these excluded institutional unitswould be classified as nonbank financial corporations (or viceversa). While it is recommended in the Guide that the definition ofbanks be consistent with the 1993 SNA and BPM5, it is recognizedthat countries may rely on data from monetary surveys to compileexternal debt statistics for the banking sector.

3 • Identification of Institutional Sectors and Financial Instruments

that are market producers of goods or nonfinancialservices.

3.11 The households and nonprofit institutions serv-ing households (households and NPISH) subsectorcomprises the household sector, consisting of resi-dent households, and the nonprofit institutions serv-ing households sector, consisting of such entities asprofessional societies, political parties, trade unions,charities, etc.

3.12 In the presentation of the gross external debtposition (see below), intercompany lending liabili-ties under a direct investment relationship are sepa-rately identified. Equity liabilities arising from a di-rect investment, like all equity liabilities, areexcluded from external debt. These instruments aredescribed in more detail in paragraph 3.16.

Instrument Classification

3.13 This section defines the types of financial in-struments to be included in the presentation of thegross external debt position. They are defined in thecontext of the BPM5 functional categories—directinvestment, portfolio investment, financial deriva-tives, other investment, and reserve assets—fromwhich they are drawn. This allows the compiler, ifnecessary, to derive the gross external debt positiondata from the IIP statement.

3.14 Direct investment (Table 3.1) refers to a lastinginterest of an entity resident in one economy (the di-rect investor) in an entity resident in another econ-omy (the direct investment enterprise), defined inBPM5 as ownership of 10 percent or more of the or-

dinary shares or voting power (for an incorporatedenterprise) or the equivalent (for an unincorporatedenterprise).3 Once established, all financial claims ofthe investor on the enterprise, and vice and versa, andall financial claims on, or liabilities to, related (affili-ated) enterprises, are included under direct invest-ment (with two exceptions: financial derivatives andcertain intercompany assets and liabilities betweentwo affiliated financial intermediaries—see para-graph 3.18). Of the direct investment components,other capital, when owed to nonresident direct in-vestors or affiliates, is included in the gross externaldebt position; but the other components are not.

3.15 Other capital covers borrowing and lending offunds—including debt securities and suppliers’ cred-its (for example, trade credits)—among direct in-vestors and related subsidiaries, branches, and asso-ciates. In the gross external debt position tables,other capital is presented as direct investment: inter-company lending.

3.16 Equity capital and reinvested earnings (com-prising equity in branches, subsidiaries, and associ-ates—except nonparticipating, preferred shares,which are classified as debt instruments—and othercapital contributions, such as the provision of ma-chinery) is not a debt instrument.

3.17 In practice, it is sometimes difficult to distin-guish whether the claims of a direct investor on a di-

27

Table 3.1. Standard Components of the IIP: Direct Investment

Assets Liabilities

Direct investment abroad Direct investment in reporting economyEquity capital and reinvested earnings Equity capital and reinvested earnings

Claims on affiliated enterprises Claims on direct investorsLiabilities to affiliated enterprises Liabilities to direct investors

Other capital Other capitalClaims on affiliated enterprises Claims on direct investorsLiabilities to affiliated enterprises1 Liabilities to direct investors1

1Instruments in these categories are debt liabilities to be included in external debt.

3Further information on the methodology for measuring directinvestment is available in BPM5, Chapter XVIII, and its relatedpublications, and in the OECD Benchmark Definition of ForeignDirect Investment, Third Edition (OECD, 1996).


rect investment enterprise are other capital, which isclassified as external debt, or equity capital, which isnot. Differentiation is particularly difficult when anenterprise is 100 percent owned by a direct investor,such as when the direct investment enterprise is abranch or unincorporated enterprise. In these situa-tions, the classification of capital could be the sameas used in the direct investment enterprise’s account-ing records. That is, when a claim of the direct in-vestor on the direct investment enterprise is consid-ered to be equity capital or shareholder funds in theaccounting records of the direct investment enter-prise, this claim is also considered equity capital forexternal debt purposes. Subject to this condition: ifliabilities are only to be repaid in the event that aprofit is made by the direct investment enterprise,then the liabilities are classified as equity capital.Similarly, in some instances the direct investor mightfund local expenses directly and also receive directlythe income arising from the output of the direct in-vestment enterprise. The Guide regards such pay-ments and receipts as the provision and withdrawalof equity capital, respectively, in the direct invest-ment enterprise by the direct investor.

3.18 The stocks of intercompany assets and lia-bilities between two affiliated financial interme-diaries, including special purpose entities (SPEs)principally engaged in financial intermediation, that

are recorded under direct investment are limited topermanent debt (loan capital representing a perma-nent interest)—classified as direct investment: inter-company lending—and equity capital and reinvestedearnings. Other intercompany debt liabilities be-tween affiliated financial intermediaries are classi-fied by type of instrument, such as loans, debt secu-rity, etc., and are attributed to the institutional sectorof the debtor entity. For this purpose, financial inter-mediaries are defined as enterprises principallyengaged in providing financial intermediation ser-vices or services auxiliary to financial intermedia-tion and comprise those corporations and quasi-corporations that are grouped, in the 1993 SNA, intothe following subsectors: (1) other depository corpo-rations (other than the central bank); (2) other finan-cial intermediaries, except insurance corporationsand pension funds; and (3) financial auxiliaries.

3.19 Portfolio investment (Table 3.2) includestraded securities (other than those included in directinvestment and reserve assets). These instrumentsare usually traded (or tradable) in organized andother financial markets, including over-the-counter(OTC) markets. When they are owed to nonresi-dents, of the portfolio investment components, debtsecurities—that is, bonds and notes, and money mar-ket instruments—are included in the gross externaldebt position. Equity securities, including share in-vestments in mutual funds and investment trusts,4

are not included in the gross external debt position.

3.20 Debt securities issued with an original maturityof more than one year are classified as bonds andnotes, even though their remaining maturity at thetime of the investment may be less than one year.Bonds and notes usually give the holder the uncondi-tional right to a fixed money income or contractuallydetermined variable money income (payment of in-terest being independent of the earnings of thedebtor). With the exception of perpetual bonds,bonds and notes also provide the unconditional rightto a fixed sum in repayment of principal on a speci-fied date or dates. Included among bonds and notes

28

Table 3.2. Standard Components of the IIP:Portfolio Investment

Assets Liabilities

Equity securities Equity securitiesMonetary authorities BanksGeneral government Other sectorsBanks Debt securitiesOther sectors Bonds and notes1

Debt securities Monetary authoritiesBonds and notes General government

Monetary authorities BanksGeneral government Other sectorsBanks Money market instruments1

Other sectors Monetary authoritiesMoney market instruments General government

Monetary authorities BanksGeneral government Other sectorsBanksOther sectors

1Instruments in these categories are debt liabilities to be included in externaldebt.

4A mutual fund or investment trust liability that requires pay-ment(s) of principal and/or interest by the mutual fund or invest-ment trust to the creditor at some point(s) in the future is to berecorded as a debt instrument and, if owed to nonresidents,included in the gross external debt position. The instrument classi-fication would be dependent on the characteristics of the liabil-ity—for example, as a deposit (see paragraph 3.34).


are so-called asset-backed securities and collateral-ized debt obligations; that is, securities on whichpayments to creditors are explicitly dependent on aspecific stream of income—for example, future lot-tery receipts or a pool of nontraded instruments (say,loans or export receivables); see Appendix I formore details.

3.21 Debt securities issued with an original maturityof one year or less are classified as money market in-struments. These instruments generally give theholder the unconditional right to receive a stated,fixed sum of money on a specified date. These short-term instruments are usually traded, at a discount, inorganized markets; the discount is dependent on theinterest rate and the time remaining to maturity. Ex-amples of money market instruments include trea-sury bills, commercial and financial paper, andbanker’s acceptances. Like bonds and notes, moneymarket instruments can be “backed” by a specificstream of income or pool of nontraded instruments.

3.22 Further, where an instrument is provided by animporter to an exporter with such characteristics thatit is tradable in organized and other financial mar-kets, such as a promissory note, it should be classi-fied as a debt security—either bonds and notes, ormoney market instruments depending on its originalmaturity—in the gross external debt position. Sepa-rate identification of the outstanding value of suchinstruments is also encouraged because of their rolein financing trade. (See also the description of trade-related credit in Chapter 6.)

3.23 Equity securities cover all instruments andrecords acknowledging, after the claims of all credi-tors have been met, claims to the residual value of in-corporated enterprises. These securities are not debtinstruments and so are not external debt liabilities.Shares, stocks, preferred stock or shares, participa-tion, or similar documents—such as American Depos-itory Receipts—usually denote ownership of equity.Shares of collective investment institutions, e.g., mu-tual funds and investment trusts, are also included.

3.24 Financial derivatives5 (Table 3.3) are financialinstruments that are linked to a specific financial in-

strument, indicator, or commodity and throughwhich specific financial risks can be traded in finan-cial markets in their own right. As explained inChapter 2 (see paragraph 2.11), financial derivativesare not debt instruments, but information on themcan be relevant for external debt analysis.

3.25 Under a forward-type contract, the two coun-terparties agree to exchange an underlying item—real or financial—in a specified quantity, on a speci-fied date, at an agreed contract (strike) price or, inthe specific instance of a swap contract, the twocounterparties agree to exchange cash flows, deter-mined with reference to the price(s) of, say, curren-cies or interest rates, according to prearranged rules.The typical requirement under a foreign exchangeforward contract to deliver or receive foreign cur-rency in the future can have important implicationsfor foreign currency liquidity analysis and is cap-tured in the table in Table 7.7 in Chapter 7. Under anoption contract, the purchaser of the option, in re-turn for an option premium, acquires from the writerof the option the right but not the obligation to buy(call option) or sell (put option) a specified underly-ing item—real or financial—at an agreed contract(strike) price on or before a specified date. Through-out the life of the contract the writer of the optionhas a liability and the buyer an asset, although theoption can expire worthless; the option will be exer-cised only if settling the contract is advantageousfor the purchaser. Typical derivatives instrumentsinclude futures (exchange traded forward contract),interest and cross-currency swaps, forward rateagreements, forward foreign exchange contracts,credit derivatives, and various types of options.

3.26 Other investment (Table 3.4) covers all finan-cial instruments other than those classified as direct

29

Table 3.3. Standard Components of the IIP:Financial Derivatives

Assets Liabilities

Financial derivatives Financial derivativesMonetary authorities Monetary authoritiesGeneral government General governmentBanks BanksOther sectors Other sectors

5The treatment of financial derivatives in the balance of pay-ments and IIP is described in Financial Derivatives: A Supplementto the Fifth Edition (1993) of the Balance of Payments Manual(IMF, 2000c).


investment, portfolio investment, financial deriva-tives, or reserve assets. When owed to nonresidents,all the components of other investment—tradecredit, loans, currency and deposits, and other debtliabilities—are included in the gross external debtposition.

3.27 Trade credits consist of claims or liabilitiesarising from the direct extension of credit by suppli-ers for transactions in goods and services, and ad-vance payments by buyers for goods and services

and for work in progress (or to be undertaken).Long- and short–term trade credits are shown sepa-rately. Trade-related loans provided by a third party,such as a bank, to an exporter or importer are notincluded in this category but under loans, below(see also the description of trade-related credit inChapter 6).

3.28 Loans include those financial assets createdthrough the direct lending of funds by a creditor(lender) to a debtor (borrower) through an arrange-ment in which the lender either receives no securityevidencing the transactions or receives a nonnego-tiable document or instrument. Collateral, in theform of either a financial asset (such as a security) ornonfinancial asset (such as land or a building) maybe provided under a loan transaction, although it isnot an essential feature. In the gross external debtposition, loans include use of IMF credit and loansfrom the IMF.

3.29 If a loan becomes tradable and is, or has been,traded in the secondary market, the loan should bereclassified as a debt security. Given the significanceof reclassification, there needs to be evidence of sec-ondary market trading before a debt instrument is re-classified from a loan to a security. Evidence of trad-ing on secondary markets would include theexistence of market makers and bid-offer spreads forthe debt instrument. The Guide encourages the sepa-rate identification of the outstanding value of anysuch loans reclassified.

3.30 Reverse security transactions and financialleases are two types of arrangements for which thechange of ownership principle is not strictly adheredto.

3.31 A reverse securities transaction is defined toinclude all arrangements whereby one party legallyacquires securities and agrees, under a legal agree-ment at inception, to return the same or equivalentsecurities on or by an agreed date to the same partyfrom whom they acquired the securities initially. Ifthe security taker under such a transaction providescash funds, and there is agreement to reacquire thesame or equivalent securities at a predeterminedprice at the contract’s maturity, a loan transaction isrecorded. This is the so-called collateralized loanapproach to a reverse securities transaction, with thesecurities representing the collateral. These transac-tions include security repurchase agreements (repos),

30

Table 3.4. Standard Components of the IIP:Other Investment

Assets Liabilities

Trade credits Trade credits1

General government General governmentLong-term Long-termShort-term Short-term

Other sectors Other sectorsLong-term Long-termShort-term Short-term

Loans Loans1

Monetary authorities Monetary authoritiesLong-term Use of IMF credit and loansShort-term from the IMF

General government Other long-termLong-term Short-termShort-term General government

Banks Long-termLong-term Short-termShort-term Banks

Other sectors Long-termLong-term Short-termShort-term Other sectors

Currency and depositsLong-term

Monetary authoritiesShort-term

General government Currency and deposits1

Banks Monetary authoritiesOther sectors Banks

Other assets Other liabilities1

Monetary authorities Monetary authoritiesLong-term Long-termShort-term Short-term

General government General governmentLong-term Long-termShort-term Short-term

Banks BanksLong-term Long-termShort-term Short-term

Other sectors Other sectorsLong-term Long-termShort-term Short-term

1Instruments in these categories are debt liabilities to be included in externaldebt.


securities lending involving cash, and sale/buybacks. The security provider under a reverse securitytransaction acquires a repo loan liability and the se-curity taker a repo loan asset. If no cash is provided,no loan transaction is reported. Under the collateral-ized loan approach, the security is assumed not tohave changed ownership and remains on the balancesheet of the security provider. A similar recordingprocedure is adopted for transactions where goldrather than securities is provided as collateral forcash (so-called gold swaps).

3.32 If the security taker sells the security acquiredunder a reverse security transaction, they record anegative position in that security. This treatment re-flects economic reality in that the holder of the nega-tive position is exposed to the risks and benefits ofownership in an equal and opposite way to the partywho now owns the security (see also Appendix II).On-selling of gold by the gold taker, similarly re-ported as a negative holding, does not affect thegross external debt position because gold is an assetwithout any corresponding liability.

3.33 A financial lease is a contract under which alessee contracts to pay rentals for the use of a goodfor most or all of its expected economic life. Therentals enable the lessor over the period of the con-tract to recover most or all of the costs of goods andthe carrying charges. While there is not a legalchange of ownership of the good, under a financiallease the risks and rewards of ownership are, defacto, transferred from the legal owner of the good,the lessor, to the user of the good, the lessee. For thisreason, under statistical convention, the total valueof the good is imputed to have changed ownership.So, the debt liability at the inception of the lease isdefined as the value of the good and is financed by aloan of the same value, a liability of the lessee. Theloan is repaid through the payment of rentals (whichcomprise both interest and principal payment ele-ments) and any residual payment at the end of thecontract (or alternatively, by the return of the good tothe lessor).

3.34 Currency and deposits consists of notes andcoin and both transferable and other deposits.6 Notes

and coin represent claims of a fixed nominal valueusually on a central bank or government; commemo-rative coins are excluded. Transferable deposits con-sist of deposits that are (1) exchangeable on demandat par and without penalty or restriction, and (2) di-rectly usable for making payments by check, giroorder, direct debit/credit, or other direct payment fa-cility. Other deposits comprise all claims representedby evidence of deposit—for example, savings andfixed-term deposits; sight deposits that permit imme-diate cash withdrawals but not direct third-partytransfers; and shares that are legally (or practically)redeemable on demand or on short notice in savingsand loan associations, credit unions, building soci-eties, etc. Depending on national practice, gold thatis borrowed (without cash being provided in ex-change) from a nonresident could be classified bythe borrower as a foreign currency deposit.

3.35 Other assets/other liabilities covers items otherthan trade credit, loans, and currency and deposits.Such assets and liabilities include liabilities of pen-sion funds and life insurance companies to their non-resident participants and policyholders, claims onnonlife companies; capital subscriptions to interna-tional nonmonetary organizations; arrears (seebelow); and accounts receivable and payable, such asin respect of taxes, dividends declared payable butnot yet paid, purchases and sales of securities, andwages and salaries. Short- and long-term other liabil-ities are shown separately as other debt liabilities inthe gross external debt presentation.

3.36 Arrears are defined as amounts that are pastdue-for-payment and unpaid. Arrears can arise boththrough the late payment of principal and interest ondebt instruments as well as through late paymentsfor other instruments and transactions. For instance,a financial derivatives contract is not a debt instru-ment for reasons explained above, but if a financialderivatives contract comes to maturity and a pay-ment is required but not made, arrears are created.Similarly, if goods are supplied and not paid for onthe contract payment date or a payment for goods ismade but the goods are not delivered on time, thenarrears are created. These new debt liabilities shouldbe recorded in the gross external debt position asarrears.

3.37 Payments may be missed for a variety of rea-sons beyond simply the inability or unwillingness ofthe debtor to meet its payment obligations. Some-

31

6Because the IIP does not provide a short-term/long-term attri-bution, it is recommended that all currency and deposits are in-cluded in the short-term category unless detailed information isavailable to make the short-term/long-term attribution.


times arrears arise not from the ability of the originaldebtor to provide national currency but from the in-ability of the monetary authorities to provide foreignexchange to a domestic entity, so preventing that en-tity from servicing its foreign currency debt. Theseso-called transfer arrears remain those of the origi-nal debtor sector. Another circumstance may bewhen the creditor has agreed in principle to resched-ule debt—that is, reorganize payments that are

falling due—but the agreement has yet to be signedand implemented. In the meantime, payments dueunder the existing agreement are not made, and ar-rears arise—so-called technical arrears.7 Such ar-rears might typically arise in the context of ParisClub agreements between the time of the Paris Clubrescheduling session and the time when the bilateralagreements are signed and implemented. If theagreement in principle lapses before the agreementis signed, then any accumulated arrears are no longertechnical arrears.

3.38 Reserve assets (Table 3.5) consist of those ex-ternal assets that are readily available to and con-trolled by the monetary authorities for direct financ-ing of payments imbalances, for indirectlyregulating the magnitude of such balances throughintervention in exchange markets to affect the cur-rency exchange rate, and/or for other purposes.8 Bydefinition, reserve assets are not included in thegross external debt position.

32

Table 3.5. Standard Components of the IIP:Reserve Assets

Assets

GoldSpecial drawing rightsReserve position in the IMFForeign exchange

Currency and depositsWith monetary authoritiesWith banks

SecuritiesEquitiesBonds and notesMoney market instruments

Financial derivatives (net)Other claims

7If the creditor bills and the debtor pays on the basis of the newagreement, even though it is not signed, no arrears arise.

8In addition to BPM5, Chapter XXI, see International Reservesand Foreign Currency Liquidity: Guidelines for a Data Template(Kester, 2001), which also provides guidance on the measurementof official reserve assets.

Introduction

4.1 This chapter provides a table for the presenta-tion of the gross external debt position and relatedmemorandum tables. Data compiled using the con-cepts outlined in the previous chapters and presentedin the format of this table are essential to providing acomprehensive and informed picture of the grossexternal debt position for the whole economy, and so

their dissemination on a frequent basis is encouraged(see also Box 4.1).

4.2 In disseminating data on the gross external debtposition, compilers are encouraged to providemethodological notes explaining the concepts andmethods used in compiling the data. For any presen-tation of gross external debt position it is particularlyimportant for the compiler to indicate whether

4. Presentation of the Gross ExternalDebt Position

33

In the aftermath of the 1994–95 international financial crisis, theInterim Committee (now called the International Monetary andFinancial Committee) of the IMF’s Board of Governorsendorsed the establishment of a two-tier standard to guidemember countries in the provision of economic and financialdata to the public.The first tier, named the Special Data Dissem-ination Standard (SDDS), was approved by the IMF’s ExecutiveBoard on March 29, 1996. The other tier, named the GeneralData Dissemination System (GDDS), was approved on Decem-ber 19, 1997.1

The purpose of the SDDS is to guide IMF member countries inthe provision to the public of comprehensive, timely, accessible,and reliable economic and financial statistics in a world ofincreasing economic and financial integration. The SDDS isgeared to those countries that have, or might seek, access tointernational capital markets. Subscription to the SDDS is volun-tary. By subscribing to the SDDS, members undertake to pro-vide the supporting information to the IMF and to observe thevarious elements of the SDDS.

With respect to the external debt data category, the SDDS pre-scribes the dissemination of quarterly data with a one-quarterlag, covering four sectors (general government, monetary author-ities, the banking sector, and other). Furthermore, the data are to

be disaggregated by maturity—short- and long-term—and pro-vided on an original maturity basis and by instrument, as set outin BPM5. The SDDS encourages countries to disseminate sup-plementary information on future debt-service payments, inwhich the principal and interest components are separatelyidentified, twice yearly for the first four quarters and the follow-ing two semesters ahead, with a lag of one quarter. The datashould also be broken down into sector—general government,monetary authorities, the banking sector, and other sectors.Thedissemination of a domestic/foreign currency breakdown ofexternal debt with quarterly periodicity and timeliness is alsoencouraged.

The GDDS is a structured process focused on data quality thatassists countries in adapting their statistical systems to meet theevolving requirements of the user community in the areas ofeconomic management and development. Participating countriesvoluntarily commit to adhering to sound statistical practices indeveloping their statistical systems.

The core data category for external debt in the GDDS includespublic and publicly guaranteed debt, and the associated debt-service schedule. Recommended good practice would be thatthe stock data, broken down by maturity, be disseminated withquarterly periodicity and timeliness of one or two quarters afterthe reference date. In addition, the associated debt-serviceschedules should be disseminated twice yearly, within three tosix months after the reference period, and with data for fourquarters and two semesters ahead. Data on nonguaranteed pri-vate debt and debt-servicing schedules, with annual periodicity,are encouraged data categories to be disseminated within six tonine months after the reference period.

Box 4.1 SDDS and GDDS Specifications Regarding Dissemination of External Debt Statistics

1On March 29, 2000, the IMF’s Executive Board made a number ofamendments to the SDDS, which included the introduction of a sep-arate data category for external debt. At the same time, the Boardamended the GDDS to include public and publicly guaranteed exter-nal debt and a debt-service schedule as a core data category.


traded instruments are valued at nominal or marketvalue,1 and whether interest costs that have accruedbut are not yet payable are included, or not.

Presentation Table

4.3 The presentation of the gross external debt posi-tion is set out in Table 4.1.• The first level of disaggregation is by institutional

sector. The primary disaggregation is by the foursectors of the compiling economy described in theprevious chapter—general government, monetaryauthorities, banks, and other sectors. A disaggre-gation of the other sectors into nonbank finan-cial corporations, nonfinancial corporations, andother sectors (households and nonprofit institu-tions serving households) is provided.

Intercompany lending between entities in adirect investment relationship is separately pre-sented because the nature of the relationshipbetween debtor and creditor is different from thatfor other debt, and this affects economic behavior.Whereas a creditor principally assesses claims onan unrelated entity in terms of the latter’s ability torepay, claims on a related entity may be addition-ally assessed in terms of the overall profitabilityand economic objectives of the multinationaloperation.

• The second level of disaggregation is by the matu-rity of external debt—short-term and long-term onan original maturity basis. A maturity attribution isnot provided for intercompany lending, but in sep-arately identifying arrears (see below), which bydefinition are short-term liabilities, a partial short-term attribution is provided.2

• The third level of disaggregation is by type of debtinstrument. The debt instruments are described inChapter 3.

4.4 Other debt liabilities (other liabilities in theIIP), and intercompany lending are explicitly subdi-vided between arrears and other. Arrears are sepa-rately identified because such information is of par-ticular analytical interest to those involved inexternal debt analysis, since the existence of arrears

34

Table 4.1. Gross External Debt Position:By Sector

End-Period

General GovernmentShort-termMoney market instrumentsLoansTrade creditsOther debt liabilities1

ArrearsOther

Long-termBonds and notesLoansTrade creditsOther debt liabilities1

Monetary AuthoritiesShort-termMoney market instrumentsLoansCurrency and deposits2

Other debt liabilities1

ArrearsOther

Long-termBonds and notesLoansCurrency and deposits2


BanksShort-termMoney market instrumentsLoansCurrency and deposits2


ArrearsOther



Other SectorsShort-termMoney market instrumentsLoansCurrency and deposits2

Trade credits Other debt liabilities1

ArrearsOther


Trade creditsOther debt liabilities1

1A table reconciling nominal and market valuation of tradeddebt instruments is provided in Chapter 7 (Table 7.13).

2If a short-/long-term maturity attribution of intercompanylending data is available to the compiler on an original maturitybasis, the Guide encourages dissemination of these data.

4 • Presentation of the Gross External Debt Position

indicates the extent to which an economy has beenunable to meet its external obligations. All otherdebt liabilities and intercompany lending that are notarrears are classified as other.

4.5 For some economies arrears are very significant.For such economies, a further disaggregation ofarrears into arrears of principal, arrears of interest,interest on arrears of principal, and interest by insti-tutional sector is encouraged. Also, if the amounts oftechnical and/or transfer arrears are significant, itis encouraged that data on these amounts be sepa-rately identified and disseminated by the compilingeconomy.

4.6 The chapter also presents tables for memoran-dum items, data on which, depending on an econ-omy’s circumstances, can enhance the analyticalusefulness of the data presented in the gross externaldebt position.

Memorandum Items

4.7 To enhance analytical usefulness, various mem-oranda data series might be presented along with thepresentation of the gross external debt position. Thefirst memorandum item discussed below covers out-standing liabilities arising from periodic interestcosts that have accrued and are not yet payable. Theother three memorandum items—financial deriva-tives, equity liabilities, and debt securities issuedby residents that are involved in reverse securitytransactions between residents and nonresidents—provide information on instruments that are not cap-tured in the gross external debt position but thatpotentially could render an economy vulnerable tosolvency and, particularly, liquidity risks.

Periodic Interest Costs That Have Accrued and Are Not Yet Payable:Outstanding Liabilities

4.8 A memorandum table is set out in Table 4.2 forthe presentation of data on outstanding liabilitiesarising from periodic interest costs that have accruedand are not yet payable. Periodic interest costs arethose interest costs that result in an interest payment,as defined in Chapter 2. In attributing these liabili-ties by sector and maturity in this table, compilersshould be consistent with their approach in compil-ing gross external debt position data. For example,

35

Other Sectors (continued)Nonbank financial corporations

Short-termMoney market instrumentsLoansCurrency and deposits2


ArrearsOther



Nonfinancial corporationsShort-termMoney market instrumentsLoansTrade creditsOther debt liabilities1

ArrearsOther


Households and nonprofit institutions serving households (NPISH)

Short-termMoney market instrumentsLoansTrade creditsOther debt liabilities1

ArrearsOther


Direct Investment: Intercompany Lending Debt liabilities to affiliated enterprises

ArrearsOther

Debt liabilities to direct investorsArrearsOther

Gross External Debt

1Other debt liabilities are other liabilities in the IIP statement.2It is recommended that all currency and deposits be included in

the short-term category unless detailed information is available tomake the short-term/long-term attribution.

Table 4.1(concluded)

End-Period


interest costs attributed to short-term governmentdebt in the gross external debt position should beattributed to general government, short-term in thistable. A more detailed disaggregation of these inter-est cost liabilities by type of instrument could beprovided, if necessary.

4.9 Separate data on outstanding liabilities arisingfrom periodic interest costs that have accrued andare not yet payable allow for the calculation of thegross external debt position excluding these liabili-ties, which in turn facilitates comparisons bothacross countries and across time—that is, allowscomparisons with gross external debt position datathat might exclude such liabilities produced eitherby other countries, or by the same country in earliertime periods. Information on such liabilities alsoprovides a broad indication of the scale of short-terminterest payments to be made (the more frequentthese data are disseminated, the more relevant thisinformation), and can help clarify national practiceon the treatment of accrual of interest costs.

Financial Derivatives

4.10 A memorandum table for the presentation ofposition data on financial derivatives is provided in

Table 4.3. Because of the use of financial derivativesto hedge financial positions as well as to take openpositions, these contracts can add to an economy’sliabilities and, if used inappropriately, cause signifi-cant losses. However, in comparing financial deriva-tives data with external debt, the user should beaware that financial derivatives might be hedgingasset positions, or a whole portfolio of assets and lia-bilities. In this regard, the net external debt positionpresentation in Chapter 7 is also relevant.

4.11 The table includes gross assets as well asgross liabilities because of the market practice ofcreating offsetting contracts, and the possibility offorward-type instruments to switch from asset toliability positions, and vice versa, from one periodto the next. For instance, a borrower hedging a for-eign currency borrowing with a forward contractmight find that the value of the hedge switches fromasset to liability position from period to perioddepending on the movement in exchange rates. Topresent only the liability position in financial deriv-atives along with gross external debt would implythat the foreign currency borrowing was only

36

Table 4.2. Periodic Interest Costs ThatHave Accrued and Are Not Yet Payable:Outstanding Liabilities

End-Period

General GovernmentShort-termLong-term

Monetary AuthoritiesShort-termLong-term

BanksShort-termLong-term

Other SectorsShort-termLong-term

Direct Investment: Intercompany LendingDebt liabilities to affiliated enterprisesDebt liabilities to direct investors

Total Economy

Table 4.3. Financial Derivatives Position

End-Period

LiabilitiesGeneral governmentMonetary authoritiesBanksOther sectors

Nonbank financial corporationsNonfinancial corporationsHouseholds and nonprofit institutions

serving households (NPISH)

Total

Assets1

General governmentMonetary authoritiesBanksOther sectors

Nonbank financial corporationsNonfinancial corporationsHouseholds and nonprofit institutions

serving households (NPISH)

Total

Total Economy

1Excludes financial derivatives that pertain to reserve asset man-agement and are included in reserve assets data.

4 • Presentation of the Gross External Debt Position

hedged when the forward contract was in a liabilityposition, so creating a misleading impression. Thus,financial derivatives liability positions should beconsidered alongside financial derivatives assetpositions. If an economy includes financial deriva-tives in its reserve assets data, because they pertainto reserve asset management, these financial deriva-tives should be excluded from this memorandumitem.

Equity Liabilities

4.12 Table 4.4 shows a memorandum table for thepresentation of position data on equity liabilities—that is, both equity securities, and equity capital andreinvested earnings of direct investment enterprises.Similar to financial derivatives positions, equitysecurities can add to an economy’s liabilities and socould potentially be a source of vulnerability. Also,equity capital in direct investment enterprises, par-ticularly branches/unincorporated enterprises, couldbe withdrawn.

4.13 In some instances, resident mutual funds areused as a vehicle by nonresident investors to acquirepositions in domestic debt securities. If the nonresi-dents decide to sell these investments, the sales canhave a direct impact on the domestic debt securitiesmarket. As explained in Chapter 3, such investmentsby nonresidents are classified as equity liabilities ofthe resident economy. Nonetheless, identifyingequity investment in mutual funds, under nonbankfinancial corporations in the table, might be consid-ered. Further, if the amounts are significant and con-centrated in mutual funds that are entirely or almostentirely owned by nonresidents, memoranda data on

the investments of these mutual funds might also bedisseminated.

Resident-Issued Debt Securities Involvedin Reverse Security Transactions

4.14 In financial markets, activity in reverse securitytransactions is commonplace. It is one method ofproviding an investor with financial leverage in thedebt markets—that is, greater exposure to marketprice movements than the value of own fundsinvested. To understand the dynamics of this leverageactivity, and to track developments and hence poten-tial vulnerability, a memorandum table is provided inTable 4.5 for the presentation of position data on debtsecurities issued by residents that are acquired fromor provided to nonresidents under reverse securitytransactions. Such data would also help to interpretexternal debt, in particular security debt data whenreverse security activity is significant, and could beaffecting the recorded position. For debt securities tobe included in this memorandum table, the acquiringparty must have full title to the securities such thatthey can be sold to a third party.

4.15 In the table, the total value of debt securitiesissued by residents that have been acquired bynonresidents from residents under outstandingreverse security transactions, even if subsequentlyon-sold, are included with a positive sign. The totalvalue of debt securities issued by residents that havebeen acquired by residents from nonresidents underoutstanding reverse security transactions, even if

37

Table 4.4. Equity Liability Position

End-Period

Banks Other sectors

Nonbank financial corporations Nonfinancial corporations

Total

Direct investment in reporting economy: Equity capital and reinvested earnings

Total Economy

Table 4.5. Debt Securities Acquired UnderReverse Security Transactions:1 Positions

End-Period

Debt securities issued by residents and acquired by nonresidents from residents (+)

Debt securities issued by residents and acquired by residents from nonresidents (–)

1Reverse security transactions include all arrangements wherebyone party acquires securities and agrees, under a legal agreement atinception, to return the same or similar securities on or by anagreed date to the same party from whom they acquired the securi-ties initially.The acquiring party must have full title to the securitiessuch that they can be sold to a third party.These arrangements caninclude those known as repurchase agreements (repos), securityloans, and sell/buy backs.


subsequently on-sold, are included with a negativesign. This sign convention tracks the change ofownership of debt securities. Other things beingequal, if nonresidents acquire these securities underreverse security transactions, the security claims onthe resident economy are greater than recorded inthe gross external debt position, whereas if residentsacquire these securities from nonresidents under

reverse security transactions, the debt securityclaims on the resident economy are less thanrecorded in the gross external debt position. Appen-dix II provides more information on reverse securitytransactions and explains how different types ofreverse security transactions should be recorded inthe gross external debt position and in this memo-randum table.

38

Introduction

5.1 For countries in which there is a particular inter-est in public sector debt, this chapter provides a tablefor the presentation of the gross external debt posi-tion in which the role of the public sector is high-lighted. The data for this table should be compiledusing the concepts outlined in Chapters 2 and 3,except the debt of resident entities should be attrib-uted according to whether the debtor is publiclyowned or not, and if not, by whether the debt instru-ment is guaranteed or not by a public sector entity.For convenience, this presentation is described asbeing a “public-sector-based approach” and is con-sistent with the framework of the World Bank’sDebtor Reporting System.

5.2 In economies where public sector external debtis dominant, the presentation table provided in thischapter could be the primary one used for dissemi-nating data. Indeed, in circumstances where the pub-lic sector is centrally involved in external debtborrowing activity, both as a borrower or guarantor,it is essential. As private sector debt becomes moreimportant in the economy, more detailed break-downs of private sector debt are required, such asprovided in the previous chapter, but the presenta-tion set out in this chapter would remain relevant formonitoring external debt liabilities of the publicsector.

5.3 Because the concepts for its measurementremain consistent throughout the Guide, the grossexternal debt position for the whole economy—depending on whether traded debt instruments arevalued at nominal or market value—should be thesame regardless of whether the presentation table inthis or the previous chapter is used to disseminatesuch data.

5.4 In disseminating data, compilers are encour-aged to provide methodological notes explaining

the concepts and methods used in compiling thedata. For any presentation of gross external debtposition, it is particularly important for the compilerto indicate whether traded instruments are valued atnominal or market value, and whether interest coststhat have accrued but are not yet payable areincluded, or not.

Definitions

5.5 For the presentation of the external debt posi-tion in a public-sector-based approach, the firstdetermination is whether or not a resident entity isin the public sector.1 In comparison with the institu-tional sector approach outlined in Chapter 3, thepublic sector includes the general government,monetary authorities, and those entities in the bank-ing and other sectors that are public corporations. Apublic corporation is defined as a nonfinancial orfinancial corporation that is subject to control bygovernment units, with control over a corporationdefined as the ability to determine general corporatepolicy by choosing appropriate directors, if neces-sary. Control can be established through govern-ment ownership of more than half of the votingshares or otherwise controlling more than half ofthe shareholder voting power (including throughownership of a second public corporation that inturn has a majority of the voting shares).2 In addi-tion, it may be possible to exercise control throughspecial legislation, decree, or regulation thatempowers the government to determine corporate

5. Public and Publicly GuaranteedExternal Debt

39

1For more details, please refer to the World Bank’s DebtorReporting System Manual (World Bank, 2000), available onthe Internet at http://www.worldbank.org/data/working/DRS/drs_manual.doc.

2This definition is derived from the 1993 SNA and the IMF’sGovernment Finance Statistics Manual (IMF, 2001). It is consis-tent with ESA95 (Eurostat, 1996) and ESA95 Manual on Govern-ment Deficit and Debt (Eurostat, 2000), which also provideadditional guidance on recognizing such corporations.


policy or to appoint directors. Any domestic institu-tional unit not meeting the definition of public sec-tor is to be classified as private sector. In terms ofinstitutional sector attribution, the classification of apublic corporation as a monetary authority (centralbank), bank, nonbank financial corporation, or non-financial corporation depends on the nature of theactivity it undertakes.

5.6 Publicly guaranteed private sector externaldebt is defined as the external debt liabilities of theprivate sector, the servicing of which is contrac-tually guaranteed by a public entity resident in thesame economy as the debtor.3 The private sectorcan include resident entities in the banks and othersectors. External debt of the private sector that isnot contractually guaranteed by the public sectorresident in the same economy is classified asnonguaranteed private sector external debt. Ifexternal debt of the private sector is partially guar-anteed by the public sector resident in the sameeconomy, such as if principal payments or interestpayments alone are guaranteed, then only the pres-ent value of the payments guaranteed should beincluded within publicly guaranteed private sectorexternal debt, with the nonguaranteed amountincluded within nonguaranteed private sector exter-nal debt.

Presentation of Public and PubliclyGuaranteed External Debt Position

5.7 The presentation of the gross external debt posi-tion on the basis of a public-sector-based approach isset out in Table 5.1.• The first level of disaggregation is by sector. The

primary disaggregation is between public andpublicly guaranteed debt, and nonguaranteedprivate sector external debt. Because of the natureof the relationship between debtor and creditor,intercompany lending between entities in a directinvestment relationship is separately identifiedunder each category, but when combined equals

40

Table 5.1. Gross External Debt Position:Public and Publicly Guaranteed Debt andNonguaranteed Private Sector Debt

End-Period

Public and Publicly Guaranteed DebtShort-termMoney market instrumentsLoansCurrency and deposits1


ArrearsOther



Direct investment: Intercompany lendingDebt liabilities to affiliated enterprises

ArrearsOther


Nonguaranteed Private Sector External Debt



ArrearsOther




ArrearsOther


Gross External Debt

1It is recommended that all currency and deposits be included inthe short-term category unless detailed information is available tomake the short-term/long-term attribution.

2Other debt liabilities are other liabilities in the IIP statement.3External debt for which guarantees are provided to the creditorby a public sector entity resident in a different economy from thatof the debtor is not covered under this definition.

5 • Public and Publicly Guaranteed External Debt

direct investment: intercompany lending forthe total economy as presented in the previouschapter.

• The second level of disaggregation is by thematurity of external debt—short-term and long-term on the basis of original maturity. A matu-rity attribution is not provided for intercompanylending, but in separately identifying arrears(see below), which by definition are short-termliabilities, a partial short-term attribution isprovided.4

• The third level of disaggregation is by type ofdebt instrument, as described in Chapter 3.Arrears are separately identified, because suchinformation is of particular analytical interest.

5.8 Memoranda data, on a public sector basis, onoutstanding liabilities arising from periodic interestcosts that have accrued and are not yet payable,financial derivatives, equity liabilities, and reversesecurity transactions could be provided along withTable 5.1. These memorandum items are describedin Chapter 4.

5.9 Table 5.2 separates public sector external debtand publicly guaranteed private sector external debt.Such a separation allows identification of externaldebt owed by the public sector and, combined withthe information in Table 5.1, external debt of the pri-vate sector.

5.10 Further, as defined in paragraphs 5.5 and 5.6above, public sector data can be attributed to generalgovernment, monetary authorities, banks, and othersectors, while private sector information can beattributed to banks and other sectors. In this regard,it is recommended that if detailed records are kept,the institutional sector of the debtor be identified, soas to allow an economy that is presenting data on apublic sector basis to also compile data on an institu-tional sector basis.

41

Table 5.2. Gross External Debt Position:Public Sector Debt and PubliclyGuaranteed Private Sector Debt

End-Period

Public Sector External DebtShort-termMoney market instrumentsLoansCurrency and deposits1


ArrearsOther




ArrearsOther


Total

Publicly Guaranteed Private Sector External Debt



ArrearsOther




ArrearsOther


Total

1It is recommended that all currency and deposits be included inthe short-term category unless detailed information is available tomake the short-term/long-term attribution.

2Other debt liabilities are other liabilities in the IIP statement. 4If a short-/long-term maturity attribution of intercompanylending data is available to the compiler on an original maturitybasis, the Guide encourages dissemination of these data.

Introduction

6.1 Data compiled and presented using the conceptsdescribed in the previous chapters provide compre-hensive coverage and an informed picture of thegross external debt position for the whole economyand/or the public sector. However, such data do notprovide a complete picture of emerging vulnerabili-ties to solvency and liquidity risk. For instance, thecurrency and interest rate composition of externaldebt liabilities, and the pattern of future payments,might all be potential sources of vulnerability. Toassist in compiling additional data series of analyticaluse in understanding the gross external debt position,this chapter provides further accounting principles.These principles, as well as those described in earlierchapters, are drawn upon to provide illustrative pre-sentation tables in the next chapter.

6.2 This chapter discusses further accounting prin-ciples under three broad headings:• Sectors, maturity, and instruments;• Specific characteristics of external debt; and• Principles for the compilation of debt-service and

other payment schedules.

Sectors, Maturity, and Instruments

Creditor Sectors

6.3 Information on the nonresident creditor sectorthat owns external debt is disseminated by manyeconomies. The sectors defined in Chapter 3—generalgovernment, monetary authorities, banks, andother sectors—and in Chapter 5—public and privatesectors—are creditor as well as debtor sectors. Othercommonly identified creditor sectors are multilateral(international) organizations and official creditors.

6.4 Multilateral organizations are established bypolitical agreements among member countries thathave the status of international treaties. Multilateral

organizations are accorded appropriate privilegesand immunities and are not subject to the laws andregulations of the economies in which the organiza-tions are located. Typically these organizations pro-vide nonmarket services of a collective nature for thebenefit of members and/or financial intermediation,or the channeling of funds between lenders and bor-rowers in different economies. As creditors, multilat-eral organizations are sometimes also referred to asofficial multilateral creditors.

6.5 Official creditors are public sector creditors,including multilateral organizations. External debtowed to official creditors might also include debt thatwas originally owed to private creditors but that wasguaranteed by a public entity in the same economy asthe creditor (for example, an export credit agency).Official bilateral creditors are official creditors inindividual countries. This category of creditor is par-ticularly relevant in the context of Paris Club discus-sions. The Paris Club is an umbrella arrangementunder which creditors and debtors meet, discuss, andarrange debt-relief packages and is not an institutionalunit in its own right (see Box 8.2 in Chapter 8).

Remaining Maturity

6.6 While it is recommended that in the gross exter-nal debt position the short-term/long-term maturityattribution be made on the basis of original maturity,there is also analytical interest in attribution on thebasis of remaining maturity. Remaining-maturitymeasures (sometimes referred to as residual maturitymeasures) provide an indication of when paymentswill fall due, and so of potential liquidity risks facingthe economy. Particularly important is informationon payments coming due in the near term.

6.7 The Guide recommends that short-term remain-ing maturity be measured by adding the value of out-standing short-term external debt (original maturity)to the value of outstanding long-term external debt

6. Further External Debt AccountingPrinciples

42

6 • Further External Debt Accounting Principles

(original maturity) due to be paid in one year or less.Conceptually, at the reference date the value of out-standing long-term external debt (original maturity)due to be paid in one year or less is the discountedvalue of payments to be made in the coming year,both interest and principal.1 The value of outstand-ing long-term (original maturity) debt due to be paidover one-year ahead is classified as long-term debton a remaining-maturity basis.

6.8 The information content provided is one reasonfor recommending such an approach. Short-termdebt on an original maturity basis is identifiablefrom the gross external debt position. Measuring thevalue of outstanding long-term external debt (origi-nal maturity) falling due in one year or less mayraise practical difficulties, in which instance, oneproxy measure that might be used is the undis-counted value of principal payments on long-termexternal debt obligations (original maturity basis)due to mature in one year or less. This proxy mea-sure is incomplete in its coverage of interest pay-ments falling due in the coming year but can becompiled using the principles for projecting pay-ments in a debt-service schedule (see below).2

Trade-Related Credit

6.9 In the Guide, trade credit as presented in thegross external debt position is defined in Chapter 3—the direct extension of credit by suppliers for transac-tions in goods and services, and advance paymentsby buyers for goods and services, and for work inprogress (or to be undertaken)—consistent with the1993 SNA and BPM5. To assist in compiling addi-tional data series, this chapter introduces a wider con-

cept of trade-related credit, which also captures othercredits provided to finance trade activity, includingthrough banks. It is defined as including trade credit,trade-related bills (see below), and credit provided bythird parties to finance trade, such as loans from aforeign financial or export credit institution to thebuyer. A table for presenting data on trade-relatedcredit is provided in the next chapter.

6.10 A particularly difficult issue of classificationarises from bills drawn on the importer and providedto the exporter, which are subsequently discountedby the exporter with a financial institution. Theseinstruments might be regarded by the importer as thedirect extension of credit by the exporter but oncediscounted become a claim by a third party on theimporter. Where an instrument is provided to theexporter with such characteristics that it is tradablein organized and other financial markets, such as apromissory note, it should be classified as a securityin the gross external debt position and included inthe concept of trade-related credit.

6.11 If the importer’s bill has been endorsed (or“accepted”) by a bank in the importer’s own econ-omy in order to make the bill acceptable to theexporter, it is known as a banker’s acceptance, clas-sified as a security in the gross external debt posi-tion, and included in the concept of trade-relatedcredit. Banker’s acceptances are to be classified as afinancial liability of the bank (or, if not a bank, thefinancial institution that has endorsed the bill)because they represent an unconditional claim on thepart of the holder and an unconditional claim on thebank. However, national practices and variations inthe nature of these acceptances may suggest flexibil-ity in the application of this guideline.

Specific Characteristicsof External Debt

Currency Composition

6.12 Domestic currency is that which is legal tenderin the economy and issued by the monetary authorityfor that economy or for the common currency area towhich the economy belongs.3 Under this definition,

43

1For those economies that do not wish to include interest coststhat have accrued but are not yet payable in the gross external debtposition for all instruments, the nominal value of outstandinglong-term external debt at the reference date that is due to be paidin one year or less is the sum of principal payments on this debt tobe made in the coming year, except where the debt is in the formof securities issued at a discount, in which instance the principalamount to be paid will exceed the nominal amount outstanding atthe reference date.

2Some countries that have debt primarily in the form of instru-ments on which principal is paid only at maturity attribute the fullvalue of each long-term (original maturity) debt instrument on aremaining basis by when the instrument is due to mature. How-ever, from the viewpoint of liquidity risk analysis, this method isimperfect because payments coming due in the near term, such asinterest and partial payments of principal, are not captured withinshort-term remaining-maturity debt if the debt instrument has amaturity date further than a year ahead.

3In this context, a common currency area is one in which more thanone economy belongs and has a regional central bank with the legalauthority to issue the same currency within the area. To belong to thisarea, the economy must be a member of the regional central bank.


an economy that uses as its legal tender a currencyissued by a monetary authority of another econ-omy—such as U.S. dollars—or of a common cur-rency area to which it does not belong shouldclassify the currency as a foreign currency, althoughdomestic transactions are settled in this currency.

6.13 The attribution of external debt by currency isprimarily determined by characteristics of the futurepayment(s). Foreign currency debt is defined as debtthat is payable in a currency other than the domesticcurrency; a subcategory of foreign currency debt isdebt that is payable in a foreign currency but withthe amounts to be paid linked to a domestic currency(domestic-currency-linked debt). Foreign-currency-linked debt is debt that is payable in domestic cur-rency but with the amounts to be paid linked to aforeign currency. Domestic currency debt is debtthat is payable in the domestic currency, and notlinked to a foreign currency. In the unusual instanceof interest payments to be paid in a foreign currencybut principal payments to be paid in a domestic cur-rency, or vice versa, only the present value of thepayments to be paid in a foreign currency need beclassified as foreign currency debt (and similarly forforeign-currency-linked debt).

6.14 In attributing external debt by type of foreigncurrency—U.S. dollar, euro, Japanese yen, etc.—thecurrency to which payments are linked is the deter-mining criterion. Some types of foreign currency bor-rowing are denominated in more than one currency.However, if the amounts to be paid on such borrow-ing are linked to one specific currency, the borrowingshould be attributed to that currency. Otherwise,compilers are encouraged to disaggregate such multi-currency borrowing by the component currencies. If,for any reason at the time the data are compiled for aparticular reference date, the amounts attributable toeach currency at that date are not known with preci-sion, the borrowing should be attributed to each typeof currency using the latest firm information avail-able to the compiler—such as the currency attribu-tion at the previous reference date together with anyknown payments in specific currencies made duringthe subsequent period—and revised once firm infor-mation for the new reference date are known.4

Interest Rates

Variable- and fixed-rate external debt

6.15 Variable-rate external debt instruments arethose on which interest costs are linked to a refer-ence index—for example, LIBOR (London inter-bank offered rate), or the price of a specificcommodity, or the price of a specific financial instru-ment that normally changes over time in a continu-ous manner in response to market pressures. Allother debt instruments should be classified as fixed-rate. Interest on external debt that is linked to thecredit rating of another borrower should be classifiedas fixed-rate because credit ratings do not change ina continuous manner in response to market pres-sures, whereas interest on external debt that is linkedto a reference price index should be classified asvariable-rate, provided that the price(s) that are thebasis for the reference index are primarily market-determined.

6.16 The classification of an instrument can changeover time, if, say, it switches from fixed to variablerate. For instance, interest may be fixed for a certainnumber of years and then becomes variable. While afixed rate is paid, the instrument is to be classified asfixed-rate debt, and when it switches to variable rateit is classified as variable-rate debt. If interest islinked to a reference index or commodity price orfinancial instrument price but is fixed unless the ref-erence index or price passes a particular threshold, itshould be regarded as fixed-rate. But if thereafterinterest becomes variable, then it should be reclassi-fied as a variable-rate instrument. Alternatively, ifinterest is variable-rate until it reaches a predeter-mined ceiling or floor, it becomes fixed-rate debtwhen it reaches that ceiling or floor.

6.17 As in BPM5, when the value of the principal isindexed, the change in value resulting from indexa-tion—periodically and at maturity—is classified asinterest. So, if principal only is indexed, such debt isto be classified as variable-rate regardless of whetherinterest is fixed or variable, provided that the refer-ence index meets the criterion above: it normallychanges over time in a continuous manner inresponse to market pressures.

44

4For World Bank currency pool loans, while the composition ofthe currency pool changes on a daily basis, the currency ratios havebeen maintained within narrow limits since 1991. In the absence ofother information, debtors may wish to report the currency compo-

sition of currency pool loans as 30 percent U.S. dollar, 30 percenteuro, 30 percent Japanese yen, and 10 percent other currencies(until or unless the World Bank changes its ratio limits).


Average interest rates

6.18 The average interest rate is the weighted-average level of interest rates on the outstandinggross external debt as at the reference date. Theweights to be used are determined by the value in theunit of account of each borrowing as a percentage ofthe total. For example, for the general governmentsector the weight given to the interest rate on eachexternal debt instrument equals the value in the unitof account of that debt as a percentage of total exter-nal debt for the general government sector. Simi-larly, the weight given to the average level of interestrates for the general government sector when calcu-lating the average interest rate for the whole econ-omy is equal to the total value in the unit of accountof general government external debt as a percentageof total economy-wide external debt.

6.19 The relevant interest rate level for each debtinstrument is affected by whether it has a fixed- orvariable-linked interest rate. If the interest rate iscontractually fixed, then this rate should be used,taking account of any discount and premium atissuance. If the rate of interest had been variable inthe past but is now fixed, the current fixed-rateshould be used. For variable-rate instruments, therate of interest on each instrument should be the rateaccruing on the reference day. In other words, usu-ally variable rates of interest are reset on a periodicbasis, and it is the level of the interest rate applicableon the reference day that should be used. If the inter-est rate is reset on the reference date, that rate shouldbe reported and not the previous interest rate. If forany reason the variable rate is not observable, thenthe level of the reference index or appropriate priceon the reference date, or, if the link is to a change inthe reference index, the recorded change for the rele-vant period up to the reference date, or the closestrelevant time period available, together with anyexisting additional margin the borrower needs topay, should be used to calculate the interest ratelevel.

6.20 For calculating the weighted average of inter-est rates agreed on new borrowing during the period,the interest rates recorded would be those estab-lished at the time of the borrowing. If the interestrate is contractually fixed, then this rate should beused. For variable-rate borrowing, the rate of intereston each instrument should be that which is accruingon the day the claim is established. The weights tobe used in compiling average interest rate data are

determined by the value in the unit of account ofeach borrowing, on the date the claim was estab-lished, as a percentage of the total borrowed duringthe period.

Location of Securities Issuance

6.21 Debt securities issued by a resident of the sameeconomy in which the security is issued are to beclassified as domestically issued, regardless of thecurrency of issue. All other issues are to be classifiedas foreign issued. If there is uncertainty over thelocation of issue, then the following criteria shouldbe taken into account in descending order of prefer-ence to determine whether a resident of the economyhas issued a domestic or a foreign debt security:• The debt security is listed on a recognized

exchange in the domestic economy (domesticissue) or in a foreign economy (foreign security).

• The debt security has an International SecurityIdentification Number (ISIN) with a country codethe same as the legal domicile of the issuer, and/oris allocated a domestic security code by the domestic national numbering agency (domesticsecurity). Or the debt security has an ISIN codewith a country code different from that where theissuer is legally domiciled and/or has a foreignsecurity code issued by a foreign national number-ing agency (foreign security).

• The security is issued in a domestic currency(domestic issue), as defined in paragraph 6.12above, or in a foreign currency (foreign issue).

Concessional Debt

6.22 There is no unique definition of concessional-ity, and the Guide does not provide nor recommendone. Nonetheless, the definition of the OECD’sDevelopment Assistance Committee (DAC)5 is com-monly used. Under the DAC definition, concessionallending (that is, lending extended on terms that aresubstantially more generous than market terms)includes (1) official credits with an original grantelement of 25 percent or more using a 10 percentrate of discount (that is, where the excess of the facevalue of a loan from the official sector over the sumof the discounted future debt-service payments to be

45

5The Development Assistance Committee of the OECD wascreated in 1960. Its membership at mid-2001 comprised 22 coun-tries and the Commission of the European Union.


made by the debtor is 25 percent or more using a 10percent rate of discount); and (2) lending by themajor regional development banks (African Devel-opment Bank, Asian Development Bank, and theInter-American Development Bank) and from theIMF and World Bank, with concessionality deter-mined on the basis of each institution’s own classifi-cation of concessional lending. All external debt notclassified as concessional should be classified asnonconcessional.

Debt-Service and OtherPayment Schedules

6.23 A payment schedule provides a projection offuture payments, at a reference date, based on a cer-tain set of assumptions that are likely to change overtime. A debt-service payment schedule projects pay-ments on the outstanding gross external debt posi-tion at the reference date and helps in the assessmentof liquidity risk by allowing the data user, anddebtor, to monitor whether a bunching of paymentsis developing regardless of the original maturity ofthe debt instrument. For the debtor, early warning ofsuch bunching might allow countervailing action tobe taken.

6.24 Because the projection of a payment schedulerequires assumptions to be made, to assist compilers,some guidance is provided below on the assump-tions to apply. In compiling payment schedules, theGuide encourages the compiler to make best effortsin projecting payments. Consistent with the defini-tions in Chapter 2 (paragraph 2.5), in the debt-service payment schedule, interest payments areperiodic payments of interest costs, while principalpayments are all other payments that reduce theprincipal amount outstanding.

Projected Payments of Foreign CurrencyExternal Debt

6.25 External debt payments may be required in acurrency different from the unit of account used forpresenting data in the debt-service payment sched-ule. For such external debt payments, projected pay-ments should be converted to the unit of accountusing the market exchange rate (that is, the midpointbetween the buying and the selling spot rates) pre-vailing on the reference date (that is, the last daybefore the start of the forward-looking period). In

other words, if a debt-service payment schedule isdrawn up for external debt outstanding on an end-calendar-year reference date, then the exchange rateprevailing at the end of the calendar year (on the lastday of that year) should be used.6

6.26 For borrowing in multicurrencies, paymentsshould be projected with reference to the componentcurrencies of the borrowing and to the marketexchange rates (the midpoint between the buyingand the selling spot rates) prevailing on the referencedate. For World Bank currency pool loans, futurepayments should be projected in U.S. dollar equiva-lent terms on the basis of the pool units to be “paid”on each due date and the pool unit value at the refer-ence date, and then converted into the unit ofaccount, if this is not the U.S. dollar,7 at the marketexchange rate (the midpoint between the buying andthe selling spot rates) prevailing on the referencedate.

Receiving or Paying Foreign Currency Under a Financial Derivatives Contract

6.27 Consistent with the foreign-currency-conversionapproach adopted throughout the Guide, the amountsof foreign currency contracted to be paid andreceived under a financial derivatives contract that iscurrent and outstanding at the reference date should

46

6From a theoretical viewpoint, and given that the debt-servicepayment schedule is making projections, forward rates may beconsidered the best estimate of exchange rates for specific dates inthe future. However, while such an approach might well be readilyapplied in many instances for shorter-term debt in major curren-cies, there may be a lack of readily observable forward rates forlonger-term borrowing and for “smaller” currencies, thus leadingto possible inconsistent approaches between economies and dif-ferent maturity periods. Also, there always remains uncertaintyabout the future course of interest and currency rates. The Guidetakes the view that projections of future payments of external debtlinked to currency and interest rate movements should be based onend-period spot rates, rather than, say, forward rates, because thisapproach is more transparent, easier to compile, and more readilyunderstandable to users than projections based on rates in forwardmarkets—even though it is recognized that the use of a singleday’s exchange rate to convert payments to be made over a for-ward period could be misleading if temporary factors affect theexchange rate for that day.

7Currency pool loans are loans that are committed in U.S. dollarequivalent terms and converted into pool units, the base unit theborrower owes, through a conversion rate—pool unit value—thatis calculated on the basis of the relationship between the U.S. dol-lar and the component currencies in the pool. When pool units areto be repaid, they are converted back into the dollar-equivalentamount using the prevailing pool unit value. Currency pool loansare described in more detail in Appendix I.


be converted to the unit of account using the marketexchange rate (the midpoint between the buying andthe selling spot rates) prevailing on the referencedate (the last day before the start of the forwardlooking period).

Projected Interest Payments on Deposits

6.28 Interest on deposits that is payable once a yearor more frequently is projected as a future interestpayment. Interest payments on deposits should beprojected on the basis of those deposits that are out-standing on the reference date, using interest ratescurrent on the reference date, unless there are con-tractual reasons to assume otherwise.

6.29 Interest on deposits that are withdrawable ondemand or subject to a notice of withdrawal, and notsubject to a maturity date, should be projected intothe future,8 whereas those interest payments onthose deposits with a maturity date should be pro-jected only to that maturity date. Payments ondeposits for which notice of withdrawal has beengiven should be projected on the assumption thatthese deposits will be withdrawn on the due date,and no assumption of reinvestment should be madeunless there are explicit instructions from the depos-itor that indicate otherwise.

Projected Payments of Index-Linked ExternalDebt, Including Variable-Rate Interest

6.30 Interest and principal payments on externaldebt may be linked to a reference index that changesover time—for instance, a variable reference interestrate index, a commodity price, or another specifiedprice index. For such payments, projected paymentsshould be estimated using the level of the referenceindex on the last day before the start of the forward-looking period or, if the link is to a change in the ref-erence index, the recorded change for the relevantperiod up to the last day before the start of the for-ward-looking period, or the closest relevant timeperiod available. If the margin over the referenceindex is subject to change, then the margin on the lastday before the start of the forward-looking periodshould be used. For debt payable in commodities or

other goods, future payments are valued using themarket price of a commodity or good as at the refer-ence date, with the split between principal and inter-est payments based on the implicit interest rate at thereference date (see also Chapter 2, paragraph 2.37).

Projected Payments on LoansNot Fully Disbursed

6.31 No payments should be projected for loans thatare not yet disbursed. If loans have been partiallydisbursed, payments should be projected only forthose funds that have been disbursed. If the paymentschedule in the loan contract is based on the assump-tion that all funds are disbursed, but only partial dis-bursement has occurred by the reference date, then,in the absence of any other information that clearlyspecifies the payment schedule arising from fundsthat have been disbursed, it is recommended that thepayment schedule in the loan contract should be pro-rated by the percentage of the loan that has been dis-bursed—for example, if half of the loan has beendisbursed, then half of each payment in the loanschedule should be reported in the debt-serviceschedule.9

Projected Payments of Service-Related Debts

6.32 In the Guide, if a payment to a nonresident fora service that has been provided is outstanding at thereference date, it is classified as an external debt lia-bility. Given this, any future payments for services—such as fees, charges, and commissions that havealready been provided by the reference date—areclassified as principal payments, within other debtliabilities (unless they are classified as debt liabili-ties to affiliated enterprises/direct investors). Anyprojection of fees that depend on moving referenceamounts, such as undrawn commitments, should bebased on the reference amount at the reference date.While not encouraged, it is recognized that nationalpractice might be to classify service charges relatedto a loan along with interest in the debt-serviceschedule.

47

8In principle, the future could be indefinite, but compilers areencouraged to make some commonsense assumptions about theaverage maturity of deposits with no stated maturity.

9For prudent debt-management purposes, in some nationalpractices, even if only partially disbursed, the full amounts fore-seen in the payment schedule of the loan are projected for eachperiod until the external debt outstanding at the reference date isfully repaid. Under this “truncated” approach, if half the amount isdisbursed on the reference date, the loan is “repaid” in half thetime that is expected in the loan schedule, thus “front-loading” thedebt-service schedule.


Projected Payments of External Debt with the Provision for Early Repayment

6.33 An external debt liability may include a provi-sion that allows the creditor to request early repay-ment. For instance, the creditor may have an optionto redeem the debt early through a put (sell) option.In principle, projected payments can be estimatedboth without and with reference to this embedded putoption. For instance, a ten-year bond with a putoption after five years can be assumed at inception tohave a repayment date of ten years, and paymentsrecorded up until that date. Alternatively, for thisbond the earliest possible date for repayment of fiveyears could be assumed, with projected payments fin-ishing at that time. The preference in the Guide is toproject debt-service payments on the basis of theoriginal maturity (ten years in the example), but toprovide additional information on payments based onthe earliest repayment date (five years in the exam-ple). But it is recognized that national practice maybe to estimate projected payments on bonds withembedded put options only until the option date (fiveyears in the example), with additional information onthe projected payments on the bond up until the orig-inal maturity date (ten years in the example).10

Projected Payments of Credit-LinkedExternal Debt

6.34 Payments of interest and/or principal may belinked to the credit rating of another borrower(s),

such as in a credit-linked note. In these instances thecredit rating of the other borrower(s) on the last daybefore the start of the forward-looking period shouldbe used to project payments.

Projected Payments Arisingfrom ReverseTransactions

6.35 Under the recording approach for reversetransactions—the collateralized loan approach—asecurity provider records a loan liability. In the debt-service payment schedule, the security providerrecords the full amount of the loan to be paid atmaturity under principal. If the reverse transactionhas an “open” maturity,11 the loan should berecorded as on-demand, under the immediate timecategory in the presentation of the debt-service pay-ment schedule, unless there is clear evidence to sug-gest otherwise.

Projected Payments on Financial Leases

6.36 Projected payments on financial leases must bedivided into interest and principal payments. Theamount of interest payments can be calculated usingthe implicit rate of interest on the loan, with all otherpayments recorded as principal payments. Con-ceptually, at inception, the implicit rate of interest onthe loan is that which equates the value of the goodprovided—the value of the loan—with the dis-counted value of future payments, including anyresidual value of the good to be returned (or pur-chased) at the maturity of the lease.

48

10The debtor might have an option to call (buy back) externaldebt early, which would also result in a drain on liquidity. Butunlike the put option for the creditor, this drain is unlikely to beexercised except at a convenient time for the debtor. Conse-quently, in assessing vulnerability, information on external debtcontaining put options is more significant.

11“Open” maturity is where both parties agree daily to renew orterminate the agreement. Such an arrangement avoids settlementcosts if both parties wish to renew the reverse transaction on acontinuing basis.

Introduction

7.1 This chapter introduces presentation tables thatfacilitate a more detailed examination of the poten-tial liquidity and solvency risks to the economythat might arise from the acquisition of externalliabilities. These tables provide information thatsupplements that included in the gross externaldebt position presented earlier in the Guide. Morespecifically, this chapter provides presentationtables on:• External debt by short-term remaining maturity

(Tables 7.1 and 7.2);• Debt-service payment schedule (Tables 7.3 and

7.4);• Foreign and domestic currency external debt

(Tables 7.5–7.7);• Interest rates and external debt (Tables 7.8–7.9);• External debt by creditor sector (Table 7.10);• Net external debt position (Table 7.11);• Reconciliation of external debt positions and flows

(Table 7.12);• Traded debt instruments (Tables 7.13 and 7.14);

and• Cross-border trade-related credit (Table 7.15).

7.2 For any individual economy, the relevance ofany table in this chapter will depend upon the cir-cumstances facing it, and so the Guide does not pro-vide a list of priorities for compiling the tablesahead. Indeed, the tables are provided as flexibleframeworks to be used by countries in the long-termdevelopment of their external debt statistics. Butexperience suggests that data on debt-maturity pro-files and currency breakdowns are essential to acomprehensive analysis of external vulnerability forcountries with substantial but uncertain access tointernational capital markets. For the IMF’s data dis-semination standards, the tables for the debt-servicepayment schedule—Table 7.3 (Special Data Dissem-ination Standard, SDDS) and Table 7.4 (GeneralData Dissemination System, GDDS)—are relevant,

as is the table on foreign currency and domestic cur-rency debt, Table 7.5 (SDDS).1

7.3 Because the concepts for its measurementremain consistent throughout the Guide, the grossexternal debt position for each institutional sectorand for the total economy should be the sameregardless of the presentation table employed, pro-vided that the same approach to valuing traded debtinstruments is adopted throughout. Also, because theconcepts remain consistent, if necessary, compilerscan combine different characteristics of externaldebt in presentations other than those set out below.In disseminating data, compilers are encouraged toprovide methodological notes explaining the con-cepts and methods used in compiling the data.

7.4 Throughout this chapter, except where statedotherwise, the first level of disaggregation by row isby debtor sector, followed (where relevant) by matu-rity on an original maturity basis. In the tables, theinstitutional sector presentation is provided, but inprinciple the presentations can also be provided on apublic sector basis, as set out in Chapter 5. Becauseof the particular importance of both measures, thedebt-service payment schedule is presented on bothinstitutional (Table 7.3) and a public sector basis(Table 7.4).

External Debt by Short-TermRemaining Maturity

7.5 Tables are provided for presenting gross exter-nal debt position data by short-term remaining matu-rity for the total economy (Table 7.1), and then byinstitutional sector (Table 7.2). Information on thetotal short-term debt of the total economy, both on

7. Further Presentation Tablesof External Debt

49

1Box 4.1 in Chapter 4 provides the precise requirements for theexternal debt category of the IMF’s data dissemination standards.


an original and remaining maturity basis, as well asby sector, is of analytical interest (see Box 7.1). Forcompiling the data for these tables, direct invest-ment: intercompany lending should be attributed tolong-term maturity unless detailed information isavailable to provide data on a short-term remainingmaturity basis.

7.6 Compiling such information helps in the assess-ment of liquidity risk by indicating that part of thegross external debt position that is expected to falldue in the coming year. Also, by separately indicat-ing short-term debt on an original maturity basisfrom debt on a long-term basis falling due in thecoming year, the presentation provides additionalinformation content, such as the extent to which highshort-term remaining maturity data is due (or not) tosignificant debt payments expected on long-termdebt (original maturity basis).

7.7 The concept of short-term remaining maturitycan also be applied to other tables in this chapter,such as those relating to foreign-currency externaldebt.

Debt-Service Payment Schedule

7.8 Like the short-term remaining maturity presen-tation table, as mentioned in the previous chapter, adebt-service payment schedule supports the assess-ment of liquidity risk.

50

Table 7.1. Gross External Debt Position:Short-Term Remaining Maturity—Total Economy

End-Period

Short-term debt on an original maturity basis Money market instrumentsLoansCurrency and deposits1


ArrearsOther

Total

Long-term debt obligations due for payment within one year or less

Bonds and notesLoansCurrency and deposits1


Total

Total Economy

1It is recommended that all currency and deposits be included in the short-term category unless detailed information is available to make the short-term/long-term attribution.

2Other debt liabilities are other liabilities in the IIP statement.

Table 7.2. Gross External Debt Position:Short-Term Remaining Maturity—By Sector

End-Period

General GovernmentShort-term debt on an original

maturity basisMoney market instrumentsLoansTrade creditsOther debt liabilities1

ArrearsOther

TotalLong-term debt obligations due for

payment within one year or lessBonds and notesLoansTrade creditsOther debt liabilities1

Total

Monetary AuthoritiesShort-term debt on an original

maturity basisMoney market instrumentsLoansCurrency and deposits2


ArrearsOther


payment within one year or lessBonds and notesLoansCurrency and deposits2


Total

BanksShort-term debt on an original



ArrearsOther




Total

7 • Further Presentation Tables of External Debt

7.9 Table 7.3 gives a presentation of a debt-servicepayment schedule. The data to be presented in thistable are projected future payments of interest andprincipal on gross external debt outstanding on thereference date.2 The data should not cover projected

51

Other SectorsShort-term debt on an original



ArrearsOther




Total

Total

Direct Investment: Intercompany Lending3

Short-term debt on an original maturity basis

Debt liabilities to affiliated enterprisesArrearsOther


Long-term debt obligations due for payment within one year or less

Debt liabilities to affiliated enterprisesDebt liabilities to direct investors

Total Short-Term External Debt (remaining maturity basis)

1Other debt liabilities are other liabilities in the IIP statement.2It is recommended that all currency and deposits be included in

the short-term category unless detailed information is available tomake the short-term/long-term attribution.

3If data on intercompany lending on a short-term remainingmaturity basis are available.

To enable authorities to monitor developments in short-term capitalflows as a source of external vulnerability, a number of countries, withthe help of IMF staff, have developed monitoring systems that generatetimely high-frequency data on the liabilities of domestic banks to foreignbanks. This box briefly sets out the rationale for such systems, theircoverage, the institutional considerations, and the use of these data.

Rationale and Design Objective

High-frequency debt-monitoring systems are intended to monitordevelopments in short-term financial flows, which are a major sourceof external vulnerability and an important factor in crisis preventionand/or resolution. Such systems are designed to obtain high-qualitydata within very short time intervals (typically, a day).

Coverage

Given these objectives, high-frequency debt-monitoring systems aretypically limited to cover consolidated interbank transactions ofdomestic banks, including their offshore branches and subsidiaries, vis-à-vis foreign banks.The core set of instruments that are typically cov-ered include short-term interbank credits, trade credit lines, paymentsfalling due on medium- and long-term loans, and receipts and paymentsrelated to financial derivatives. Reporting institutions usually providedata on amounts due and paid in the reporting period, new linesextended, interest spreads over LIBOR, and maturities. As regardscountry classification, individual banks are attributed to the country inwhich their headquarters is located.

Institutional Considerations

Monitoring systems have been tailored to the specific circumstances ofindividual countries. However, there are certain minimum require-ments—in general, a capacity to collect, process, and communicatehigh-quality data with short lags. Key factors in the success of such sys-tems include close coordination between the authorities and banks,which may be facilitated by preexisting reporting requirements, and theproportion of external financial flows being channeled through thedomestic banking system (and, if relevant, other reporting institutions).Although a capacity must be developed to respond promptly to ques-tions, and to identify and approach banks about emerging problems,the authorities need to be sensitive to concerns that private sectorparticipants might misinterpret requests for information.

Use and Interpretation of Data

The information provided permits the tracking of rollover rates,changes in exposure and the terms of external obligations, which helpto assess changes in international capital market conditions and credi-tors’ assessments of the borrowing country. (It may also reveal dif-fering assessments of different institutions within the country.)Interpretation of the data involves considerable judgment, requiringanalysis of supply- and demand-side factors in order to shed more lighton the agents’ motivations behind the monitored transactions and thusthe soundness of a country’s external position. Supply-side considera-tions include factors such as shifts in creditor bank strategies, bankingsector or country risk, and institutional/regulatory changes in thesource country. Demand for interbank lines may be affected, for exam-ple, by fluctuations of imports or an increase/decrease in the relianceon local financing sources, such as foreign currency time deposits.

Box 7.1. High-Frequency Debt-Monitoring SystemsTable 7.2 (concluded)

End-Period

2Debt-service payments can also be projected on the basis notonly of outstanding debt on the reference date but additionally ondebt not yet, but expected to be, outstanding—for example, loansthat have been agreed but not disbursed and short-term debt thatmight be assumed to be renewed. This Guide does not provideguidance for projecting payments on expected disbursementsbecause its focus is on outstanding, and not projected, debt.


52

Table 7.3. Debt-Service Payment Schedule: By Sector

For Outstanding External Debt as at End-Period_____________________________________________________________________Over one year

One year or less to two years Over(months) (months) two__________________________________________ _______________

Immediate1 0–3 4–6 7–9 10–12 13–18 19–24 years

General Government Debt securities PrincipalInterest

LoansPrincipalInterest

Trade creditsPrincipalInterest


PrincipalInterest

Monetary AuthoritiesDebt securities PrincipalInterest


Currency and depositsPrincipalInterest


PrincipalInterest

BanksDebt securities PrincipalInterest




PrincipalInterest

Other SectorsDebt securities PrincipalInterest



Trade creditsPrincipalInterest


53

Other Sectors (concluded)Other debt liabilities Principal Interest

Nonbank financial corporationsDebt securities PrincipalInterest

LoansPrincipal Interest

Currency and depositsPrincipal Interest


PrincipalInterest

Nonfinancial corporationsDebt securities PrincipalInterest


Trade creditsPrincipal Interest


PrincipalInterest


Debt securities PrincipalInterest


Trade creditsPrincipal Interest


PrincipalInterest

Direct Investment: Intercompany Lending

Debt liabilities to affiliated enterprisesPrincipal Interest

Debt liabilities to direct investorsPrincipal Interest

Table 7.3 (continued)



Immediate1 0–3 4–6 7–9 10–12 13–18 19–24 years


future payments on external debt not yet outstand-ing. Direct investment: intercompany lending is sep-arately identified, although it is recognized thatsometimes the payments schedule on debt liabilitiesbetween related enterprises might not always beknown with precision.

7.10 In the table, the columns are time periods ofone year and less, over one year to two years, andover two years. The time frame in the table could beextended. Annual payment data for each year fromtwo years up to five years ahead would help to iden-tify potential significant payment amounts well inadvance. Some countries provide annual data foreach year out to 10 or 15 years.

7.11 Subperiods are presented within the time peri-ods of one year or less, and over one year to twoyears: in the one year or less period, quarterly sub-periods are presented together with an “immediate”category (see below); in the over one year to twoyears time period, semiannual (semester) subperiodsare presented. The column “0–3” months covers

payments of up to three months (excluding thosepayments falling under “immediate”); the column“4–6” months covers payments due in more thanthree months up to six months; the column “7–9”months covers payments due in more than six monthsup to nine months; the column “10–12” months cov-ers payments due in more than nine months up to12 months; the column “13–18” months coverspayments due in more than 12 months up to18 months; the column “19–24” months covers pay-ments due in more than 18 months up to 24 months.

7.12 The time period of one year or less includes asubperiod of “immediate” that covers all debt that ispayable on demand—for example, certain types ofbank deposits, as well as debt that is past due(arrears, including interest on arrears). Debt that istechnically due immediately is different in naturefrom debt due in one year or less because the actualtiming of payment on debt due immediately isuncertain. Without an “immediate” time period spec-ified, there is a possibility that an analytically mis-leading impression could be given by the data for

54

Gross External Debt PaymentsOf which: Principal

Interest

Memorandum itemSecurities with Embedded Options3

General GovernmentPrincipalInterest

Monetary AuthoritiesPrincipalInterest

BanksPrincipalInterest

Other SectorsPrincipalInterest

1Immediately available on demand or immediately due.2Other debt liabilities are other liabilities in the IIP statement.3Include only those securities that contain an embedded option with a date on which or after which the debt can be sold back to the debtor.

Table 7.3 (concluded)



Immediate1 0–3 4–6 7–9 10–12 13–18 19–24 years


short-term debt—some of this debt might not berepaid for some time.

7.13 When securities contain an embedded optionwith a date on which or after which the debt can beput (sold) back to the debtor by the creditor, asexplained in the previous chapter the preference ofthe Guide is that projected payments in Tables 7.3and 7.4 be estimated without reference to theseembedded put options, but that memorandum itemson projected payments be provided assuming earlyrepayment at the option date.

7.14 If national practice is to estimate projectedpayments on bonds with embedded put options onlyuntil the option date, additional memorandum infor-mation could be provided on the projected paymentson the bond up until the original maturity date.

7.15 Other embedded options might not include aset date, but their exercise may be dependent oncertain conditions occurring, such as a credit ratingdowngrade, or in the instance of a convertible bond,the price of equity reaching a certain level. Whileno memorandum item is provided for these instru-ments, where significant, additional data could becompiled on the value and type of this externaldebt. In particular, and if significant, credit-linkednote instruments should be separately identified in amemorandum item. In some economies, there maybe interest in historical debt-service data—that is,past payments of principal and interest on long-termborrowings including prepayments of debt.

7.16 For public debt managers, the monitoring ofthe debt-service payment schedule for public andpublicly guaranteed debt is essential for debt man-agement strategy and to ensure that payments aremade on a timely basis. Table 7.4 provides a debt-service payment schedule that presents debt-servicepayments on a public sector basis but is otherwiseidentical to Table 7.3.

Foreign Currency and DomesticCurrency External Debt

7.17 Experience suggests that information on thecurrency composition of the gross external debt posi-tion is necessary for monitoring an economy’s poten-tial vulnerability to solvency and liquidity risk. Forinstance, a depreciation of the exchange rate can

increase the burden of foreign currency debt liabili-ties in domestic currency terms for the residentdebtor (although there may be beneficial effects suchas an improvement in the competitiveness of an econ-omy’s exports of goods and services), while pay-ments on foreign currency debt can cause downwardpressure on the domestic exchange rate and/or out-flows of foreign currency from the economy. Someof the impact can be offset through the use of finan-cial derivatives, and natural hedges such as foreigncurrency assets and income, but, unlike the domesticcurrency, the domestic monetary authority cannotcreate additional foreign currency.

7.18 Three tables are provided to help users under-stand the risks to the economy of foreign currencyexternal debt. Table 7.5 is a simple foreign currency/domestic currency split of the gross external debtposition; Table 7.6 provides more information on theforeign currency external debt position; and Table 7.7provides information on foreign currency payments.

Domestic Currency/Foreign Currency Splitof the Gross External Debt Position

7.19 Table 7.5 provides information on the foreigncurrency and domestic currency split of the grossexternal debt position for the total economy. The def-inition of foreign currency debt in this table includesboth foreign currency3 and foreign-currency-linkeddebt. Foreign-currency-linked debt is included withforeign currency debt because a depreciation of theexchange rate can increase the burden of foreign-currency-linked debt liabilities in domestic currencyterms for the resident debtor.

7.20 A special case arises where an economyuses as its legal tender a currency issued by a mone-tary authority of another economy—such as U.S.dollars—or of a common currency area to which theeconomy does not belong. While this currency is tobe classified as a foreign currency, it has some of theattributes of a domestic currency because domestictransactions are settled in this currency. With this inmind, information could be separately provided onexternal debt payable in and/or linked to a foreigncurrency used as legal tender in the domestic econ-omy, and other foreign currency external debt.

55

3Including external debt payable in a foreign currency but withthe amounts to be paid linked to a domestic currency.


56

Table 7.4. Debt-Service Payment Schedule: Public and Publicly Guaranteed Debt andNonguaranteed Private Sector Debt



Immediate1 0–3 4–6 7–9 10–12 13–18 19–24 years

Public and Publicly Guaranteed DebtDebt securitiesPrincipalInterestLoansPrincipalInterestCurrency and depositsPrincipalInterestTrade creditsPrincipalInterestOther debt liabilities2

PrincipalInterest Direct investment: Intercompany lending

Debt liabilities to affiliated enterprisesPrincipal InterestDebt liabilities to direct investorsPrincipal Interest

Nonguaranteed Private Sector DebtDebt securities PrincipalInterestLoansPrincipalInterestCurrency and depositsPrincipalInterestTrade creditPrincipalInterestOther debt liabilities2

PrincipalInterestDirect investment: Intercompany lending

Debt liabilities to affiliated enterprisesPrincipal InterestDebt liabilities to direct investorsPrincipal Interest

Gross External Debt PaymentsOf which: Principal

InterestMemorandum itemSecurities with Embedded Options3

Public and Publicly Guaranteed DebtPrincipal InterestNonguaranteed Private Sector Debt Principal Interest

1Immediately available on demand or immediately due.2Other debt liabilities are other liabilities in the IIP statement.3Include only those securities that contain an embedded option with a date on which or after which the debt can be sold back to the debtor.


7.21 While Table 7.5 is based on the original matu-rity concept, data could also be compiled on aremaining-maturity basis. Also, further disaggrega-tion of the table into institutional sectors and instru-ments is possible. If significant, the foreign currencydata could be disaggregated into external debt that ispayable in foreign currency and external debt that ispayable in domestic currency but with the amountsto be paid linked to a foreign currency (foreign-currency-linked debt).

Gross Foreign Currency External Debt

7.22 For those economies with significant gross for-eign currency external debt, Table 7.6 presents moredetailed information on the position. This table pro-vides an attribution of foreign currency and foreign-currency-linked external debt by major foreigncurrency—U.S. dollars, euros, and Japanese yen.Further individual currencies could be added. Dis-semination of this detailed information is encour-aged because it provides further information on theexposure to exchange rate movements to that set outin Table 7.5.

7.23 The table could be extended to also includeforeign currency and foreign-currency-linked debtowed by each resident sector to each other residentinstitutional sector. While such debt is beyondthe definition of external debt, it can result incross-institutional sector transfers of income whenthere are movements in the domestic exchangerate vis-à-vis foreign currencies, thus affecting eco-

nomic activity and financial stability. However, ifsuch data are added to the data on nonresidentclaims, it should be remembered that if, for example,a resident bank funds a foreign currency loan toa resident corporation by borrowing from a non-resident, the foreign currency liabilities wouldappear in both the resident/resident and resident/nonresident data.

7.24 In the special case where an economy uses asits legal tender a foreign currency, borrowing in thiscurrency from nonresidents could be separatelyidentified in the table.

7.25 A memorandum item is provided in Table 7.6for the notional value—the amount underlying afinancial derivatives contract that is necessary forcalculating payments or receipts on the contract—offoreign currency and foreign-currency-linked finan-cial derivatives contracts with nonresidents both toreceive and pay foreign currency, and by type of cur-rency.4 A financial derivatives contract to purchaseforeign currency with domestic currency is classifiedas a financial derivative to receive foreign currency.If instead the contract is to purchase domestic cur-rency with foreign currency at a future date, this is afinancial derivative to pay foreign currency. Simi-larly, an option to buy foreign currency (sell domes-tic currency) is classified as a financial derivative toreceive foreign currency, and vice versa. The deci-sive factor in determining whether the financialderivative is to be classified as receiving or payingforeign currency is the exposure to currency move-ments, so if payment of a financial derivatives con-tract is linked to a foreign currency even thoughpayment is required in domestic currency, the finan-cial derivative is to be classified as a contract to payforeign currency, and vice versa.

7.26 Through the use of financial derivatives, theeconomy could become more, or less, exposed toexchange rate risk than is evidenced in the gross for-eign currency external debt data; in this context, thenotional value data—by providing a broad indicationof the potential transfer of price risk underlying thefinancial derivatives contract—are analyticallyuseful.

57

4For those economies that use a foreign currency—such as theU.S. dollar—as legal tender, information on the notional value offoreign currency derivatives to receive and pay this foreign cur-rency—such as U.S. dollars—could be presented.

Table 7.5. Gross External Debt Position:Foreign Currency and Domestic Currency Debt

End-Period

Foreign currencyShort-termLong-termTotal

Domestic currencyShort-termLong-termTotal

Gross External Debt


58

Table 7.6. Gross External Foreign Currency and Foreign-Currency-Linked Debt Position

End-Period____________________________________________________Total U.S. dollar Euro Yen Other


Monetary AuthoritiesShort-term1

Long-term

BanksShort-term1

Long-term


Nonbank financial corporations Short-termLong-term

Nonfinancial corporationsShort-termLong-term


Short-termLong-term


Gross External Foreign Currency and Foreign-Currency-Linked Debt

Memorandum itemFinancial Derivatives: Notional Value of Foreign Currency

and Foreign-Currency-Linked Contracts with Nonresidents2

To Receive Foreign Currency General Government

ForwardsOptions

Monetary AuthoritiesForwardsOptions

BanksForwardsOptions

Other SectorsForwardsOptions

Nonbank financial corporationsForwardsOptions

Nonfinancial corporations ForwardsOptions

Households and NPISH ForwardsOptions

Total


7.27 The notional amount is comparable with thevalues for debt instruments; for instance, if a foreigncurrency debt instrument is issued and the proceedssold for domestic currency with an agreement torepurchase the foreign currency with domestic cur-rency at a future date—known as a currency or forexswap—the notional amount of the financial deriva-tive is equal to the amount swapped. So, theseamounts provide an indication of the scale of activityby institutional sectors in foreign currency financialderivatives; the extent to which institutional sectorsmight be covering the foreign currency risk of theirborrowing; and/or the extent to which institutionalsectors may be exposed to foreign currency riskthrough financial derivatives contracts.

7.28 A breakdown of positions by institutional sec-tor into forwards (including swaps) and options isprovided because of their different characteristics.Notably, forwards are likely to involve the deliveryor receipt of the notional amount of foreign currencyunderlying the contract, whereas the settlement of an

option is likely to involve only a net settlement ofthe market value.5

7.29 If a single financial derivatives contract bothpays and receives foreign currency, the notionalamount should be included under both pay andreceive foreign currency. Not only does this ensurecompleteness of reporting, it also allows for the pos-sibility of attributing financial derivatives contracts bytype of currency. If a financial derivatives contractrequires the payment or receipt of foreign currency inreturn for something other than a currency (for exam-ple, a commodity), the notional amount should beincluded under either the receipt or payment of theforeign currency, as appropriate. If these contracts aresignificant, they could be separately identified.

59

To Pay Foreign CurrencyGeneral Government

Forwards Options

Monetary AuthoritiesForwardsOptions


Other SectorsForwardsOptions


Nonfinancial corporationsForwardsOptions


Total


2Excludes financial derivatives that are included in reserve assets data; that is, financial derivatives that pertain to the management of reserve assets, areintegral to the valuation of such assets, are settled in foreign currency, and are under the effective control of the monetary authorities.


End-Period____________________________________________________Total U.S. dollar Euro Yen Other

5According to data published semiannually by the Bank forInternational Settlements (BIS), market values of foreign cur-rency options are typically around 3–5 percent of the notionalamount.


Projected Payments in Foreign CurrenciesVis-à-Vis Nonresidents

7.30 Table 7.7 sets out a foreign currency paymentschedule, and a memorandum item of selected for-eign currency and foreign-currency-linked externalassets. It provides an idea of the future potentialdrains of foreign currency resources from the econ-omy to nonresidents, along with the external foreigncurrency assets that may be available to meet suchdrains in the short-term. While there is always diffi-culty in ascertaining the extent to which it might bepossible to use assets to meet outstanding debt oblig-ations as they come due, the memorandum item pro-vides a broad approximation of the concept offoreign currency liquidity by listing selected assettypes that would most likely be available in the shortterm. Only obligations to and claims on nonresidentsare to be included in this table.

7.31 The bank, nonbank financial, and nonfinancialcorporate sectors are presented in the table, but notthe general government and monetary authority sec-tors because a framework for the dissemination ofsimilar, but not identical, data for the monetaryauthorities and the central government is providedby the Data Template on International Reserves andForeign Currency Liquidity.6 However, the tablecould be extended to cover these sectors.

7.32 The rows in the table present types of foreigncurrency payments (and receipts); the time periodcolumns are defined identically to those in the debt-service schedule (Table 7.3).7 Because the focus ison foreign currency drains, all payments in domesticcurrency, even if linked to a foreign currency, areexcluded. Foreign currency external debt paymentsare those payments that are included in the debt ser-vice payment schedule and are required in foreign

currency. The requirements to deliver and receiveforeign currency from nonresidents under forwardcontracts include only contractual agreements todeliver and receive the nominal (notional) amountsof foreign currency underlying forward contracts,such as forward foreign exchange contracts, andcross-currency swaps, on contracts current and out-standing at the reference date.

7.33 This item is not intended to include projectednet settlements of financial derivatives contractsinvolving foreign currency, because such amounts arenot required under the contract and are not knownuntil the time of settlement.8 Consequently, contractssuch as options and nondeliverable forwards thatrequire only net settlement are not covered by thistable. However, such contracts contribute relativelylittle to the value of foreign currency delivered underfinancial derivatives because the settlement amountsare much smaller than the notional amount andbecause these types of contracts have a relativelysmall share of the market. Table 7.6 distinguishesbetween forwards and options and so can be used toindicate their relative shares of total foreign currencyfinancial derivatives.

7.34 The memorandum item in Table 7.7 coverspositions in (and not payments of) foreign currencyand foreign-currency-linked debt instruments thatrepresent claims on nonresidents—a subcategory ofthe debt assets presented in the net external debt table(see Table 7.11)—plus foreign currency and foreign-currency-linked equity securities. The instruments inthe table are selected on the assumption that they rep-resent assets that might be available to meet a suddendrain of foreign exchange; that is, as mentionedabove, they provide an approximation of the conceptof foreign currency liquid assets. All short-terminstruments (defined on an original maturity basis)are included along with those long-term instruments(original maturity basis) that are traded or tradable(bonds and notes, and equity). Foreign-currency-

60

6This is a template on international reserves and foreign cur-rency liquidity that was introduced as a prescribed component ofthe SDDS in March 1999 by the IMF’s Executive Board. The tem-plate provides a considerably greater degree of transparency oninternational reserves and foreign currency borrowing by theauthorities than hitherto. Details are provided in the InternationalReserves and Foreign Currency Liquidity: Guidelines for a DataTemplate (Kester, 2001).

7This table could be extended to also include foreign currencypayments and receipts to each other resident institutional sector.However, as mentioned in paragraph 7.23, combining resident/nonresident and resident/resident foreign currency data couldresult in double counting (for example, payments on a foreign cur-rency loan by a resident corporation that was funded by a domes-tic bank from abroad).

8As set out in Chapter 6, paragraph 6.27, future requirements topay/receive foreign currency under forward derivatives contractsare to be converted into the unit of account at the market (spot)rate on the reference date; that is, consistent with the foreign-currency-conversion approach adopted throughout the Guide.Consequently, any gains or losses in the unit of account on thesefinancial derivatives contracts are not reflected in this table, butwould be reflected in the market value data to be reported in thefinancial derivatives memorandum table presented in Chapter 4(Table 4.3) and in the net external debt position table set out laterin this chapter (see Table 7.11).


61

Table 7.7. Projected Payment Schedule in Foreign Currency Vis-à-Vis Nonresidents: SelectedInstitutional Sectors

For External Debt and Derivatives Contracts Outstanding as at End-Period______________________________________________________________

Over one yearOne year or less to two years Over

(months) (months) two_____________________________________ _____________Immediate1 0–3 4–6 7–9 10–12 13–18 19–24 years

BanksForeign currency external debt payments

Requirements under forward financial derivatives contractsTo deliver foreign currency To receive foreign currency

Nonbank financial corporations Foreign currency external debt payments


Nonfinancial corporationsForeign currency external debt payments


Memorandum itemSelected Foreign Currency and Foreign-Currency-

Linked External Assets

BanksShort-term

Money market instruments Currency and depositsLoansOther debt liabilities2

Long-termEquitiesBonds and notes

Nonbank financial corporationsShort-term

Money market instruments Currency and depositsLoansOther debt liabilities2


Nonfinancial corporations Short-term

Money market instruments Currency and depositsLoansTrade creditsOther debt liabilities2


1Immediately available on demand or immediately due.2Other debt liabilities are other liabilities in the IIP statement.


62

Table 7.8. Gross External Debt Position: Interest Rate Composition

End-Period________________________________________________Fixed-rate-linked Variable-rate-linked__________________ __________________

Percent PercentAmount of total Amount of total Total



Long-term

BanksShort-term1

Long-term


Nonbank financial corporations Short-termLong-term

Nonfinancial corporationsShort-termLong-term

Households and nonprofit institutions serving households (NPISH)Short-termLong-term


Gross External Debt(percentage of total external debt)

Memorandum item (to include if significant)Notional Value of Financial Derivatives: Single-Currency

Interest Rate-Related Contracts2

To receive fixed-rate-linked paymentGeneral governmentMonetary authoritiesBanksOther sectors

Nonbank financial corporationsNonfinancial corporations Households and NPISH

From affiliated enterprises and direct investorsTotal

To receive variable-rate-linked paymentGeneral governmentMonetary authoritiesBanksOther sectors

Nonbank financial corporationsNonfinancial corporations Households and NPISH

From affiliated enterprises and direct investorsTotal


2Excludes financial derivatives that pertain to reserve asset management and are included in reserve assets data.


linked assets are included to ensure consistency withthe foreign currency and foreign-currency-linkedexternal debt position data presented in Table 7.6.Indeed, foreign currency liabilities might be hedgedby foreign-currency-linked assets, and vice versa. Ifforeign-currency-linked assets become significant,they could be separately identified.

Interest Rates and External Debt

Interest Rate Composition of External Debt

7.35 As with the currency composition, experiencesuggests that information on the interest rate compo-sition of the gross external debt position can be nec-essary for monitoring an economy’s potentialvulnerability to solvency and liquidity risk. Forinstance, economies with high amounts of variable-rate debt are vulnerable to a sharp increase in inter-est rates. Hence, Table 7.8 provides a presentation ofthe amounts of the gross external debt position, bothin relative and absolute terms, on which interest isfixed-rate and variable-rate. Along with the value,for each cell the percentage contribution to externaldebt is presented. In this table, the purchase of a sep-arate financial derivatives contract, which mightalter the effective nature of the interest cash pay-ments, does not affect the classification of the under-lying instrument (see also below).

7.36 A memorandum item is provided on thenotional (or nominal) value of single-currency finan-cial derivatives contracts with nonresidents forinstances where the amounts involved are signifi-cant. These are broken down into contracts toreceive fixed-rate-related cash payments and receivevariable-rate-related cash payments. For instance, ifall sectors reported that their external debt was allfixed-rate-linked but they had entered into derivativescontracts with nonresidents to swap all their interestpayments into variable-rate-related payments, thenthe memorandum item would show that despite theapparent exposure of the economy to fixed-rateinterest rates, it is actually exposed to variable rates.

7.37 In financial derivatives markets, interest ratecontracts are typically referenced to a variable-rateindex. To receive variable-rate-linked is to pay fixed-rate-linked, and vice versa. A financial derivative thatreceives variable-rate-linked is one that would havean increasing positive value, or a decreasing negative

value, as the variable rate specified in the contractincreases; similarly a financial derivative thatreceives fixed-rate-linked has an increasing positivevalue, or a decreasing negative value, as the variablerate specified in the contract decreases.

Average Interest Rates

7.38 There is analytical interest in average interestrates on external debt. While financial derivativescontracts might arguably render these data less rele-vant than otherwise, these data provide informationon the borrowing costs of the economy and can beused to help estimate debt-service interest rate pay-ments, or be used to cross-check those data. Also,concessionality of borrowing can be imputed. Infor-mation on average interest rates on direct investmentborrowing is of value because, often for tax reasons,average interest rates on this debt can vary widely.Information on average interest rates on short- andlong-term original maturity instruments, by institu-tional sector, could additionally be provided.

7.39 In addition to weighted-average interest rates onoutstanding external debt, Table 7.9 could be used topresent data on the weighted-average level of interestrates agreed on new borrowing during the period.

External Debt by Creditor Sector

7.40 Table 7.10 provides for the presentation ofcreditor sector data for five nonresident creditor sec-

63

Table 7.9. Gross External Debt Position:Average Interest Rates

End-Period

General Government

Monetary Authorities

Banks

Other SectorsNonbank financial corporationsNonfinancial corporationsHouseholds and nonprofit institutions

serving households (NPISH)Direct Investment: Intercompany Lending

(from affiliated enterprises and direct investors)

Total Economy


tors: multilateral organizations, general government(excluding multilateral organizations),9 monetaryauthorities,10 banks, and “other sectors.” Tradition-ally, this information has been most readily availablefor nontraded instruments and has been essentialwhen undertaking debt-reorganization discussions.More broadly, information on creditor sectors has

been compiled because different types of creditorsmay respond to changing circumstances differently,and this can have implications for the economic situ-ation of an economy.

7.41 Most economies may face practical difficul-ties in identifying owners of traded debt securities.Economies might attribute the value of all tradeddebt securities to “other sectors” as the creditor sec-tor. If so, this assumption should be clearly identi-fied in any presentation of data because it may beonly very broadly reliable: for instance, monetaryauthorities hold significant quantities of cross-

64

Table 7.10. Gross External Debt Position: Creditor Sector Information

End-Period________________________________________________________________Creditor Sectors________________________________________________________________

Multilateral General Monetary OtherDebtor Sectors Organizations1 Government1,2 Authorities1 Banks Sectors Total



Long-term

BanksShort-term3

Long-term


Nonbank financial corporations Short-term3

Long-termNonfinancial corporationsShort-termLong-termHouseholds and nonprofit institutions

serving households (NPISH)Short-termLong-term

Gross External Debt Excluding Direct InvestmentOf which: Short-term

Long-term

Direct Investment: Intercompany Lending (Total column only)

Debt liabilities to affiliated enterprisesDebt liabilities to direct investors

Gross External Debt

1For the multilateral organizations, general government, and monetary authorities creditor sectors, short-term lending, on an original maturity basis, maybe insignificant—under which circumstances a short-/long-term split may not be necessary.

2Excluding multilateral organizations.3It is recommended that all currency and deposits be included in the short-term category unless detailed information is available to make the short-

term/long-term attribution.

9In BPM5, multilateral organizations form part of the foreigngeneral government sector.

10This category excludes multilateral monetary institutions suchas the IMF, which are included under multilateral organizations,but includes regional central banks.


border securities as part of their foreign exchangereserves. An alternative approach would be to havea separate column for traded debt securities andexclude holdings of such securities from all the“sector” columns.

7.42 Table 7.10 can be rearranged and extended asappropriate. One possibility is to divide the creditorsector information between official and other credi-tors. The official creditors could be further subdi-vided by multilateral and official bilateral creditors,and the latter could distinguish between Paris Clubmember creditors and non–Paris Club creditors.Also, official bilateral debt could be separatedbetween concessional and nonconcessional debt.

7.43 Because direct investment liabilities do not fallnaturally into this presentation, totals are drawnbefore and after direct investment: intercompanylending. Also, the “other sectors” as creditor sectorsare not subdivided into nonbank financial, nonfinan-cial corporations, and households and NPISH, sincethis would create an additional degree of difficulty inobtaining this creditor information. On the otherhand, as private sector capital flows increase, andthese creditor sectors become more significant, therecould be analytical interest in identifying theirclaims separately.

Net External Debt Position

7.44 As an economy increasingly integrates withthe rest of the world, so analysis of the external lia-bility position, and gross external debt position inparticular, needs to take into account positions inexternal assets. Indeed, for risk-management pur-poses, entities may well manage external liabilitiesand assets in an integrated manner. On the otherhand, there is difficulty in ascertaining the extent towhich assets might be usable to meet outstandingdebt liabilities. Table 7.11 provides a presentation ofnet external debt position data, placing gross exter-nal debt in the context of claims on nonresidents inthe form of debt instruments.

7.45 The rows in the table are structured as in thegross external debt position table (Table 4.1), and thecolumns present gross external debt, gross externalassets in debt instruments, and net debt position. Atotal of net external debt position plus the net finan-cial derivatives position (this position is valued at

65

Table 7.11. Net External Debt Position: By Sector

End-Period______________________________Gross External

External Assets Net Debt in Debt External

Position Instruments Debt(1) (2) (3) = (1) – (2)

General Government Short-termMoney market instrumentsLoansCurrency and deposits1

Trade creditsOther debt instruments2

ArrearsOther




Other debt instruments2

ArrearsOther





ArrearsOther





ArrearsOther




market value and should include the position infinancial derivatives held as reserve assets) is drawnat the bottom of the table. Because of their differentcharacteristics, information distinguishing forwards(including futures and swaps) and options withinfinancial derivatives is encouraged.

7.46 The data on external assets in the form of debtinstruments to be included in this table are the sameas presented in the IIP, with short- and long-termdefined on an original maturity basis. The net exter-nal debt position is equal to gross external debt lessgross external assets in debt instruments.

7.47 Provided that traded debt instruments are val-ued at market value, net external debt in this tableequals the net IIP position excluding all equityassets and liabilities, all financial derivatives assetsand liabilities, and holdings of SDRs and monetarygold. This approach facilitates comparability withother statistics. An alternative approach, which isundertaken within the banking industry, is to pre-sent traded debt instrument liabilities at nominalvalue and traded debt instrument assets at marketvalue.

Reconciliation of External DebtPositions and Flows

7.48 Between any two end-periods, the change in thegross external debt position can be disaggregated intocomponent flows. These are financial transactions,valuation changes, and other adjustments. Such a dis-aggregation helps the compiler to reconcile and verifydata, and it provides useful analytical information tothe user of data (for example, the extent to whichchanges in the gross external debt position since theprevious period are due to transactions, valuationchanges, and/or revisions to the previous perioddata).

7.49 The reconciliation of gross external debt posi-tions at two different reference dates is set out in Table7.12. In this table, the first column is the gross externaldebt position at the beginning of the period, followedby the transactions during the period. Because theconceptual approach taken in the Guide is consistentwith BPM5, the balance of payments transaction datacan be used in the transactions column (although thesubsector analysis of “other sectors” is not explicitlyidentified in BPM5). The next two columns are price

66




ArrearsOther



Nonfinancial corporationsShort-termMoney market instrumentsLoansCurrency and deposits1


ArrearsOther



Households and nonprofitinstitutions serving households (NPISH)



ArrearsOther



Direct Investment:Intercompany Lending

Debt liabilities to affiliated enterprises

ArrearsOther


Net External Debt (3)

Table 7.11 (continued)

End-Period______________________________Gross External

External Assets Net Debt in Debt External

Position Instruments Debt(1) (2) (3) = (1) – (2)


changes11 and exchange rate changes. These changesassume greater importance with increased volatility ofprices in security and exchange rate markets. A nomi-nal-valuation presentation of traded debt instrumentswould exclude any changes in value arising from mar-ket prices. Before the position at the end of the period,a fifth item of “other adjustments” is included. Theseadjustments include reclassifications of external debtsuch as when entities switch from one institutionalsector to another, and when the nature of a debt instru-ment changes—an example being of an instrumentmoving from a specific type (say, a loan) to directinvestment: intercompany lending, when the relation-ship between the creditor and debtor becomes that ofdirect investment.

Traded Debt Instruments

Reconciliation of Nominal and Market Value

7.50 The Guide recommends that traded debt instru-ments be valued in the gross external debt position atnominal and market value. The sole differencebetween these two valuation measures is that marketvalue takes account of market price changes, whereasnominal value does not. Market prices change overtime for a number of reasons, including changes inmarket interest rates, changes in investor perception ofthe creditworthiness of the debtor, and changes in mar-ket structure (such as might affect market liquidity).

7.51 The divergence in the market and nominalvalue of traded debt instruments at one moment intime, and over time, is of analytical value. For thisreason, Table 7.13 provides a framework for recon-ciling nominal and market valuation of traded debtinstruments included in the gross external debt posi-tion. The instruments in the table include moneymarket instruments, bonds and notes, and, if applica-ble, arrears. It is intended that data be presented inabsolute amounts in the same unit of account used topresent the gross external debt position.

Location of Debt Securities Issuance

7.52 Information on the location of issuance of debtsecurities issued by residents and owned by nonresi-

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LiabilitiesGeneral government

ForwardsOptions

Monetary authoritiesForwardsOptions


Other sectorsForwardsOptions


Nonfinancial corporationsForwardsOptions


Total (4)

AssetsGeneral government

ForwardsOptions

Monetary authoritiesForwards Options


Other sectorsForwards Options


Nonfinancial corporations ForwardsOptions


Total (5)

Net External Debt Position plus Financial Derivatives (6)

(6) = (3) + (4) – (5)


2Other debt instruments are other assets and other liabilities in the IIP statement.


Position inFinancial Derivatives

Financial Derivatives at End of Period

11In addition to market price changes, this column covers othernon-exchange-rate valuation changes—for example, changes inthe value of pension fund liabilities to nonresident participantsand policyholders arising from revaluations.


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Table 7.12. Gross External Debt Position: Reconciliation of Positions and Flows

Position at Changes in Position Reflecting________________________________________________Beginning Price Exchange Other Position atof Period Transactions changes rate changes adjustments End of Period

General Government Short-termMoney market instrumentsLoansTrade creditsOther debt liabilities1

ArrearsOther




ArrearsOther





ArrearsOther





ArrearsOther




69




ArrearsOther



Nonfinancial corporations Short-termMoney market instrumentsLoansTrade creditsOther debt liabilities1

ArrearsOther


Households and nonprofit institutions serving households (NPISH) Short-termMoney market instrumentsLoansTrade creditsOther debt liabilities1

ArrearsOther


Direct Investment: Intercompany Lending Debt liabilities to affiliated enterprises

ArrearsOther


Gross External Debt

1Other debt liabilities are other liabilities in the IIP statement.2It is recommended that all currency and deposits be included in the short-term category unless detailed information is available to make the short-



Position at Changes in Position Reflecting________________________________________________Beginning Price Exchange Other Position atof Period Transactions changes rate changes adjustments End of Period


dents can also be of analytical value. For instance,such data provide an indication of the motivation ofdebtors and creditors—whether residents are attract-ing foreign investors by issuing securities in theirmarkets; and of possible liquidity risk—securitiesissued in foreign markets may be harder to refinancein the event of an external shock to the economy.Also, in the absence of information on foreign cur-rency debt, these data can provide a broad idea of theforeign currency/domestic currency attribution ofdebt securities—for instance, foreign-issued debt islikely to be foreign-currency-linked. From a compi-lation viewpoint, data on securities issued in foreignmarkets might well be captured in a different mannerfrom that of issues in the domestic market.

7.53 A presentation for these data is provided inTable 7.14. The rows distinguish debt securitiesissued by general government from those issuedby other sectors. The separate identification of gov-ernment issues reflects the government’s importantand special role, in most economies, as a borrower.Depending on the extent of security issuance by theother institutional sectors, a further disaggregation ofissues, such as for banks, might also be of analyticalinterest. The maturity attribution is on an originalmaturity basis, although the table can also be pre-sented on a remaining maturity basis.

7.54 Consistent with the concepts set out in theGuide, Table 7.14 only covers information on

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Table 7.13. Gross External Debt Position:Traded Debt Instruments—Reconciliation of Nominal and Market Value

Nominal Value Market Price Market ValuePosition at End of Period Change Position at End of Period

General GovernmentMoney market instrumentsBonds and notesArrears (if applicable)

Monetary AuthoritiesMoney market instrumentsBonds and notesArrears (if applicable)

BanksMoney market instrumentsBonds and notesArrears (if applicable)

Other SectorsMoney market instrumentsBonds and notesArrears (if applicable)

Nonbank financial corporations Money market instrumentsBonds and notesArrears (if applicable)

Nonfinancial corporations Money market instrumentsBonds and notesArrears (if applicable)


Money market instrumentsBonds and notesArrears (if applicable)

Total Money market instrumentsBonds and notesArrears (if applicable)


nonresident ownership of resident-issued secu-rities. But there might also be interest in pre-senting data on resident as well as nonresidentownership of resident-issued securities, both indomestic and foreign markets. By including addi-tional columns for resident- and nonresident-owned

securities, the table can be extended to cover suchinformation.

Cross-Border Trade-Related Credit

7.55 In addition to presenting data by type of instru-ment, another approach is to present data by the type ofuse of the borrowing. In this regard, of special interestis information on cross-border trade-related credits bydebtor and creditor sector—that is, credits that financetrade. Such credit is directly linked to activity in thereal economy. Table 7.15 provides a model for present-ing data on borrowing used to finance trade, with thedisaggregation by, first, maturity (original basis) and,second, institutional sector. In presenting these data,trade-bills could be separately identified, both becauseof the analytical interest in such data and to help withreconciliation with creditor-based statistics.

7.56 The debtor sectors are presented in rows, andthe creditor sectors in columns. The rows and col-umn for direct investment entities relate only to theprovision of trade-related credit between relatedentities—that is, those transactions classified underdirect investment in the balance of payments, andnot the provision of trade-related credit by unrelatedparties to direct investment entities. The maturityattribution is on an original maturity basis.

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Table 7.14. Gross External Debt Position:Resident-Issued Debt Securities Ownedby Nonresidents—Location of Issuance

End-Period

Domestically issuedShort-term

General governmentAll other sectors

Long-termGeneral governmentAll other sectors

Foreign issuedShort-term

General governmentAll other sectors

Long-termGeneral governmentAll other sectors

Table 7.15. Gross External Debt Position: Cross-Border Trade-Related Credit

End-Period______________________________________________________________________________Creditor Sectors______________________________________________________________________________

General Direct Debtor Sectors government Banks1 Other sectors investment entities

Short-termGeneral governmentMonetary authoritiesBanksOther sectorsDirect investment entities

Long-termGeneral governmentMonetary authoritiesBanksOther sectorsDirect investment entities

Total

1It is recommended that any cross-border trade-related debt of monetary authorities be included within the bank category, unless the monetary author-ities are significant debtors, in which instance, they should be separately identified.

Introduction

8.1 Debt-reorganization transactions are a featureof external debt activity. Economies sometimes facedifficulties in meeting their external debt obliga-tions, or debtors may want to change the repaymentprofile of their external obligations for differentreasons, including reducing the risk of future pay-ment difficulties or reducing the cost of borrowing.In this context, they may undertake debt restructur-ing and debt conversions. This chapter defines debtreorganization, discusses the various types of debt-reorganization operations, and provides guidance onhow they affect the measurement of the gross exter-nal debt position. Further, this chapter defines debtrelief and recommends the measurement and pre-sentation of statistics on debt reduction, which isalso defined.

8.2 Reference is made in the chapter to the recordingof debt-reorganization transactions in the measuredflow data of the balance of payments, the OECD’sDevelopment Assistance Committee (DAC) system,and the World Bank’s Debtor Reporting System(DRS). Full details of such recording approaches areset out in BPM5 (IMF, 1993), the OECD’s Handbookfor Reporting Debt Reorganization on the DACQuestionnaire (OECD, 1999), and the DebtorReporting System Manual (World Bank, 2000).1

Definitions

8.3 Debt reorganization is defined as bilateralarrangements involving both the creditor and thedebtor that alter the terms established for the servic-ing of a debt. Types of debt reorganization includedebt rescheduling, refinancing, forgiveness, conver-sion, and prepayments. A creditor can also reduce

debt through debt write-offs—a unilateral action thatarises, for instance, when the creditor regards aclaim as unrecoverable, perhaps because of bank-ruptcy of the debtor, and so no longer carries it on itsbooks. This is not debt reorganization as defined inthe Guide because it does not involve a bilateralarrangement. Similarly, a failure by a debtor econ-omy to honor its debt obligations (default, morato-rium, etc.) is not debt reorganization.

8.4 Generally, debt reorganization is undertaken toprovide some debt relief to the debtor and canaddress liquidity and/or sustainability problems aris-ing from future and current payment obligations.Debt relief results where there is (1) a reduction inthe present value of these debt-service obligations;and/or (2) a deferral of the payments due, thus pro-viding smaller near-term debt-service obligations(this can be measured, in most cases, by an increasein the duration of these obligations; that is, paymentsbecome weighted more toward the latter part of thedebt instrument’s life). However, if debt reorganiza-tion results in changes in present value and durationthat are countervailing in their impact on the debtburden, then there is no debt relief, unless the netimpact is significant, such as could occur if there wasa deep reduction in present value (together with smalldecrease in duration) or a sharp increase in duration(together with a small increase in present value).

8.5 Debt reduction is defined as the reduction in thenominal value of external debt arising from a debt-reorganization arrangement, excluding any pay-ments of economic value made by the debtor to thecreditor as part of the arrangement. This is the defin-ition to be used for compiling data to be presented inTable 8.1—debt reduction arising from debt reorga-nization. Debt reduction in present value terms isdefined as the reduction in the present value of debt-service obligations arising from a debt reorganiza-tion, as calculated by discounting the projectedfuture payments of interest and principal both before

8. Debt Reorganization

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1See also Chapter 17.

8 • Debt Reorganization

and after the reorganization at a common interestrate and comparing the difference. To illustrate thedifference between debt reduction and debt reduc-tion in present value terms, if the contractual rate ofinterest is reduced with no impact on the nominalvalue of external debt, no debt reduction is recordedbut there is debt reduction in present-value terms.

8.6 Debt swaps are exchanges of debt, such as loansor securities, for a new debt contract (debt-to-debtswaps), or exchanges of debt-for-equity, debt-for-exports, or debt-for-domestic currency, such as to beused for projects in the debtor country (also known asdebt conversion).2 This definition is intended toinclude debt-for-development swaps where economicvalue is provided by the debtor to the creditor for usein development projects in the debtor’s economy.

Types of Debt Reorganization

8.7 The three main types of debt reorganization are:• A change in the terms and conditions of the

amount owed, which may result, or not, in a reduc-tion in burden in present-value terms. These trans-actions are usually described as debt rescheduling.They are also sometimes referred to as refinancingor as debt exchanges. Included are transactionsthat change the type of debt instrument owed—forexample, loan for bond swaps—but not debt-forgiveness transactions.

• A reduction in the amount of, or the extinguishingof, a debt obligation by the creditor via a contrac-tual arrangement with the debtor. This is debt for-giveness as described in BPM5 and the DRS and isalso classified as debt forgiveness in the DAC sys-tem if there is a development/welfare motive.

• The creditor exchanges the debt claim for some-thing of economic value other than another debtclaim on the same debtor. This includes debt con-version, such as debt-for-equity swaps, debt-for-real-estate swaps, and debt-for-nature swaps,3 anddebt prepayment or buybacks for cash.

8.8 Debt-reorganization packages may involve morethan one type; for example, most debt-reorganiza-tion packages involving debt forgiveness also resultin a rescheduling of the part of the debt that is notforgiven or canceled.

8.9 For clarification purposes, in discussing the sta-tistical treatment of debt reorganization, each of thethree types of debt reorganization is considered sep-arately. This has a number of advantages: each typeof debt reorganization raises different statisticalissues, hence encouraging a type-by-type approach;present international statistical guidelines, on whichthe guidelines in this chapter are based, are moreadvanced for some types of debt reorganization thanfor others; and there is interest in the different typesof debt reorganization, and so there is an analyticalbenefit, where possible, in separately measuring andreporting any debt reduction resulting from theirapplication.

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Table 8.1. Nominal Value Debt ReductionArising from Debt Reorganizations

DebtorPublic sector

Of which: Multilateral Official bilateral Commercial bank1

Bonds and notes

Publicly guaranteed private debtOf which: Multilateral

Official bilateral Commercial bank1

Bonds and notes

Other private debtOf which: Multilateral

Official bilateral Commercial bank1

Bonds and notes

Of which:Rescheduled and refinanced

Public and publicly guaranteed debtOther private debt

ForgivenPublic and publicly guaranteed debtOther private debt

Debt conversions and prepaymentsPublic and publicly guaranteed debtOther private debt

1Excluding bonds and notes.

2A debt swap should be distinguished from a financial deriva-tive swap. The financial derivative swap involves two partiesagreeing to swap future cash flows, while a debt swap involves theexchange of the debt instrument itself for economic value.

3Some agreements described as debt swaps are equivalent todebt forgiveness from the creditor together with a commitmentfrom the debtor country to undertake a number of development,environmental, etc., expenses. These transactions should be con-sidered under the second type of debt reorganization, as counter-part funds are not provided to the creditor.


Debt Rescheduling

8.10 Rescheduling refers to the formal deferment ofdebt-service payments and the application of newand extended maturities to the deferred amount. Thismay be conducted: (1) through the exchange of anexisting debt instrument for a new one, as in refi-nancing or debt exchanges; or (2) through a changeof the terms and conditions of the existing contracts(this is often simply referred to as rescheduling, asopposed to refinancing). Rescheduling may or maynot result in a reduction in the present value of debt,as calculated by discounting the old and new pay-ment schedule by a common interest rate.

8.11 Refinancing of a debt liability involves thereplacement of an existing debt instrument or instru-ments, including arrears, with a new debt instrumentor instruments. For instance, the public sector mayconvert various export credit debt it is owed into asingle loan. Refinancing may involve the exchangeof one type of debt instrument, such as a loan, foranother, such as a bond. Some debt-refinancingarrangements feature new money facilities (seebelow, paragraph 8.51). Also, refinancing can besaid to have taken place when countries with privatesector bond creditors exchange existing bonds fornew bonds through exchange offers (rather than achange in terms and conditions).

8.12 Rescheduling can be characterized as flow orstock rescheduling. A flow rescheduling typicallyrefers to a rescheduling of specified debt servicefalling due during a certain period and, in somecases, of specified arrears outstanding at the begin-ning of that period. A stock rescheduling involvesprincipal payments that are not yet due, and arrears,if any, and like a flow rescheduling, can include bothan element of debt forgiveness and a rescheduling ofthe amounts not reduced.

Recommended treatment

External debt position

8.13 Any agreed change in the terms of a debtinstrument is to be recorded as the creation of a newdebt instrument, with the original debt extinguishedat the time both parties record the change in terms intheir books. Whether the gross external debt positionincreases, decreases, or remains unchanged dependson whether the value of the new instrument(s) isrespectively greater than, smaller than, or the same

as the original debts being replaced—this is the caseregardless of the valuation method employed tomeasure external debt instruments.4 In other words,both before and after a debt rescheduling, the valueof the gross external debt position is simply deter-mined by the value of outstanding external debt lia-bilities of residents owed to nonresidents at thereference date.

8.14 As explained in Chapter 2, and as the examplesin that chapter illustrated, the stock of external debtat any moment in time can be calculated by dis-counting future payments at a specified rate of inter-est. This interest rate can be the contractual rate (fornominal value), or a market rate for the specific bor-rower (for market value), or another rate. Usingthese different rates to discount payments will pro-vide different position data for the same paymentschedule. Debt reduction in present-value terms aris-ing from rescheduling might be calculated using anyof these rates—in the HIPC Initiative, a market-based rate is used.

8.15 If, as part of official and private debt-reductionpackages, loans denominated in foreign currency areswapped for debt securities denominated in the domestic currency, the difference between the valueof the loan and the value of the debt security in thedomestic currency will be reflected in the grossexternal debt position. The extinguishment of the olddebt liability, the loan, results in a decrease in thevalue of short-term or long-term loans, as appro-priate, while an increase in bonds and notes isrecorded.

Flow data

8.16 In the flow data in the balance of payments,both the extinguishment of the old debt liabilityand the creation of the new debt(s) are recorded. Inthe DAC system these flows are also recorded,except when the category of debt does not change,in which case only the capitalization of interest isrecorded as a flow. The DRS does not record thesetransactions in flow data (but they are reflected in

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4If external debt is lower or higher because at the time ofrescheduling it was agreed between the debtor and creditor thatthe amount of late interest on arrears was to be more or less thanthat which accrued, back data of the gross external debt positionshould not be revised to reflect this agreement, provided that theaccrual of interest costs on arrears in past periods was in line withthe contract(s) that existed at that time.


the position data). In the balance of payments, anydifference between the value of the old and newdebts is treated as a valuation change, such as in thecase of exchanges of Brady bonds (see Box 8.1) fornew global bonds, except when nonmarketable debtowed to official creditors is involved, in whichinstance any reduction in the nominal value of debtis recorded as debt forgiveness (see below).5

Debt reduction

8.17 The Guide recommends that debt reduction aris-ing from debt rescheduling and debt refinancing—thatis, a reduction in the nominal amount outstanding,excluding any external debt-service payments made bythe debtor as part of the arrangement—be measuredand presented as in the debt-reduction table providedin this chapter. If the new external debt liability isdenominated in a different currency from that of theexternal debt liability it is replacing, then any debtreduction should be determined using the marketexchange rate between the two currencies prevailingon the transaction date (that is, the midpoint betweenthe buying and selling spot rates).

8.18 In many instances of debt rescheduling, themethod by which debt relief is provided is morecomplex than a simple reduction in nominal amountoutstanding. For instance, a debt might be resched-uled with the same nominal value but with a lowerinterest rate or with extended maturities. By simplycomparing the nominal amounts outstanding beforeand after the rescheduling, no debt reduction wouldbe evident, but there may be debt reduction in pres-ent value terms, calculated by discounting futuredebt-service payments, both on the old and newdebts, at a common rate. In such circumstances, akey issue is which rate to use: in debt-reorganizationoperations such as those under the HIPC Initiativeand similar arrangements, debt reduction in present-value terms is calculated using an interest rate equalto a market-based so-called risk-neutral rate—suchas the OECD’s Commercial Interest Reference Rates(CIRRs).6 In other cases, debt reduction in presentvalue may be based on a rate that includes a risk pre-mium, reflecting the creditor’s assessment of thevalue of the claim (this is generally the case for therestructuring of claims held by private creditors).

8.19 Also, in some debt rescheduling, such as withconcessional Paris Club agreements (Box 8.2), credi-

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Box 8.1. Sovereign Bond Restructuring

The restructuring of a country’s sovereign bonded external debt(eurobonds and Brady bonds) began with Pakistan at the end of 1999,following the extension of the “comparability of treatment” principleto bondholders in Pakistan’s agreement with the Paris Club in January1999.

In terms of restructuring debt, bonds have a number of characteristicsthat distinguish them from other types of debt instruments.

• First, there is usually a wider range of investors than for nontradedexternal debt instruments, and hence various investor groups allwith potentially different investment motivations. For instance, theinvestment motivations of retail—nonfinancial institution—investorsmay be different from those of financial institutions.

• Second, market prices are invariably quoted. Thus, those investorsthat mark-to-market frequently—having borne the market-value lossin the secondary market price of the to-be-exchanged bonds, or hav-ing purchased at a low market value—might well compare the pre-sent value of the exchange offered (discounting payments at a partic-ular interest rate) with the current market price of theto-be-exchanged bonds. In the simplest case, if the present value ofthe exchange bond is higher than the market price of the originalbond, the holder of the to-be-exchanged bond has an incentive totender his bonds in the exchange.

• Finally, most eurobonds and Brady bonds have cross-default clausesor cross-acceleration clauses in their covenants, thus perhaps makingit impossible for a sovereign debtor to pick and choose which bond-holders are repaid and which are not. So, markets debate the issue ofwhether a restructuring of external bonded debt needs to be com-prehensive across other foreign currency debt instruments as well.

The consequence of the above is that successful bond restructuring—mostly bond exchanges—has involved the debtors exchanging securi-ties at a premium to the market price, although well below the facevalue, or providing other “sweeteners” to encourage bondholders toparticipate. Bonds with the larger percentage of retail investors havetended to pay a higher premium. But, as with creditors for other typesof debt instruments, a key consideration of creditors in any restructur-ing is whether the sovereign borrower is facing a liquidity or solvencyproblem, or neither.

5See BPM5, paragraph 534.

6These rates are determined monthly for 13 currencies on thebasis of secondary market yields on government bonds with aresidual maturity of five years, and additionally three and sevenyears for the Canadian dollar, the U.S. dollar, and the euro. Thesedata are published monthly on the Internet at: http://www.oecd.org/statistics/news-releases. For the HIPC Initiative, debt denominatedin currencies for which no CIRR is available, if the currency ispegged to another currency such as the U.S. dollar, the CIRR forthe latter should be used; in the absence of an exchange ratearrangement, as well as for the units of account used by variousmultilateral institutions, the SDR CIRR should be applied.


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The Paris Club has developed procedures for the collective rescheduling ofofficial bilateral debt since the 1950s, when Argentina approached bilateralcreditors.The Club is an ad hoc organization of creditor countries (mainlyOECD members) that responds to requests for debt relief with respect toguaranteed export credits and intergovernmental loans.

Debts to Paris Club official creditors are now restructured through theParis Club, especially since Russia became a member of the Club in 1997.Debts to commercial banks are typically restructured through consortia ofcommercial banks. Noninsured supplier credits and debts to governmentsthat do not participate in the Paris Club are normally restructured throughbilateral negotiations.

Paris Club

The Paris Club is an informal group of creditor countries.The French Trea-sury maintains a permanent secretariat, and a senior official serves as Chair-man, to administer the Paris Club on behalf of other creditor countries.There are 19 permanent members; nonmember creditor countries may beinvited to take part in meetings for the treatment of the debt of a specificdebtor country if they have significant claims on that country. The Clubmeets virtually every month in Paris, both for discussion of debt issuesamong the permanent members and for the rescheduling of the debt of aspecific debtor country.

Countries facing difficulties in servicing of debt to official bilateral creditorswill approach the Chairman of the Paris Club and ask to be considered forrelief.The creditors at their monthly meeting will agree to hear that country’sapplication, provided that an IMF-supported adjustment program is in placeand that there is a financing need that requires rescheduling. Agreement isnormally reached in face-to-face negotiations, or by mail if there are very fewcreditors.The Paris Club can “treat” debt owed (contracted or guaranteed)by the government and/or the public sector of the debtor country to credi-tor countries or their appropriate institutions: officially guaranteed exportcredits and bilateral loans. The representatives of the creditor countries atthe Paris Club decide on the period over which debt relief will be given(known as the consolidation period), the debts that will be included (currentmaturities, possibly arrears, possibly previously rescheduled debt), and therepayment terms on consolidated debt (grace and repayment periods).

Two types of “treatment” may be implemented by the Paris Club:• A flow treatment of usually both scheduled amortization and interest

payments falling due in a given period; and• A stock treatment of the entire outstanding principal at a given date, for

countries with a good track record with the Paris Club if this wouldensure an end to the rescheduling process.

Paris Club negotiations result in a multilateral framework agreement(Agreed Minute), which must be followed up with bilateral implementingagreements with each creditor agency. The interest rate on rescheduleddebt (known as moratorium interest) is not arranged at the Paris Club butis negotiated bilaterally, reflecting market rates.

At the beginning of the debt-relief process, Paris Club creditor countrieswill establish a “cutoff date.” This means that all loan contracts signed afterthat date will not be eligible for debt relief by the Paris Club.The aim is tohelp the debtor country reestablish its creditworthiness by paying newobligations on their original schedules. Even though debt relief may extendover many years through a succession of Paris Club agreements, the cutoffdate will remain unchanged.

It was increasingly recognized in the 1980s that some low-income countrieswith high external debt were facing solvency as well as liquidity problems.Over the years, the Paris Club has provided increasingly concessional

rescheduling terms to low-income countries.The level of debt reduction oncommercial claims was gradually increased from Toronto terms (1988—33.33percent debt reduction) to London terms (1991—50 percent debt reduction)to Naples terms (1995—50 percent to 67 percent debt reduction) to Lyonterms (1996—80 percent debt reduction) and to Cologne terms (1999—90percent reduction or more if needed under the HIPC Initiative).The evolutionof Paris Club terms up to Lyon terms is presented in Table 8.2.

In 1996, the debt initiative for heavily indebted poor countries (HIPCs) wasestablished, leading for the first time to multilateral creditors providingdebt relief to a country. The Paris Club provides its debt-relief effort in thecontext of the HIPC Initiative through the use initially of Lyon terms, andnow of Cologne terms.

A country benefiting from Paris Club debt relief commits to seek at leastsimilar restructuring terms from its other external creditors (other thanmultilateral creditors, which only provide debt relief to countries eligible forassistance under the HIPC Initiative).This applies to non–Paris Club bilateralcreditors, who generally negotiate with the debtor country on a bilateralbasis, as well as private creditors (suppliers, banks, bondholders, etc.).

Paris Club agreements may include a debt-swap provision, within a limitusually set at 20 percent of commercial claims. Paris Club creditors on abilateral basis conduct debt-swap operations.

Commercial Bank Debt Relief

Multilateral debt relief is much more difficult to organize for commercialbanks than for official creditors.While a national export credit insurer cannegotiate on behalf of any individual creditor, there is no way to consolidatenational commercial bank claims. Rather, each creditor bank must approvethe resulting agreement and, for loan syndication, the number is often in thehundreds.

The pattern of negotiations was established in a 1970 agreement between thePhilippines and its commercial bank creditors. Creditor banks form a com-mittee (sometimes known as the London Club) of about a dozen people whorepresent the major creditor banks. The composition of the committee—which can be completely different from case to case—takes into accountthe nationality of the banks in the consortium so that the negotiations canmake provision for the different tax and regulatory systems that affectbanks of different countries. The committee negotiates an “agreement inprinciple” with debtor country representatives. After all creditor banksapprove this agreement, it is signed. It takes effect when certain require-ments are met, such as payment of fees and of arrears. As with the resched-uling of debts to official creditors, banks provide debt relief normally in thecontext of a debtor country’s adjustment program supported by an IMFarrangement. Unlike with Paris Club creditors, there is no “cutoff” date.

Commercial bank agreements restructure principal; consolidation of origi-nal interest costs is rare. Like Paris Club agreements, consolidation ofshort-term debt is also unusual (but when a major portion of arrears hasarisen from short-term debt, there is often no option but to restructure).Among the initiatives for reducing the commercial debt burden was theBrady Plan (1989).This market-based debt-restructuring initiative provideda menu of options to the creditor banks. These included buybacks—thedebtor government repurchases debt at a discount that is agreed upon withthe creditor banks; an exchange of debt into bonds at a discount but offer-ing a market rate of interest (discount bonds); and an exchange at par intobonds that yielded a below-market interest rate (interest-reduction bonds).The discount bonds and the interest-reduction bonds were fully collateral-ized by zero-coupon U.S. government securities for principal and partiallycollateralized for interest payments.

Box 8.2. Paris Club and Commercial Bank Debt Relief


tors are offered a choice between different options,one of them being a partial debt reduction, the otherone being a rescheduling at a reduced interest rate(debt reduction in present value terms). Some credi-tors may forgive part of the claims and reschedulethe outstanding part at the appropriate market rate(“debt-reduction” option), whereas other creditorsreschedule the whole claim at a lower interest rate(“debt-service-reduction” option), resulting in a debtreduction in present value equivalent to the onegranted by creditors that chose the “debt-reduction”option. Table 8.2 shows the variety and evolution ofParis Club debt-rescheduling terms.

8.20 Because of the complexities involved, and thedifferent interest rates that may be employed, inter-national statistical standards have not developed tothe point where there is general agreement on howto measure and make comparable the differentmethods of providing debt reduction in present-value terms.

8.21 Given the above, the Guide provides no recom-mended guidance on measuring and presenting debtreduction in present-value terms. Nonetheless,economies that undergo debt rescheduling andrefinancing are encouraged to disseminate (1) thetotal nominal amounts involved; (2) the amount ofdebt reduction in present-value terms they haveachieved—the difference between the present values(using a common interest rate) of the rescheduled/refinanced debt-service payments before and afterrescheduling/refinancing (present-value method);7

and (3) provide detailed information on how theamount of the present-value reduction was calcu-lated, including the interest rate(s) used.

8.22 Similarly, no guidance is provided for measur-ing debt relief in terms of an increase in durationbecause of the difficulty in measuring such relief andpresenting it in a manner that is comparable withother forms of debt reorganization.

Debt Forgiveness

8.23 Debt forgiveness is defined as the voluntarycancellation of all or part of a debt obligation withina contractual arrangement between a creditor in one

economy and a debtor in another economy.8 Morespecifically, the contractual arrangement cancels orforgives all or part of the principal amount outstand-ing, including interest arrears (interest that fell duein the past) and any other interest costs that haveaccrued. Debt forgiveness does not arise from thecancellation of future interest payments that have notyet fallen due and have not yet accrued.

8.24 If the debt reorganization effectively changesthe contractual rate of interest—such as by reducingfuture interest payments but maintaining future prin-cipal payments, or vice versa—it is classified as debtrescheduling. However, in the specific instance ofzero-coupon securities, a reduction in the principalamount to be paid at redemption to an amount thatstill exceeds the principal amount outstanding at thetime the arrangement becomes effective could beclassified as either an effective change in the con-tractual rate of interest, or as a reduction in principalwith the contractual rate unchanged. Unless thebilateral agreement explicitly acknowledges achange in the contractual rate of interest, such areduction in the principal payment to be made atmaturity should be recorded as debt forgiveness.


External debt position and debt reduction

8.25 Debt forgiveness reduces the gross externaldebt position by the value of the outstanding princi-pal that has been forgiven. Any reduction in princi-pal is recorded under the appropriate debt instrumentwhen it is received—that is, when both the debtorand creditor record the forgiveness in their books.Where possible, debt forgiveness in nominal termsshould be separately identified and recorded underdebt reduction in Table 8.1.

8.26 If forgiveness relates to payments on debtobligations that are past due and are yet to be paid—that is, arrears of interest and principal—a reductionin the gross external debt position under arrears isrecorded. Forgiveness of interest costs that have

77

7The payment schedule for both the original and rescheduleddebt could also be provided as memorandum information.

8This includes forgiveness of some or all of the principalamount of a credit-linked note due to an event affecting the entityon which the embedded credit derivative was written, and forgive-ness of principal that arises when a type of event contractuallyspecified in the debt contract occurs—for example, forgiveness inthe event of a type of catastrophe.


78

Tabl

e 8.

2.E

volu

tio

n o

f Par

is C

lub

Res

ched

ulin

gTe

rms

Low

-Inco

me

Cou

ntri

es2

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

___

Low

er-M

iddl

e-N

aple

s Ter

ms4

Inco

me

Opt

ions

____

____

____

____

____

____

____

____

__To

ront

o Te

rms

Lond

on T

erm

s3D

SRLy

on T

erm

s5M

iddl

e-C

ount

ries

____

____

____

____

____

____

____

____

__(H

oust

onO

ptio

nsO

ptio

nsM

atur

ing

Opt

ions

Inco

me

____

____

____

____

___

____

____

____

____

____

___

____

____

____

____

____

__C

ount

ries

term

s)1

DR

DSR

LMD

RD

SRC

MI

LMD

Rflo

ws

Stoc

ksC

MI

LMD

RD

SRC

MI

LM__

____

____

____

____

____

____

____

____

___

____

____

____

____

____

____

___

____

____

____

____

____

____

____

____

____

____

____

____

____

__Im

plem

ente

d Si

nce

Sept

embe

r 19

90O

ct.1

988–

Jun.

1991

Dec

.199

1–D

ec.1

994

Sinc

e Ja

nuar

y 19

95Si

nce

Dec

embe

r 19

96

Gra

ce (

in y

ears

)5–

61U

p to

81

88

146

—5

166

6—

38

206

88

20M

atur

ity (

in y

ears

)91

151

1414

2523

2323

2523

3333

3340

2340

4040

Rep

aym

ent

sche

dule

Flat

/Fl

at/

——

—Fl

at—

——

––—

——

–Gra

duat

ed—

——

–––

–——

——

Gra

duat

ed—

——

——

—––

——

Gra

duat

ed—

—––

Gra

duat

edG

radu

ated

Inte

rest

rat

e7M

MM

R8

MM

R9

R9

MM

R10

R10

R10

MM

R11

R11

M

Red

uctio

n in

pre

sent

va

lue

(in p

erce

nt)

——

3320

–301

2—

5050

50—

6767

6767

—80

8080

—

Mem

oran

dum

item

sO

DA

cre

dits

Gra

ce (

in y

ears

)5–

6U

p to

10

1414

1412

1212

1616

1616

1620

1616

1620

Mat

urity

(in

yea

rs)

1020

2525

2530

3030

2540

4040

4040

4040

4040

Sour

ce:P

aris

Clu

b.1 S

ince

the

199

2 ag

reem

ents

with

Arg

entin

a an

d Br

azil,

cred

itors

hav

e m

ade

incr

easi

ng u

se o

f gra

duat

ed p

aym

ents

sch

edul

es (

up t

o 15

yea

rs’ m

atur

ity a

nd 2

–3 y

ears

’ gra

ce fo

r m

iddl

e-in

com

e co

untr

ies;

up t

o 18

year

s’ m

atur

ity fo

r lo

wer

-mid

dle-

inco

me

coun

trie

s).

2 DR

ref

ers

to t

he d

ebt-

redu

ctio

n op

tion;

DSR

to

the

debt

-ser

vice

-red

uctio

n op

tion;

CM

I den

otes

the

cap

italiz

atio

n of

mor

ator

ium

inte

rest

;LM

den

otes

the

non

conc

essi

onal

opt

ion

prov

idin

g lo

nger

mat

uriti

es.

Und

er L

ondo

n,N

aple

s,an

d Ly

on t

erm

s,th

ere

is a

pro

visi

on fo

r a

stoc

k-of

-deb

t op

erat

ion,

but

no s

uch

oper

atio

n to

ok p

lace

und

er L

ondo

n te

rms.

3 The

se h

ave

also

bee

n ca

lled

“Enh

ance

d To

ront

o” a

nd “

Enha

nced

Con

cess

ions

” te

rms.

4 Mos

t co

untr

ies

are

expe

cted

to

secu

re a

67

perc

ent

leve

l of c

once

ssio

nalit

y;co

untr

ies

with

a p

er c

apita

inco

me

of m

ore

than

$50

0,an

d an

ove

rall

inde

bted

ness

rat

io o

n pr

esen

t-va

lue

loan

s of

less

tha

n 35

0pe

rcen

t of

exp

orts

may

rec

eive

a 5

0 pe

rcen

t le

vel o

f con

cess

iona

lity

deci

ded

on a

cas

e-by

-cas

e ba

sis.

For

a 50

per

cent

leve

l of c

once

ssio

nalit

y,te

rms

are

equa

l to

Lond

on t

erm

s,ex

cept

for

the

DSR

opt

ion

unde

ra

stoc

k-of

-deb

t op

erat

ion

that

incl

udes

a t

hree

-yea

r gr

ace

peri

od.

5 The

se t

erm

s ar

e to

be

gran

ted

in t

he c

onte

xt o

f con

cert

ed a

ctio

n by

all

cred

itors

und

er t

he H

IPC

Initi

ativ

e.T

hey

also

incl

ude,

on a

vol

unta

ry b

asis

,an

offic

ial d

evel

opm

ent

assi

stan

ce (

OD

A)

debt

-red

uctio

nop

tion.

6 Fou

rtee

n ye

ars

befo

re Ju

ne 1

992.

7 Int

eres

t ra

tes

are

base

d on

mar

ket

rate

s (M

) an

d ar

e de

term

ined

in t

he b

ilate

ral a

gree

men

ts im

plem

entin

g th

e Pa

ris

Clu

b A

gree

d M

inut

e.R

= r

educ

ed r

ates

.8 T

he in

tere

st r

ate

was

3.5

per

cent

age

poin

ts b

elow

the

mar

ket

rate

or

half

of t

he m

arke

t ra

te if

the

mar

ket

rate

was

bel

ow 7

per

cent

.9 R

educ

ed t

o ac

hiev

e a

50 p

erce

nt p

rese

nt-v

alue

red

uctio

n.10

Red

uced

to

achi

eve

a 67

per

cent

pre

sent

-val

ue r

educ

tion;

unde

r th

e D

SR o

ptio

n fo

r th

e st

ock

oper

atio

n,th

e in

tere

st r

ate

is s

light

ly h

ighe

r,re

flect

ing

the

thre

e-ye

ar g

race

per

iod.

11R

educ

ed t

o ac

hiev

e an

80

perc

ent

pres

ent-

valu

e re

duct

ion.

12T

he r

educ

tion

of p

rese

nt v

alue

dep

ends

on

the

redu

ctio

n in

inte

rest

rat

es a

nd t

here

fore

var

ies.

See

foot

note

8.


accrued during the period or amounts disbursed inthe current recording period has no impact on thegross external debt position at the end of the periodbecause any increase in the outstanding value of thedebt instrument is matched by the debt forgiveness.However, any such forgiveness should be reportedunder debt reduction in Table 8.1.

8.27 A special case of debt forgiveness is where thecreditor provides a grant to the debtor that is used topay the debt-service payments as they fall due. Insuch instances, the gross external debt position isonly affected when debt-service payments aremade—that is, the same as for all debt instrumentsbeing serviced. Nonetheless, such assistance isrecorded in the table as debt reduction when thedebt-service payments are made.

Flow data

8.28 In flow terms, debt forgiveness is recorded inthe balance of payments as a capital transfer, and inthe DAC and DRS systems as a debt-forgivenessgrant. The counterpart transaction in the balance ofpayments and DAC is a repayment of the principalowed. When debt forgiveness is in the form of agrant by the creditor to the debtor (as in the previousparagraph), repayment of the principal owed is gen-erally similarly recorded in the DRS.

Debt Conversion and Debt Prepayments

8.29 External debt conversion is an exchange ofdebt—typically at a discount—for a non-externaldebt claim, such as equity, or for counterpart funds,such as can be used to finance a particular project orpolicy. Debt-for-equity, debt-for-nature, and debt-for-development swaps are all examples of debt con-version. A debt buyback is the repurchase, usually ata discount, by a debtor economy (or on its behalf) ofall or part of its external debt. It may be undertakenon the secondary market or through negotiationswith creditors.

Debt conversion

8.30 Rather than exchanging debt for debt, coun-tries might enter into a debt conversion process—thelegal and financial transformation of an economy’sliability. Typically, debt conversions involve anexchange of external debt in foreign currency for anondebt obligation in domestic currency, at a dis-count. In essence, external debt is prepaid, and the

nature of the claim on the economy is changed. Anexample is a foreign currency debt-for-equity swap,which results in debt claims on the debtor economybeing reduced, and nonresident investments inequity investments increased. Debt-for-equity swapsoften involve a third party, usually a nongovernmen-tal organization or a corporation, which buys theclaims from the creditor and receives shares in a cor-poration or local currency (to be used for equityinvestment) from the debtor. Other types of debtswaps such as external debt obligations for exports(debt for exports), or external debt obligations forcounterpart assets that are provided by the debtor tothe creditor for a specified purpose such as wildlifeprotection, health, education, and environmentalconservation (debt for sustainable development), arealso debt conversions.

Prepayments and buybacks

8.31 Prepayments consist of a repurchase, or earlypayment, of debt at conditions that are agreedbetween the debtor and the creditor; that is, debt isextinguished in return for a cash payment agreedbetween the debtor and the creditor. When a dis-count is involved relative to the nominal value of thedebt, prepayments are referred to as buybacks. Also,debtors may enter the secondary market and repur-chase their own debt because market conditions aresuch that it is advantageous financially to do so.


External debt position

8.32 For both debt conversions and debt prepay-ments, a reduction in the gross external debt positionis recorded to the value of the debt instruments thatare extinguished, irrespective of the value of thecounterpart claim (or assets) being provided. Thisreduction in gross external debt position should berecorded at the time when the debt instrument isextinguished; more accurately, the gross externaldebt position no longer includes debt that has ceasedto exist.

Flow data

8.33 In the transaction data in the balance of pay-ments, the reduction in the outstanding debt instru-ment is recorded at the value of the counterpartclaim (or assets). Any difference in value is recordedas a valuation change in position data. An exception

79


arises when nonmarketable debt owed to officialcreditors is involved, and the counterpart claim(assets) has a lower value than the debt, in whichinstance both the debt instrument and the counter-part claim (or assets) are separately valued, and anydifference in value is recorded as debt forgiveness inthe balance of payments. The DAC system employsa similar approach, except that all differences invalue are classified as transactions and not as valua-tion changes provided that they are the result ofbilateral negotiation and there is a developmentmotive for the operation. The DRS records both thereduction in the nominal value of the debt instrumentand the value at which the debt was repurchased,allowing the discount to be measured.

Debt reduction

8.34 Where official debt is exchanged for equity orcounterpart funds to be used for development pur-poses, the difference between the value of the debtbeing extinguished and the counterpart claim orfunds provided is classified as debt reduction.9 Thisincludes cases where the buyback of debt is by athird party, such as a nongovernmental organizationor a corporation, which then sells the debt back tothe debtor at a discount, under a deal that is arrangedunder a bilateral arrangement between debtor andgovernment creditor.

8.35 In other cases, replacing a debt instrument withanother type of claim may only be the recognition ofreality. In other words, and particularly for mar-ketable instruments, the price at which the debtor iswilling to repurchase the debt may be greater than theprice at which the debt previously traded. So, if thecreditor purchased the security at the lower marketprice, the creditor might be making a holding gain.

8.36 The Guide recommends that in measuring andpresenting data on debt reduction from such transac-tions, a distinction is made between (1) collaborativearrangements arising from discussions between thecreditor(s) and debtor; and (2) buybacks that areinitiated by the debtor through purchases in the sec-ondary market. When buybacks arise from collabo-rative arrangements, any difference between thevalue of the counterpart claims (or assets) providedby the debtor and the nominal amount bought back

should be recorded as debt reduction in Table 8.1.Debt reduction arising from buybacks in the sec-ondary market initiated by the debtor should not berecorded as debt reduction in the table.

8.37 For both public and private sector transactions,if external debt and the counterpart claims (or assets)are denominated in different currencies, any debtreduction should be determined using the marketexchange rate between the two currencies prevailingon the transaction date (the midpoint between thebuying and selling spot rates).

Presentation of Data on Debt Reduction

8.38 In Table 8.1, as far as possible, economiesshould present information on debt reduction accord-ing to the sector of the debtor (public-sector-basedapproach), and by type of creditor. Additionally, thetable captures information on debt reduction arisingfrom debt reorganization of bonds and notes.

8.39 Also, data could be presented by type of debtreorganization under which the debt reduction wasgiven: (1) debt rescheduling; (2) debt forgiveness;and (3) debt conversion and debt prepayments.Where a debt-relief package includes elements ofmore than one type, separately identifying each typeis encouraged. For example, if a part of the debt is tobe repaid for cash, a prepayment should be recorded;if part of the debt is cancelled, debt forgivenessshould be recorded; if the repayment terms of part ofthe debt are changed, a debt rescheduling should berecorded. But if it is not possible to provide separateidentification, all debt reduction should be includedalong with the dominant type of reorganization inthe package.

8.40 In Table 8.1, debt reduction should be recordedat the time when the external debt is reduced. If alldebt reduction occurs at one time, debt reductionshould be recorded at that time rather than when thedebt-service payments would have fallen due. How-ever, it is recognized that national practices may dif-fer in this regard, and if the latter approach isfollowed, it should be recorded in a note to the pre-sentation of the debt-reduction data.

8.41 Debt reorganization might also be phased overa period of time, such as under multiphase contracts,

80

9In the DAC system it is classified as debt forgiveness, and inthe DRS it is classified as debt reduction.


performance-related contracts, and when debt reduc-tion is dependent on contingent events. In such cir-cumstances, debt reduction is recorded when thechange in debt-service payment schedule of thedebtor takes effect—for instance, if debt reductionoccurs when the debt-service payments fall due, thenthis is the time when the debt reduction is recorded.

8.42 As noted above, the exchange rate used to cal-culate debt reduction should be the market rate onthe transaction date (the midpoint between the buy-ing and selling spot rates).

8.43 It is recommended that methodological notesaccompany the presentation of debt-reduction statis-tics. Inter alia, these notes should cover each type ofdebt reorganization.

8.44 In Table 8.1, debt reduction is measured onlyin nominal value terms. This is because the analyti-cal usefulness of presenting debt-reduction data inmarket-value terms is uncertain. For instance, whenan economy faces payment difficulties (which is sys-tematically the case when the country receives debtreduction), its debt is generally valued at a deep dis-count, since the market is still uncertain about theprospects of payment. In such circumstances, debtreorganization can result in the new debt having ahigher value than the old debt. Similarly, in mostcases (and in all multilateral agreements, such asthose of the Paris Club or the London Club—seeBox 8.1—or the HIPC Initiative), debt relief aims torestore the creditworthiness of the debtor country,thus increasing the possibility of repayment of exist-ing debts and hence raising their market value.While there may be analytical interest in measuringthe effect of debt reorganization on the value of out-standing debt—that is, the amount by which themarket value rises—changes in the nominal amountoutstanding rather than the market value is the pre-ferred approach to measuring debt reduction arisingfrom debt reorganization.

Other Transactions Relating to Debt Reorganization

Debt Assumption

8.45 Debt assumption is a trilateral agreementbetween a creditor, a former debtor, and a newdebtor under which the new debtor assumes the for-

mer debtor’s outstanding liability to the creditor andis liable for repayment of the debt.

8.46 Debt assumption is recorded—in the transac-tion and position data—when the creditor invokesthe contract conditions permitting a guarantee to becalled. If debt assumption arises under other circum-stances, it is recorded when the liability is actuallyremoved from the debtor’s balance sheet, and thecorresponding entries made in the new debtor’s bal-ance sheet, and not necessarily the time when agree-ment was reached to make the debt assumption. Therecording by the entity assuming the debt has to bemade in one time period: the successive dates ofrepayment previously foreseen in the context of theformer debt are not relevant.

8.47 After it has been assumed, the debt, which wasoriginally a liability of the former debtor, becomes aliability of the new debtor. The debt may carry thesame terms as the original debt, or new terms maycome into force because the guarantee was invoked.If the original and new debtors are from differentinstitutional sectors, the external debt of the institu-tional sector of the original debtor is reduced, andthe external debt of the institutional sector of thenew debtor increased. The amount to be recorded bythe new debtor is the full amount of the outstandingdebt that is assumed. No debt reduction is recorded,unless there is an agreement with the creditor toreduce the external debt.

8.48 An example of debt assumption could be agovernment taking over the debts of a corporation.If, in such an example, the government acquires afinancial claim on the corporation as a consequenceof the debt assumption, the corporation will need torecord a new debt liability, which is classified asexternal debt only if the government and corporationare residents of different economies. Every transferof liabilities between a quasi-corporation and itsowner is reflected in the value of its equity stake.

8.49 Rather than assume the debt, a governmentmay decide to repay a specific borrowing or make aspecific payment on behalf of another institutionalunit, without the guarantee being called or the debtbeing taken over. In this case, the debt stays recordedsolely in the balance sheet of the other institutionalunit, the only legal debtor. If a new liability is cre-ated in the form of a government claim on thedebtor, this is classified as external debt only if the

81


government and other institutional unit are residentsof different economies (and the debtor is not a quasi-corporation of the government).

Borrowing for Balance of Payments Support

8.50 Borrowing for balance of payments supportrefers to borrowing (including bond issues) by thegovernment or central bank (or by other sectors onbehalf of the authorities) to meet balance of pay-ments needs.10 In the external debt statement, unlikethe analytical presentation of the balance of pay-

ments, no special “below-the-line” recording ofthese borrowings or their advance repayment isrequired.

New Money Facilities

8.51 Some debt-reorganization packages featurenew money facilities (new loan facilities that may beused for the payment of existing debt-service obliga-tions). In the gross external debt position, outstand-ing drawings by the debtor on new money facilitiesare usually recorded under long-term loans. If theexisting debt liabilities remain outstanding, theyshould continue to be reported in the gross externaldebt position, until they are repaid. New moneyfacilities are not to be recorded as debt reduction.

82

10A balance of payments need is defined more fully in para-graphs 451 through 453 of BPM5.

Introduction

9.1 The financial crises of the 1990s highlighted theshortcomings of conventional accounting systems incapturing the full extent of financial exposures aris-ing from traditional “off-balance-sheet” obligations,such as contingent liabilities, and from financialderivatives contracts. The discovery of the magni-tude and role of these obligations in these crisesreinforced the need to monitor them. This chapterfocuses on contingent liabilities.1 Guidelines formonitoring financial derivatives positions were pro-vided earlier in the Guide.

9.2 Contingent liabilities are complex arrange-ments, and no single measurement approach can fitall situations; rather, comprehensive standards formeasuring these liabilities are still evolving. Indeed,experience has shown that contingent liabilities arenot always fully covered in accounting systems.Nonetheless, to encourage the monitoring and mea-surement of contingent liabilities, with a view toenhancing transparency, this chapter provides somemeasurement approaches, after first defining contin-gent liabilities and then providing some reasons fortheir measurement. More specifically, also providedis a table for the dissemination of external debt dataon an “ultimate risk” basis; that is, adjusting resi-dence-based external debt data for certain cross-border risk transfers.

Definition

9.3 Contingent liabilities are obligations that arisefrom a particular, discrete event(s) that may or maynot occur. They can be explicit or implicit. A keyaspect of such liabilities, which distinguishes themfrom current financial liabilities (and external debt),

is that one or more conditions or events must be ful-filled before a financial transaction takes place.

Explicit Contingent Liabilities

9.4 Explicit contingent liabilities are those definedby the 1993 SNA as contractual financial arrange-ments that give rise to conditional requirements—that is, the requirements become effective if one ormore stipulated conditions arise—to make paymentsof economic value.2 In other words, explicit contin-gent liabilities arise from a legal or contractualarrangement. The contingent liability may arise froman existing debt—such as an institution guaranteeingpayment to a third party; or arise from an obligationto provide funds—such as a line of credit, whichonce advanced creates a claim; or arise from a com-mitment to compensate another party for losses—such as exchange rate guarantees. Some of the morecommon explicit contingent liabilities are set outbelow.

Loan and other payment guarantees

9.5 Loan and other payment guarantees are commit-ments by one party to bear the risk of nonpaymentby another party. Guarantors are only required tomake a payment if the debtor defaults. Some of thecommon types of risks that are assumed by guaran-tors are commercial risk or financial performancerisk of the borrower; market risk, particularly thatarising from the possibility of adverse movements inmarket variables such as exchange rates and interestrates; political risk, including risk of currency incon-vertibility and nontransferability of payments (alsocalled transfer risk), expropriation, and political vio-lence; and regulatory or policy risk, where imple-mentation of certain laws and regulations is critical

9. Contingent Liabilities

83

1This chapter draws on work at the World Bank.2The European System of Accounts: ESA 1995 (Eurostat, 1996)

defines contingent liabilities in a similar way.


to the financial performance of the debtor.3 Loan andother payment guarantees usually increase the initialdebtor’s access to international credit markets and/orimprove the maturity structure of borrowing.

Credit guarantees and similarcontingent liabilities

9.6 Lines of credit and loan commitments provide aguarantee that undrawn funds will be available in thefuture, but no financial liability/asset exists untilsuch funds are actually provided. Undrawn lines ofcredit and undisbursed loan commitments arecontingent liabilities of the issuing institutions—namely, banks. Letters of credit are promises tomake payment upon the presentation of prespecifieddocuments.

Contingent “credit availability” guarantees orcontingent credit facilities

9.7 Underwritten note issuance facilities (NIFs) pro-vide a guarantee that a borrower will be able to issueshort-term notes and that the underwriting institu-tion(s) will take up any unsold portion of the notes.Only when funds are advanced by the underwritinginstitution(s) will an actual liability/asset be created.The unutilized portion is a contingent liability.

9.8 Other note guarantee facilities providing contin-gent credit or backup purchase facilities are revolv-ing underwriting facilities (RUFs), multiple optionsfacilities (MOFs), and global note facilities (GNFs).Bank and nonbank financial institutions providebackup purchase facilities. Again, the unutilizedamounts of these facilities are contingent liabilities.

Implicit Contingent Liabilities

9.9 Implicit contingent liabilities do not arise from alegal or contractual source but are recognized after acondition or event is realized. For example, ensuringsystemic solvency of the banking sector might beviewed as an implicit contingent liability of the cen-tral bank.4 Likewise, covering the obligations of sub-

national (state and local) governments or the centralbank in the event of default might be viewed as animplicit contingent liability of the central govern-ment. Implicit contingencies may be recognizedwhen the cost of not assuming them is believed to beunacceptably high.5 Table 9.1 provides a practicalway of classifying the types of potential liabilities ofthe central government.

9.10 Although implicit contingent liabilities areimportant in macroeconomic assessment, fiscalburden, and policy analysis, implicit contingent lia-bilities are even more difficult to measure thanexplicit contingent liabilities. Also, until measure-ment techniques are developed, there is a danger ofcreating moral hazard risks in disseminating infor-mation on implicit contingent liabilities of the typeset out in Table 9.1. Thus, the rest of this chapterfocuses only on the measurement of explicit contin-gent liabilities.

Why Measure Contingent Liabilities?

9.11 By conferring certain rights or obligations thatmay be exercised in the future, contingent liabilitiescan have a financial and economic impact on theeconomic entities involved. When these liabilitiesrelate to cross-border activity, and they are not cap-tured in conventional accounting systems, it can bedifficult to accurately assess the financial position ofan economy—and the various institutional sectorswithin the economy—vis-à-vis nonresidents.

9.12 Analysis of the macroeconomic vulnerabilityof an economy to external shocks requires informa-tion on both external debt obligations and contingentliabilities. Experience has shown that contingent lia-bilities are not always fully covered in accountingsystems. Moreover, there is an increasing realiza-tion, when assessing macroeconomic conditions,that contingent liabilities of the government and thecentral bank can be significant. For example, fiscalcontingent claims can clearly have an impact on

84

3Regulatory or policy-based guarantees are especially relevantin infrastructure financing. For more details and country-specificexamples, see Irwin and others (1997).

4A case in point is Indonesia, where the government’s domesticdebt increased from practically nothing, in the period before thecrisis (mid-1997), to 500 trillion Indonesian rupiah by the end of

1999, mostly due to the issuance of bonds to recapitalize the bank-ing system. The increase in the government’s stock of domesticdebt was accompanied by a rise in its assets, which were receivedin exchange for issuing bank-restructuring bonds. See also Blejerand Shumacher (2000).

5See Guidelines for Public Debt Management (IMF and WorldBank, 2001).

9 • Contingent Liabilities

budget deficits and financing needs, with implica-tions for economic policy. Recognizing the implica-tions of contingent liabilities for policy and analysis,the 1993 SNA (paragraph 11.26) states:

Collectively, such contingencies may be important forfinancial programming, policy, and analysis. Therefore,where contingent positions are important for policy andanalysis, it is recommended that supplementary infor-mation be collected and presented. . . .

Measuring Contingent Liabilities

9.13 Contingent liabilities give rise to obligationsthat may be realized in the future, but because oftheir complexity and variety, establishing a singlemethod for measuring them may not be appropriate.Several alternative ways of measuring contingenciesare outlined below. The relevance of each willdepend on the type of contingency being measured,and the availability of data.

9.14 A first step in accounting for contingent liabili-ties is for economic entities to record all such contin-gent liabilities as they are created, such as with anaccrual-based reporting system. But how shouldsuch liabilities be valued? One approach is to recordthese liabilities at full face value or maximum poten-tial loss. Thus, a guarantee covering the full amountof a loan outstanding would be recorded at the fullnominal value of the underlying loan. Some govern-ments have adopted this approach. For example, theNew Zealand government routinely publishes themaximum potential loss to the government of quan-tifiable and nonquantifiable contingent liabilities,6

including guarantees and indemnities, uncalled capi-tal to international institutions, and potential settle-ments related to legal proceedings and disputes.

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Table 9.1. Fiscal Risk Matrix with Illustrative Examples

Direct ContingentLiabilities1 (obligation in any event) (obligation if a particular event occurs)

ExplicitGovernment liability • External and domestic sovereign • Central government guarantees for nonsovereign borrowing as recognized by a borrowing (loans contracted and and obligations issued to subnational governments and public law or contract securities issued by central government) and private sector entities (development banks)

• Budgetary expenditures • Umbrella central government guarantees for various types of • Budgetary expenditures legally binding loans (mortgage loans, student loans, agriculture loans, small

in the long term (civil servants’ salaries business loans)and pensions) • Trade and exchange rate guarantees issued by the central

government • Guarantees on borrowing by a foreign sovereign government• Central government guarantees on private investments• Central government insurance schemes (deposit insurance,

income from private pension funds, crop insurance, floodinsurance, war-risk insurance)

ImplicitObligations that may be • Future public pensions (as opposed to • Default of subnational government, and public entity on recognized when the civil service pensions) nonguaranteed debt and other obligationscost of not assuming • Social security schemes • Liability cleanup in entities under privatizationthem could be • Future health care financing • Banking failure (support beyond state insurance)unacceptably high • Future recurrent cost of public • Investment failure of a nonguaranteed pension fund,

investments employment fund, or social security fund (social protection of small investors)

• Default of central bank on its obligations (foreign exchange contracts, currency defense, balance of payment stability)

• Bailouts following a reversal in private capital flows• Environmental recovery, disaster relief, etc.

Source: Adapted from Polackova Brixi (1999).1The liabilities listed refer to the fiscal authorities, not the central bank.

6New Zealand Treasury, Budget Economic and Fiscal Update(Wellington, annual). As the name suggests, nonquantifiable con-tingent liabilities cannot be measured and arise from either institu-tional guarantees that have been provided through legislation orfrom agreements and arrangements with organizations.


9.15 Likewise, the Australian government identifiesquantifiable and nonquantifiable contingencies.7 Inaddition, it identifies “remote” contingent losses(mostly guarantees), including nonquantifiable“remote” contingencies. The Indian government reg-ularly reports the direct guarantees provided by thecentral government on external borrowings of publicsector enterprises, development financial institu-tions, and nonfinancial private sector corporations.8

The guarantees are presented by sector and at nomi-nal value.

9.16 The maximum potential loss method has anobvious limitation: there is no information on thelikelihood of the contingency occurring. Especiallyfor loan and other payment guarantees, the maximumpotential loss is likely to exceed the economic valueof the contingent liability because there is no cer-tainty that a default will occur (that is, the expectedprobability of default is less than unity). Theoreti-cally, a better approach is to measure both the maxi-mum possible loss and the expected loss, butcalculating the expected loss requires estimating thelikelihood of losses, which can be difficult.

9.17 Several alternative methods of valuing theexpected loss exist. These range from relatively sim-ple techniques requiring the use of historical data, tocomplex options-pricing techniques. The actualapproach adopted will depend on the availability ofinformation and the type of contingency. If theexpected loss can be calculated, an additionalapproach is to value this loss(es) in present-valueterms—expected present value. In other words, sinceany payment will be in the future and not immediate,the expected future payment streams could be dis-counted using a market rate of interest faced by theguarantor; that is, the present value. As with allpresent-value calculations, the appropriate interestrate to use is crucial; a common practice with gov-ernment contingent liabilities is to use a risk-freerate like the treasury rate. Under this present-valueapproach, when a guarantee is issued the presentvalue of the expected cost of the guarantee could berecorded as an outlay or expense (in the operatingaccount) in the current year and included in the posi-tion data, such as a balance sheet.

9.18 Exact valuation requires detailed market infor-mation, but such information is often unavailable.This is particularly true in situations of market fail-ure or incomplete markets—a financial marketplaceis said to be complete when a market exists with anequilibrium price for every asset in every possiblestate of the world. Other means are then required tovalue a contingency. One possibility is to use histori-cal data on similar types of contingent operations.For example, if the market price of a loan is notobservable, but historical data on a large number ofloan guarantees and defaults associated with thoseguarantees are available, then the probability distrib-ution of the default occurrences can be used to esti-mate the expected cost of a guarantee on the loan.This procedure is similar to that employed by theinsurance industry to calculate insurance premiums.Rating information on like entities is often used toimpute default value on loan guarantees as well. TheU.S. Export-Import Bank employs this method forvaluing loan guarantees that it extends.

9.19 Bank regulatory guidelines established by theBasel Committee on Banking Supervision also drawon historical data to measure risks in banks’ off-balance-sheet activities. For traditional off-balance-sheet items like credit contingent liabilities, theguidelines provide “credit conversion factors,”which when multiplied with the notional principalamount provide an estimate of the expected “pay-out” from the contingent liability. The conversionfactors are derived from the estimated size and likelyoccurrence of the credit exposure, as well as the rela-tive degree of credit risk. Thus, stand-by letters ofcredit have a 100 percent conversion factor; theunused portion of commitments with an originalmaturity of over one year is 50 percent; and RUFs,NIFs, and similar arrangements are assigned a 50percent conversion factor as well.

9.20 Market-value measures use market informationto value a contingency. This methodology can beapplied across a wide range of contingent liabilities,but it is particularly useful for valuing loan and otherpayment guarantees, on which the following discus-sion focuses. This methodology assumes that com-parable instruments with and without guarantees areobservable in the market and that the market hasfully assessed the risk covered by the guarantee.Under this method, the value of a guarantee on afinancial instrument is derived as the differencebetween the price of the instrument without a guar-

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7Aggregate Financial Statement (Australia, annual).8See the Ministry of Finance’s annual publication on external

debt, India’s External Debt: A Status Report.


antee and the price inclusive of the guarantee. In thecontext of a loan guarantee, the nominal value of theguarantee would be the difference between the con-tractual interest rate (ip) on the unguaranteed loanand the contractual interest rate (ig) on the guaran-teed loan times the nominal value of the loan (L):(ip – ig)L. The market value of the guarantee woulduse market, not contractual, rates.9

9.21 Yet another approach to valuing contingent lia-bilities applies option-pricing techniques fromfinance theory. With this method, a guarantee can beviewed as an option: a loan guarantee is essentially aput option written on the underlying assets backingthe loan.10 In a loan guarantee, the guarantor sells aput option to a lender. The lender, who is the pur-chaser of the put option, has the right to “put” (sell)the loan to the guarantor. For example, consider aguarantee on a loan with a nominal value of F and anunderlying value of V. If V – F < 0, then the putoption is exercised and the lender receives theexercise price of F. The value of the put option atexercise is F – V. When V > F, the option is not exer-cised. The value of the guarantee is equivalent to thevalue of the put option. If the value of the creditinstrument on which a guarantee is issued is belowthe value at which it can be sold to the guarantor,then the guarantee will be called.

9.22 Although the option-pricing approach is rela-tively new and sophisticated, it is being applied inthe pricing of guarantees on infrastructure financingand interest and principal payment guarantees.11 Butstandard option pricing has its limitations as well.This is because the standard option-pricing modelassumes an exogenous stochastic process for under-lying asset prices. However, it can be argued that thevery presence of a guarantee (especially a govern-ment guarantee) can affect asset prices.12

Recommended Measures

9.23 The Guide encourages the measurement andmonitoring of contingent liabilities, especially ofguarantees, and has outlined some measurement tech-

niques. However, it is recognized that comprehensivestandards for measuring contingent liabilities are stillevolving. Consequently, only the recording of a nar-row, albeit important, range of contingent liabilities isspecified ahead: guarantees of domestic private sectorexternal debt by the public sector, and the cross-border provision of guarantees. In both instances, it isrecommended that the contingency should be valuedin terms of the maximum exposure loss.

Public sector guarantees

9.24 In Chapter 5 the dissemination of data on pub-licly guaranteed private sector debt—that is, thevalue of private sector debt that is owed to nonresi-dents, and is guaranteed by the public sector—through a contractual arrangement is discussed.

Ultimate risk

9.25 Set out in Table 9.2 is a format that pre-sents external debt according to an “ultimate” riskconcept—augmenting residence-based data to takeaccount of the extent to which external debt is guar-anteed by residents for nonresidents. Countries couldpotentially have debt liabilities to nonresidents inexcess of those recorded as external debt on a resi-dence basis if their residents provide guarantees tononresidents that might be called. Also, branches ofdomestic institutions located abroad could create adrain on the domestic economy if they ran into dif-ficulties and their own head offices needed to providefunds.

9.26 In Table 9.2 residence-based external debt data(column 1) is increased by the amount of debt ofnonresidents, not owned by residents, that is guaran-teed by a resident entity (inward risk transfer, col-umn 2). Column 3 is the adjusted external debtexposure of the economy. The table is set out in thismanner so that external debt on an ultimate-riskbasis can be related back to the gross external debtposition measured on a residence basis.

9.27 The intention of column 2 is to measure anyadditional external debt risk exposures of residentsarising from contingent liabilities. The definition ofcontingent liabilities adopted is deliberately narrow.To be included in this definition of contingent liabil-ities, the debt must exist, so lines of credit and simi-lar potential obligations are not included. The dataon the inward transfer of risk covers only the debt of

87

9For a further discussion of market-value methods see Towe(1990) and Mody and Patro (1996).

10Robert C. Merton (1977) was the first to show this.11See Irwin and others (1997) and Borensztein and Pennacchi

(1990).12See Sundaresan (2002) for a detailed exposition on this issue.


88

Table 9.2. Gross External Debt Position: Ultimate Risk Basis

End-Period______________________________________________________________________Memorandum item:

Gross Inward risk External Debt Outward risk External Debt transfer (+) (ultimate-risk basis) transfer

(1) (2) (3) (4)

General Government Short-termMoney market instrumentsLoansTrade creditsOther debt liabilities1

ArrearsOther




ArrearsOther





ArrearsOther





ArrearsOther




89

Other Sectors (continued)Nonbank financial corporations Short-termMoney market instrumentsLoansCurrency and deposits2


ArrearsOther



Nonfinancial corporations Short-termMoney market instrumentsLoansTrade creditsOther debt liabilities1

ArrearsOther



Short-termMoney market instrumentsLoansTrade creditsOther debt liabilities1

ArrearsOther


Direct Investment: Intercompany LendingDebt liabilities to affiliated enterprises

ArrearsOther


Gross External Debt

1Other debt liabilities are other liabilities in the IIP statement.2It is recommended that all currency and deposits be included in the short-term category unless detailed information is available to make the short-



End-Period______________________________________________________________________Memorandum item:

Gross Inward risk External Debt Outward risk External Debt transfer (+) (ultimate-risk basis) transfer

(1) (2) (3) (4)


a nonresident to a nonresident on which, and as partof the agreement between debtor and creditor, pay-ments are guaranteed to the creditor(s) by a residententity under a legally binding contract—the guaran-tor will most commonly be an entity that is related tothe debtor (for example, the parent of the debtorentity), and debt of a legally dependent nonresidentbranch of a resident entity that is owed to a nonresi-dent. If debt is partially guaranteed, such as if princi-pal payments or interest payments alone areguaranteed, then only the present value of theamount guaranteed should be included in columns 2or 4. To avoid double counting the same externaldebt risk exposure, the following should be excludedfrom column 2: all debt liabilities of nonresidentbranches to other nonresident branches of the sameparent entity; and any amounts arising from externaldebt borrowings of nonresidents that were guaran-teed by a resident entity and on-lent by the nonresi-dent borrower to that same resident entity or any ofits branches. This guidance is not intended toexclude debt exposures of residents from the ulti-mate risk concept, as defined above, but to ensurethat they are counted only once.

9.28 External debt is the liability of the debtor econ-omy. However, as a memorandum item, the amount

of external debt of the economy that is guaranteedby nonresidents is also presented (outward risktransfer, column 4). The data on the transfer of riskoutward covers only external debt on which, and aspart of the agreement between debtor and creditor,payments are guaranteed (or partially guaranteed) tothe creditor(s) by a nonresident under a legally bind-ing contract—the guarantor will most commonly bean entity that is related to the debtor (for example,the parent of the debtor entity)—and external debt ofa resident entity that is a legally dependent branch ofa nonresident entity.

9.29 No reallocation of risk is made because of theprovision of collateral by the debtor, or because adebt instrument is “backed” by a pool of instru-ments or streams of revenue originating from out-side of the economy. Because the intention of Table9.2 is to monitor the potential risk transfer from thedebtor side, no reallocation of risk is made if therisk transfer is initiated from the creditor side,without any involvement of the debtor—for exam-ple, the creditor has paid a premium to a guarantor,such as an export credit agency unrelated to thedebtor, to insure against payment default or has pur-chased a credit derivative that transfers credit riskexposure.

90

PART II

Compilation—Principles and Practice

Introduction

10.1 External debt statistics can be compiled from avariety of sources, using a range of methods. Statis-tics can be collected from the debtor, from the credi-tor, or indirectly through information from financialintermediaries in the form of surveys, regulatoryreports, and/or from other government administra-tive records. But a precondition for reliable andtimely statistics is that the country has a strong andwell-organized institutional setting for the compila-tion of statistics on public debt—so that all publicand publicly guaranteed debt is well monitored andmanaged (see UNCTAD, 1993)—and private debt,and for the compilation of aggregate external debtstatistics.

10.2 This chapter considers some of the importantinstitutional issues that need to be addressed whenundertaking the compilation of external debt statis-tics, and the strategies that need to be considered asthe regulatory environment for financial transactionschanges. In particular, it emphasizes the need for acoordination of effort among official agencies, withone agency having overall responsibility for compil-ing and disseminating external debt statistics for thewhole economy, and for appropriate legal backingfor statistics collection.

10.3 Subsequent chapters provide practical guid-ance on how external debt statistics might be col-lected and compiled. They are not intended to becomprehensive. Indeed, some elements of externaldebt statistics are easier to collect and compile thanothers. For instance, compiling external debt statis-tics on, say, a government’s foreign currency loanfrom a group of nonresident banks is more straight-forward than, say, collecting information on nonresi-dent ownership of a government’s domestic bondissues. But both sets of statistics are required. It isparticularly difficult to obtain statistics on nonresi-dent ownership of traded securities, especially

instruments that are not registered—so-called bearerinstruments—and so a separate chapter is devoted tothis issue. Examples of country practices in compil-ing and using external debt statistics are provided inChapter 14.

Coordination Among Official Agencies

10.4 If the responsibility for debt compilation isshared between several agencies, it should be clearlyestablished which agency has the primary responsibil-ity for compiling external debt statistics—the centralcompiling agency. Responsibility could be assignedthrough a statistical law or other statutory provision,interagency protocols, executive decrees, etc.

10.5 This chapter does not recommend which insti-tution within an economy should be responsible forcompiling and disseminating external debt statistics.This is dependent on the institutional arrangementswithin the economy. Nonetheless, it is likely thatthe central compiling agency is either the centralbank, the ministry of finance, an independent debt-management office, or a national statistical agency.1

One approach is to establish the agency in charge ofcompiling data for the balance of payments and IIPas the central compiling agency for external debt, sopromoting consistency among these three relatedsets of data. Indeed, as noted in Chapter 7, reconcili-ation of external debt statistics with the financialaccount of the balance of payments provides a goodconsistency check, as well as analytically usefulinformation.

10.6 In whatever way the statistics are to be col-lected and compiled—and invariably a range of

10. Overview of Data Compilation

93

1A national statistical agency may be a user of the debt data, inthe sense that the data are communicated by the ministry offinance and/or the central bank to the national statistical agencyfor publication.


methods and approaches will be adopted—theprocess will be resource intensive. Thus, where thereis more than one agency involved in the compilationof external debt statistics, there should be a coopera-tive effort, avoiding duplication of effort and ensur-ing as far as possible consistency of approach acrossrelated data series. With modern computerized tech-niques, different units can be connected throughcomputer networks facilitating the specialization ofthe different institutions concerned, without hinder-ing data reporting and compilation. In this regard,procedures to ensure, as far as possible, smooth andtimely flows of data between data compiling agen-cies are essential.

10.7 It is important to ensure that there are well-established contacts between the staff of the differ-ent agencies, so that any problems or difficulties canbe dealt with in an expeditious manner, and thatthere is an avoidance of duplication of data coveragein the different institutions. One way of encouragingcooperation, developing contacts, and resolvingproblems that arise is to hold regular meetingsamong staff of the various agencies at the workinglevel. Not only could these meetings help resolveproblems that might be arising, but there would alsobe an opportunity to notify each other of upcomingdevelopments and possible future enhancements orchanges to collection systems. This type of coopera-tion helps ideas to spread and improvements tobe made, allows institutions to understand eachother’s position, and helps build important personalcontacts.

10.8 Also, if external debt statistics are collected bydifferent agencies, there are a number of considera-tions that must be borne in mind. First, the conceptsused and instruments presented should be consistent,or at least reconcilable. So, in merging together vari-ous sources, the central compiling agency mustensure that other contributing agencies are aware of,and supply statistics that are consistent with, coreconcepts and presentation requirements (such asresidence, valuation, etc.) as outlined in the Guide.Indeed, the central agency should develop expertisein these standards and, in a sense, act as theirguardian within the economy. Also, there are otherpresentations outlined in the Guide that policymak-ers and other users may encourage compilers to dis-seminate, or that may need to be compiled to meetinternational commitments. The data compilers inthe central compiling agency will need to ensure that

statistics supplied by the other agencies meet therequirements for these other presentations—both interms of the coverage as well as the periodicity andtimeliness on which these statistics have to beprovided.

10.9 Further, it is recommended that, as far as possi-ble, comparison of figures with creditors be carriedout on a regular basis, at least once a year, althoughthe compiling agency will need to check whether thecreditor data are being compiled on the same basisas the national data. This comparison can be under-taken either on an individual instrument basis (forexample, individual government loans) by theagency responsible for compiling these statistics orat an aggregate level using international data sets,such as the Bank for International Settlements (BIS)International Banking Statistics and the Joint BIS-IMF-OECD-World Bank Statistics on External Debt(see Chapter 17).

10.10 There should be mechanisms to ensure thatthe compiled external debt data continue to meet theneeds of policymakers and other users. Meetingscould be periodically convened with policymakersand other data users to review the comprehensive-ness of the external sector statistics and to identifyany emerging data requirements. New initiativescould be discussed with policy departments andstatistical advisory group(s); such discussions pro-vide scope for seeking additional resources. Fromthese discussions, and in consultation with bothusers and other compiling agencies, the centralcompiling agency might devise a strategic plan toimprove the quality and coverage of external debtstatistics.

Resources

10.11 Resource allocation decisions are the pre-serve of the authorities in each economy and shouldbe periodically reviewed. Nonetheless, the authori-ties are encouraged to provide at least adequateresources to perform existing tasks—that is, ade-quate staff, financial, and computing resources. Inparticular, key staff should be knowledgeable andwell-versed in external debt concepts and compila-tion methods, and a core contingent of trained exter-nal debt statisticians should be retained at any pointin time. Instructions for performing existing tasksshould be maintained. New compilers could be pro-

94

10 • Overview of Data Compilation

vided formal and on-the-job training in external debtcompilation methods, including international statis-tical standards and system procedures for handlingand processing of data.

Legal Backing for Data Collection

10.12 When the authorities closely regulate foreignborrowing, external debt data may well be a by-product of the regulatory system. But as liberalizationof financial flows proceeds, the comprehensiveness ofinformation from regulatory reports may be reduced,and it may become harder to identify entities engagedin external debt transactions. So the need to approachthe private sector directly for statistical purposesincreases. Without appropriate legal backing, it maybe very difficult to acquire the required informationfrom private sector entities.

10.13 Obtaining appropriate legal support for statis-tics collection could be a complicated and lengthyprocess that is likely to be undertaken infrequently.Given this, a first step should be to determinewhether there is any existing legal support for statis-tics collection that could be employed to acquire therequired information. If not, and it is considered nec-essary to seek additional legal support, the need maywell run wider than “just” the collection of externaldebt data. Indeed, in an environment of liberaliza-tion, a comprehensive review of the sources of statis-tical information and the legal support needed mightbe required.

10.14 The terms of legal backing for the collectionof statistical information vary from country to coun-try, depending, not least, on the institutional arrange-ments and the historical development of statisticalgathering. Nonetheless, some elements typicallycovered include:• The designation of the type of entities that the

compiling agency can approach for data (forexample, entities in the private business sector)and for what purpose (for example, to monitoreconomic activity and financial transactions).

• The boundaries of the compiling agency’s respon-sibilities, without being so restrictive that theagency does not have the freedom to adapt as anew development emerges (for example, financialderivatives).

• The possibility of imposing penalties on respon-dents for nonresponse, which should be accompa-

nied by an appropriate legal mechanism forenforcement.2

• A clear statement that information supplied byindividual entities would not be separately dis-closed and would only be published in the form ofstatistical aggregates (except, perhaps, whereexplicit permission is given from an individualentity to disclose information), along with appro-priate penalties for the compiling agency and, inparticular, individual employees, if such informa-tion is disclosed.

• A prohibition on the use by the authorities ofinformation supplied by individual entities for anypurpose other than statistics compilation, thusestablishing the independence of the statisticscompilation function from other governmentactivity (for example, taxation authorities). Theprohibition should be supported by penalties and amechanism for their enforcement.

• A prohibition on other government agencies influ-encing the content of statistics releases.3

• The establishment of an oversight committee ofindependent experts to help ensure the profession-alism and objectivity of the compiling agency.

10.15 With such legal backing, the statistics com-piler would have the necessary support for thecollection of information from enterprises and com-mercial banks. Nonetheless, the compiler should notrely solely on legal backing but rather use the legalbacking to help and encourage the private sector toreport.

Collection Techniques at DifferentStages of Liberalization

10.16 As mentioned above, liberalizing financialtransactions is likely to affect the information avail-able from statistical reports.4 Provided that liber-alization proceeds on a step-by-step basis, theagency or agencies responsible for external statis-

95

2Consideration might also be given to the possibility of impos-ing penalties on respondents for misreporting (that is, intention-ally providing incorrect data).

3Data integrity is very important for the statistical function.Where compiling agencies have an operational as well as record-ing function, consideration might be given to delineating func-tions so that the statistical function operates at “arm’s length”from other functions.

4This section draws on Forum for International DevelopmentEconomics (1998).


tics, including external debt, should develop a strat-egy to ensure that good-quality statistics continue tobe compiled and disseminated. Part of this strategyinvolves considering whether there is a need tostrengthen the statistical infrastructure, as discussedabove—the need for legal backing and for improvedcooperation and a clear distribution of compilationresponsibilities among the various interested compil-ing agencies. But collection techniques also need tobe considered. Figure 10.1 provides a stylized viewof the techniques that can be used as the process ofeconomic liberalization proceeds.

10.17 In Figure 10.1, in an environment with strictcontrols, data are provided primarily from adminis-trative sources, such as foreign investment boards,and from commercial banks, for their own and theirdomestic clients’ transactions. As financial transac-tions are increasingly liberalized, the informationthat enterprises need to report directly increases, interms of the number of enterprises and the informa-tion required. The information provided by the pub-lic sector and commercial banks on their own debtremains broadly unchanged throughout.

10.18 In a partially liberalized environment, whensome enterprises begin to get greater freedom toborrow abroad, the comprehensiveness of the tradi-tional administrative and commercial bank sourcesof information is reduced. Commercial banks mayremain a valuable source of information on theirclients’ activities, but there could well be a need tosupplement this data source by requiring reportsfrom those enterprises given permission to borrowdirectly abroad—that is, undertaking external trans-actions without involving the domestic commercialbanks. For instance, those borrowing directlyabroad could be asked to report on individual bor-rowings as they are undertaken (that is, to provideinformation on external debt only) and/or be askedto report periodically on a survey form that coversexternal assets and liabilities and any associatedincome flows.

10.19 As liberalization proceeds—and the statisticalagency becomes less dependent on administrativeand commercial bank sources, and more dependenton obtaining the necessary information from privateenterprises—its job becomes more complex. Thestatistical agency or agencies will need to developand/or deepen the necessary human skills needed tocompile data in a more liberalized environment,

including for a core set of staff.5 These includedeveloping skills in conducting surveys, in develop-ing and maintaining a register of companies, and inquality control as well as enhancing knowledge ofthe basic conceptual framework. The partial liberal-ization phase could provide an opportunity todevelop these capabilities in an environment wherethe traditional sources of information are still rele-vant, albeit to a lesser extent.

10.20 The idea of a phased approach allows the sta-tistical agency, or agencies, to develop the capabili-ties required for these changed circumstances overtime. Given that there will be difficulties and costs inundertaking the institutional changes required, aphased approach could help minimize these costs forall concerned.

10.21 Whether a country wants to take a phasedapproach to the implementation of detailed reportingof the foreign activities of private enterprises mightdepend on a range of factors including the resourcesand legal backing it has for conducting surveys. Butby the time an economy fully liberalizes capitalmovements, it is important that the statistical agencyor agencies have in place the capability to monitorthe foreign activities of the private sector. Otherwise,economic policymakers and private sector investorsmight be misled into underestimating the degree towhich private enterprises have accumulated externaldebt, with consequential negative repercussions forthe economy at a later stage.

10.22 Finally, if it is decided that a new system isrequired both for balance of payments and externaldebt, perhaps because circumstances have changedsuch that there is a significant weakening of the reli-ability of traditional sources of information, it isimportant that the objectives for the new system areestablished at the start. For instance, the timelinessand frequency of results need to be determinedbecause these could affect both the types of surveyand the resources required. Similarly, the importanceof the data to policymakers needs to be ascertainedbecause any collection needs to be considered within

96

5One of the potential benefits of compiling external debt statis-tics in conformity with other macroeconomic data series is thatstaff mobility can be enhanced. For instance, basic conceptualknowledge and compilation skills developed for a related set ofmacroeconomic data can also be relevant for external debt statis-tics, and vice versa.

10 • Overview of Data Compilation

97

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the context of overall statistical priorities. Inevitably,resources in the compiling agency and amongrespondents are limited.

Dissemination of ExternalDebt Statistics

10.23 The compilation of external debt statistics isundertaken for the ultimate purpose of making thesedata available to policymakers and other users.Data should be publicly disseminated on a frequentand timely basis, preferably according to a well-established, preannounced release schedule. The dis-semination of data could be in print and/or electronicform. As part of the dissemination process, the con-cepts, definitions, classifications, and methodologyused should be documented and disseminated inpublication form at regular intervals. This metadatacould also identify any significant deviations frominternationally accepted standards, biases in thedata, and information about response rates to the

main surveys employed in collecting external debtstatistics.

10.24 Invariably, to meet the legitimate needs ofusers, data will be published that could well besubject to later revision. In such instances, usersshould be alerted that the initially published data arepreliminary and may be subject to revision. Ifrevised data are later published, users should beinformed of the revisions, with explanations. Also,if major changes to the statistical methodology areto be implemented, it is strongly recommended thatusers be given advance warning, and sufficient backruns of data provided after the revisions have beenpublished.

10.25 In general, providing the user with such infor-mation is likely to engender greater confidence inthe statistics and may help encourage a “culture ofreporting” to the compiling agency(ies), an issue dis-cussed in Chapter 12, and one that is of universalconcern to compilers.

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Introduction

11.1 The Guide recommends that the collection ofdata on a government’s external debt be linked to thework of those responsible for managing the govern-ment’s debt position, for the purposes of administra-tive efficiency and quality control. Those responsiblefor government debt are invariably a governmentdebt office, either within the ministry of finance orconstituted as a separate agency within the govern-ment sector, or the central bank, or another govern-ment agency. For reasons outlined in the previouschapter, it is also important that the agency responsi-ble for government data cooperate, as appropriate,with any other agencies involved with the compila-tion of external debt data.

11.2 It is critical to the smooth functioning of a gov-ernment debt office that the compilation, recording,and dissemination of debt data be undertaken in atimely and comprehensive manner. Proper records ofdebt are an absolutely essential foundation for effec-tive debt management, and the availability of accurateand up-to-date data indeed determines how effectivelythe debt office can carry out its other functions—bethey operational or analytical. The range of these func-tions is described in the appendix to this chapter.

11.3 Comprehensive and timely data allow the debtoffice to monitor the evolution of a country’s externalliabilities and its debt-service obligations over time;can provide early warning signals of possible debt-servicing problems; and serve as essential inputs forgovernment budget preparation, for approval by par-liament, for execution, as well as for compiling bal-ance of payments and IIP statistics and for makingprojections. The debt office should be adequatelyresourced to properly carry out the tasks of compilingand recording data on all government borrowings. Itis recommended that the compiler of external debtstatistics, if outside the debt office, utilize these datarather than develop alternative sources.

How Should Data Be Collected andCompiled by the Debt Office?

11.4 To establish a proper debt record, detailedinformation about all loans (and other types of bor-rowing such as bonds, export credits, etc.) and allrelated transactions needs to be compiled. The debtoffice should capture data on all public and publiclyguaranteed debt. This is why it is very important thatthe agency collecting information on public andpublicly guaranteed debt be the same as the one incharge of servicing or ordering payments.

11.5 For those economies that may not have properrecords of debt data, there may be a need to firstcompile a thorough inventory of existing debt inorder to establish the debt stock, including anyarrears that have accumulated on principal and inter-est. Once the debt stock is known, procedures shouldbe put in place to obtain, on a regular basis, informa-tion on existing and new borrowing, as well as infor-mation on other transactions that affect the debtstock. There may be a need to establish formalizedinstitutional arrangements for the comprehensiveand timely flow of information to the debt office.Table 11.1 gives a list of the types of detailed infor-mation that should be compiled. This table isexplained in more detail below.

11.6 For the purposes of the debt office and its func-tions, data compilation should be undertaken on aninstrument-by-instrument basis, tranche by tranche,and in its original currency. For each borrowinginstrument, there are basically three types of infor-mation that need to be compiled: (1) the core infor-mation on details and terms that will produce theamortization and disbursements tables; (2) data onactual disbursements, as well as the changes in thecommitted undisbursed amount if, say, there are can-cellations and/or increases (for example, with a proj-ect loan); and (3) actual debt-service transactions.There are other types of information required, and

11. Government and Public SectorDebt Statistics

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Table 11.1. Information To Be Compiled on Each Instrument

Type of Information Description

I. Details of Borrowing InstrumentPurpose of borrowing Descriptive titleAgreement date Date agreement has been signedType of instrument Type of borrowing instrumentEffective date Date borrowing becomes effectiveType of borrowing Whether single currency or multi-currency or multi-trancheAmount borrowed Original amount borrowed or revised amount after cancellation or enhancementCurrency of borrowing Original currency, and currencies of disbursement and repaymentsParticipants

• Borrower Whether government, public enterprises, or private sector• Implementing agency Agency in charge of implementing project• Creditor Name and type of creditor (multilateral, bilateral, etc.)• Disbursement agency Name, if different from lender• Creditor insurer Name and country

Guarantee status Borrowing by public enterprises or the private sector guaranteed by government, andpercentage guaranteed

Insured Whether borrowing is insured by export guarantee agency in creditor country andpercentage guaranteed

Economic sector Economic sector receiving borrowingUse of funds Whether to finance a project, etc.

II. DisbursementsDisbursement period Period during which disbursement is to take placeMethod of disbursement Such as direct disbursement or reimbursementExpected disbursement pattern/profile Forecast of how the borrowing will be disbursedActual disbursement Currencies and amount of each disbursement taking place

III. Borrowing TermsInterest Information on interest charged should include:

• Interest type: fixed or variable rate• For variable rate: specify interest base/reference and margin/spread• Interest period: dates of payments• Basis for interest calculation (conversion factor: daily/monthly/semiannual/annual, etc.)• Months: actual number of days or 30-day month• Days in interest year (360/365)

Commitment fee Rate levied on undisbursed (full or partial) amountPenalty fees Charges for late payment of interest and principalOther fees Such as agency fee, management fee, front-end feePrincipal Maturity: repayment period/profile

Type of repayment: bullet, equal or annuity-based, etc.

IV. Actual Debt-Service Payments For each payment (of interest, principal, other charges) made:• Date, currency, and currency of transaction; amount of transaction in original currency,

currency of transaction, domestic currency, and perhaps U.S. dollar and SDRFor multicurrency borrowing: equivalent amount paid in borrowing currency

V. Exchange Rate Exchange rates on each transaction date for relevant currency vis-à-vis the local currencyExchange rates for end of period (daily, weekly, month, quarter, year)

VI. Interest Rates Prevailing variable interest rates of base/reference rate used by the creditor for eachinterest period

VII. Debt Restructuring • Changes in terms as a result of debt reorganization, through rescheduling, refinancing(voluntary or involuntary), write-off, etc.

• Date required:–Debt concerned; arrears, consolidation period–Debt-relief terms (debt forgiveness, reschedule)–Terms for rescheduled debt (applicable interest rate, repayment profile)–Transactions on actual debt-service payments or for rescheduled debt–Other transactions from buyback or conversion/swap

VIII. Financial Derivatives • Transactions arising from financial derivatives contracts• Positions measured both in market value and notional amounts in forwards (including

swaps) and options

11 • Government and Public Sector Debt Statistics

these are described below (under the heading “Addi-tional Data Requirements”).

11.7 If the debt instrument is tradable, and nonresi-dents are allowed by the government to purchase it,additional information will be required in order toattribute ownership by residency. This informationmay come from a different agency, which is respon-sible for capturing information on the nonresidentownership of traded securities. Methods of capturinginformation on nonresident ownership of tradedsecurities are set out in Chapter 13.

Basic Details and Terms of the Borrowing

11.8 Basic information on each debt instrumentshould normally be available from the loan or creditagreement or related documentation, a copy ofwhich should be deposited—preferably under legalstatute—with the debt office for all public or pub-licly guaranteed debt instruments. As well as com-piling data on the amount committed and the cur-rency, where possible, details are also required onthe borrower, the creditor and creditor category(government, bank, multilateral institution, etc.), thedisbursement agency, the implementing agencies,and the currencies of disbursement and debt service.Data on the purpose or the end use of the amountborrowed (institutional sector and use of funds) arealso important for analyzing the sectors that havebenefited from the borrowing, while the guaranteestatus of the debt instrument will help assess theexposure of the government through the extension ofguarantees to other borrowing entities.

11.9 In addition to the above, details on the terms ofthe borrowing should also be compiled, especially anygrace period and the maturity date(s), interest rates(variable or fixed) and any fees that are to be paid, andthe dates for payments of interest and the type ofrepayment profile of principal. Information on theterms allows the debt office to forecast the debt-ser-vice requirements for each borrowing instrument. Inthe case of bonds, information such as the issue priceand the yield would need to be captured as well.

Disbursements

11.10 The debt office will also need to compileinformation on disbursements, including actual and

expected disbursements. From such information, tothe extent possible, accurate projections of debt ser-vice can be made. Clearly, actual disbursementsaffect the total of the undisbursed amounts and, inmany cases, the expected future pattern of disburse-ment. Data on disbursements can usually beobtained from project-implementing agencies andcreditors (on an instrument-by-instrument basis orfor groups of instruments).

11.11 Because different types of borrowings can bedisbursed in various ways, the task of compiling dis-bursement data can be complex. For instance, in thecase of project loans, disbursement can take the formof advances to the borrowing entity, direct paymentby the lender to suppliers of goods and services, oron the reimbursement basis after the borrower hasalready paid the suppliers. The timing of the dis-bursement under these methods is different. Underthe advances approach, it is the periodic paymentsby the lender to the borrowing government that con-stitutes disbursement; under the direct paymentapproach, it is the moment when the lender pays thesupplier; and under the reimbursement approach, itis when reimbursements are made to the borrowinggovernment. The debt office must keep track ofthese transactions and reconcile its records at regularintervals with information maintained by the project-implementing agencies.

Debt-Service Payments

11.12 All data on debt-service payments need to becompiled on a regular and timely basis. Informationsuch as principal repayments, interest payments,commitment fees, service fees, and other fees andcharges (including penalty fees) will not only allowthe debt office to ensure that payments due are madeon time, but also enable it to track those debt instru-ments that are in arrears. Debt-service data can beobtained from statements sent by creditors. For gov-ernment loans, information can also be provided bythose responsible for making the payments, such asthe accountant general or the foreign paymentdepartment in the central bank. Debt service on pub-lic enterprises’ debts can be obtained directly fromthe borrowing entity or through a unit in the ministryof finance, which monitors this category of debt.Data for private debt that is guaranteed by the gov-ernment can be obtained through a reporting mecha-nism agreed upon when guarantees are originallysought.

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11.13 Where the debt office is at the center of thegovernment’s financial administration and public sec-tor control system, the debt office itself orders thepayment for budget execution, triggering at the sametime the formal accounting procedures within thegovernment for public debt service. This framework,known as an Integrated Financial Management Sys-tem (IFMS), is frequently implemented in projectsfinanced by the World Bank, or other regional devel-opment banks, through loans for modernization of thepublic sector. This interface with the budget executionis not only on the expenditure side—that is, debt ser-vice—but also on the revenue side; when a deposit inthe treasury accounts is made from the proceeds of adebt instrument, the debt office alerts the budget andthe treasury of the availability of resources.

Additional Data Requirements

Exchange rates and interest rates

11.14 Given that debts can be contracted in variouscurrencies, it is important that the debt office col-lects and maintains information on the relevantexchange rates for all currencies in which borrowinghas taken place, and those related to financial deriva-tives contracts in foreign currency. This informationshould be compiled on a regular basis, including fordates on which transactions have occurred and forend-periods (month, quarter, year, and, for certainshort-term instruments, perhaps weekly). This isnecessary because the disbursements and the debt-service operations should be recorded in the originalcurrency, the currency of transaction (if differentfrom the original one), and the domestic currency.For those instruments bearing variable interest rates,all relevant base rates should be compiled for eachinterest period, thus enabling the debt office to pro-ject the debt-service requirements with respect tothese instruments. If data on exchange and variableinterest rates are to be compiled on a daily basis, it ishighly convenient to have a specialized computer-ized service on-line to obtain this information.

Changes in debt instrument amounts and debt restructuring

11.15 Information on any changes to individualdebt instruments such as enhancements or cancella-tion of the amount, or a reorganization of the debtthrough rescheduling, debt forgiveness, refinancing,or prepayments should also be compiled. Indeed, in

this Guide a change in the terms of a loan agreementresults in a new instrument being created. Forinstance, for countries that have completed the ParisClub round of discussions, all relevant informationon the restructuring provided in the Agreed Minute,the bilateral agreements, and billing statements (withrespect to rescheduled debt) should be compiled.Similarly, information on debt reduction giventhrough discounts on debt buybacks should be main-tained. Debt office representation at the negotiationprocesses would help ensure that this kind of infor-mation is correctly recorded.

Data on financial derivatives transactions

11.16 Though financial derivatives are not debt perse, they have implications for debt management. Forthose countries where borrowers use financial deriv-atives to manage their risk exposures, data on trans-actions arising from these contracts should becompiled and recorded, as well as positions on out-standing contracts, in both market value and notionalamounts. Because financial derivatives can createadditional external liabilities, their market valueneeds to be monitored on an ongoing basis. Anydirect increase in debt-service costs arising fromhedging using financial derivatives (for example,commission expenses) should be registered.

How Should Information Be Stored?

11.17 A debt office should store information in anefficient and comprehensive computer-based debt-management system (CBDMS) that can undertake anumber of tasks and so support both operational andpolicy functions. Table 11.2 sets out the typical tasksthat a CBDMS should be able to undertake. A goodCBDMS can also be used to store and retrieve infor-mation on private sector external debt.

How Can the Debt OfficeValidate Data?

11.18 Data validation is essential in ensuring thecompilation of reliable, comprehensive, and timelyexternal debt data that are essential for the manage-ment and formulation of a country’s micro- andmacroeconomic policies and strategies. For this rea-son, the Guide recommends that procedures be put inplace at various stages of the data compilation and

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recording process to ensure that all data captured areproperly validated and reconciled with other datasources. Although data provided to and supplied bythe different institutions and departments—both inter-national and domestic—should be checked for mutualconsistency, these data may not be identical. But thedata validation process should ensure that where dif-ferences do exist, the underlying factors for the differ-ences are identified and explained to users of the data.

11.19 Among the various procedures and actionsthat can be followed are:• Verification by supervisors of data extracted from

debt instrument agreements, other documentation,and statements and recorded in data entry sheets;

• Systems that have built-in validation procedures tocheck for inconsistencies at the time of the record-ing of the information in debt recording and man-agement systems;

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Table 11.2. What a Computer-Based Debt-Management System (CBDMS) Should Do

Task Requirements

Debt recording [loan-by-loan] A CBDMS should be able to maintain a comprehensive inventory of loan information:• Records of loan agreement details—loan title, borrower, creditor, amount, currency, purpose,

sector, conditions attached, creditor bank, other parties, etc.• Records of loan terms—effective date, final maturity date, conditions preceding effectiveness,

disbursement pattern, commitment fees, interest rate, other fees, repayment profile, prepaymentconditions, other loan development details, etc.

• Records of actual disbursements—i.e., records of actual loan drawdowns• Records of actual debt-service payments—commitment charges, interest payments, principal

payments, agency/management fees, other loan charges• Records of debt-related data—exchange rate, interest rate, and macroeconomic variables• Support day-to-day debt operation functions-ensuring that payments due are paid in time,

monitoring arrears, and following up on delays in loans disbursement that can lead to unduepayment of commitment fees

Debt reporting [loan-by-loan A CBDMS should be flexible enough to produce a variety of debt reports that meet the and on aggregate basis] requirements of users both within and outside the country:

• Summary reports showing basic details of individual loans or group of loans based on any possibleselection criteria

• Summary reports on loan utilization rates—for single loans, groups of loans, or entire loan portfolio• Reports on debt stock based on selection criteria such as currency composition, creditor

composition, maturity structure, etc.• Reports on debt-service profile (historical and forecast) based on selection criteria—for example,

debt service falling due to specific creditors or group of creditors within a given period, debtarrears, etc.

• Reports for direct use in the balance of payments statistics, IIP framework, Government FinanceStatistics, International Finance Statistics, and Global Development Finance Statistics, etc.

Debt analysis A CBDMS should be able to perform basic debt analysis:• Portfolio analysis—to carry out sensitivity tests to determine, for example, effect of variation in

exchange rates and interest rates on future debt-service profile• Analysis on the impact of new loan offers—test the impact of new loan proposals on the debt-

service profile• Analysis of the impact of debt-rescheduling or refinancing proposals on the debt-service profile• Using macroeconomic data to compute standard debt indicators—in both nominal and present-

value terms• Compute the grant element of loans as well as the present value of debt• Perform basic economic simulations using macroeconomic data• Allow debt managers to use risk-management techniques

Linkages with other packages A CBDMS should be flexible enough to interface with other systems:• Export debt data electronically to commonly used applications such as Excel and Lotus

spreadsheets• Provide linkages to other systems for specific analysis/reporting—such as the World Bank DSM

Plus and Debtor Reporting System• Import data such as exchange rates and interest rates from external sources• Interface with integrated financial management systems (IFMS).This is a paramount utilization of

the CBDMS, playing the role of public credit module, in complement to the budget, treasury, publicaccountancy, and cash-flow for the public sector


• Description of procedures for treating differenttypes of debt and their components, includingsources of data in a Debt Procedures Manual—a“how-to” manual that accumulates knowledge andpasses on experiences;

• Periodic reconciliation of data obtained from onesource with other sources of information—forinstance, data on debt-service payments can bechecked with records kept by the foreign paymentdepartment in the central bank; loan balancescould also be verified with creditors and debtorson a regular basis;

• An audit mechanism that is consistent with thegeneral rules of public finance control.

Appendix: Functions of theGovernment Debt Office

11.20 Effective debt management by a governmentinvolves seven basic functions (Table 11.3): policy,regulatory, resourcing, recording, analytical, control-ling, and operating (including active portfolio man-agement). The policy, regulatory, and resourcing

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Table 11.3. Some Recommended Functions of a Debt Office

Public Debt Private Debt___________________________________________________________Functions External Domestic (depending on economy)

Policy and regulatory • Institutional arrangements for • Formulating debt-management • Determine the policy relating borrowing, disbursements, and objectives and strategy to private borrowing (external) debt service, including laws and • Decisions on volume, type of (dependent on nature of regulations as well as policy for instruments, timing, frequency, exchange regime and capital public guarantees and selling techniques account liberalization)

• Establish debt sustainability • Where feasible, development • Establish sources and standards of a benchmark debt structure institutional arrangements for

• Policy Framework for • Communication linkages monitoring private debt, short Contingent Liabilities within government/cabinet/ and long term

• Determine borrowing needs, parliament • Policy Framework for desired terms, borrowing • Fixing borrowing ceilings Contingent Liabilitiessources according to budgetary and

fiscal policy goals

Recording and operations • All needed information flows Primary market • Where government fully are in place in order to gather • Organize distribution channels responsible for foreign the necessary data to cover and selling procedures exchange reserves, perhapsall information needs for • Management of debt operations take account of the debt-operations and decision making including auctions, subscriptions, servicing needs of private

• Ensure appropriate budgetary etc. sector debt in deciding on the provisions are made for debt • Institutional arrangements for level of foreign reservesand debt-service contingent contacts with marketliabilities and the planning of reserves for externalization

Secondary market

• Checking invoices and ensuring • Active management of

debt service paid on due datesgovernment outstanding portfolio

• Managing disbursements • Development of debt and liquid

including claims for markets

reimbursements• Institutional arrangements for

• For commercial market intervention and contacts with

borrower, the whole range of market

activities pertaining to market Redemptionparticipation and penetration • For both new and old issues,

administration of delivery and redemption of securities

Recording arrangements• Recording system for debt

operations• Management of records of debt

holders/stock• Servicing of government debt

and its linkage to budgetary execution

• Administration of register of government debt instruments

functions (known as the executive debt-managementfunctions) are undertaken at a very senior level, i.e.,Board of Ministers or a subset of it, and as suchmight be viewed as establishing the “rules of thegame” by the highest levels of government. Hence,direction and organization are given to the wholedebt-management system. Once this framework hasbeen decided upon, it is the government debt officethat undertakes the other operating functions, imple-menting and executing the set of agreed “rules of thegame” mainly through the controlling/monitoringand the controlling/coordinating functions.

11.21 Policy, regulatory, and resourcing. Thesefunctions deal with the formulation of debt-manage-ment objectives and strategy including the settingup of debt sustainability levels. A strategy may, forinstance, impose statutory limits or overall guide-lines on how much borrowing can be done by the

public sector and/or by the economy as a whole,which in many cases is approved by the parliament.These functions also cover the institutional arrange-ments that govern the determination, raising, anddisbursement of funds, and the related debt service,as well as the application of laws and regulationsthat govern debt management at the policy andoperational levels. The resourcing function ensuresthat the recording, analytical, controlling, and oper-ating functions pertaining to public debt manage-ment are performed by qualified staff and involvesrecruiting, hiring, motivating, training, and retain-ing staff.

11.22 Recording, analytical, and operations. Therecording function deals with the recording frame-work for all relevant debt-management informationand with those activities related to the raising ofloans, the budgetary and reserves provision of debt-


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Statistical/analytical • Maintain timely and • Maintain timely and • Maintain timely and comprehensive data on loan-by- comprehensive data on all comprehensive data (including loan basis (forecast and actual) borrowing instruments short-term debt) on a loan-by-of commitments, disbursements, • Generate periodic reports loan basis, as practicable, fromdebt service, arrears (held for various sectors such as bank,a computerized management nonbank, etc. (this function mightsystem) be undertaken by a statistical

• Generate periodic reports agency)• Generate periodic reports

Controlling/monitoring • Monitor debt indicators and • Projecting government borrowing • Monitor debt levels,other performance criteria to requirements in context nonperforming loans, and otherensure debt sustainability of fiscal and monetary targets liabilities bearing systemic risks

• Undertake analysis of debt and sustainable levels of debt • Monitor relevant debtportfolio in a macroeconomic • Evaluate cost of borrowing indicators and otherframework and IIP framework (yields) of various instruments performance criteria to ensure

• Analyze database for debt • Control that the yearly ceilings debt sustainabilityrestructuring including are respectedrescheduling

• Undertake analysis for the purpose of risk management,especially exchange risks and other market risks

Active portfolio management • Active monitoring of risks (interest rate, exchange rate, and • Ensure effective risk counterparty risks) management is encouraged

• Performance measurement using benchmark or other yardsticks • Monitor systemic risk through• Continuous market analysis prudent bank supervision• Constant innovation • Set standards for transparent

and reliable corporatedisclosure


Public Debt Private Debt___________________________________________________________Functions External Domestic (depending on economy)


service payments, and the servicing of debt. Theanalytical, or statistical, function utilizes the infor-mation provided by the recording function. At theaggregate level, the analytical function involvesmacroeconomic analysis to explore the variousoptions available, given economic and market condi-tions, and determining the future structure of theexternal debt. The operating function involves nego-

tiation, utilization of loan proceeds, and the servic-ing of debt.

11.23 Controlling/monitoring and controlling/coor-dinating. The monitoring function covers the entirerange of activities involved in the maintenance ofdebt statistics and their analysis. This function helpsensure that policy objectives are realized and assists

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Figure 11.1. Organizational Chart of a Government Debt Office

• Overall legal structure, regulations and enforcement• Indebtedness strategy embodied into macro-economic strategy• Resourcing: staff and means

Background information for debt strategies and borrowing decisions

• External financing and loan negotiations• Mobilization of external financing• Proposing strategies for new borrowing and/or reorganizations• Domestic financing and domestic securities issues• Public guarantees: management and policy• Linkage to budget execution (expenditures and resources)

• Disburse external financing• Monitor projects• On-lending• Budget proceedings for project execution and management of special accounts

• Monitoring of disbursements and payments• Debt servicing• Recording• Authorizing payments• Ordering payments• Managing arrears• Information production• Summary figures• Tabulating debt outstanding• Projecting debt service

• Balance of payments• Budget projections• Overall future borrowing strategy• Preparing background data for new borrowing and/or reorganizations

Executive DebtManagement

Executive Control Operational Control

Executive Council / Debt Management Committee

Controlling and Monitoring Unit

Public Finance Unit

Recording and Control Unit

Statistics and Analysis Unit

Loan Management and Utilization Unit

Operational Debt Management


in the determination of debt-management policies.The controlling/monitoring function must ensure,among other things, that the terms of new borrow-ings fall within the guidelines set by the senior level;that funds are being utilized on time and appropri-ately; and that repayments are made according toschedule. At the aggregate level, the controlling/coordinating function is essential in ensuring thatoperational debt management is in accordance withexecutive debt-management actions (that is, the pol-icy and regulatory functions performed at the mostsenior level).

11.24 Active portfolio management. This functioncovers the day-to-day active management of the debtportfolio. This function takes into account marketdevelopments, such as in interest rates and exchangerates, which affect the portfolio in terms of desiredperformance and risk. Formally, active portfoliomanagement pertains to the operations function, butgiven its specificity it is best to consider this workseparately.

11.25 The location and organizational structure of agovernment debt office (typically referred to as adebt-management unit) will vary among countries.The differences between developing and developedcountries are due to the differences in sources offinancing. That is to say that the organizationalstructure is different if the country is mainly a bor-rower of International Development Association

(IDA) funds or if the country is issuing bonds in theinternational financial market.

11.26 For most developing countries, the debt-management functions are not assumed by a singleoffice but dispersed across several institutions. Aschematic representation of these functions can befound in Figure 11.1. A common structure has adebt office in the ministry of finance, focusing onpublic domestic and external debt, with the centralbank overseeing private debt, and often taking onthe operational functions related to government debtas its financial agent. Ministries of planning andfinance and the central bank each make economicforecasts that provide the framework for debt man-agement. A high-level coordinating committeesteered by the ministry of finance (or the prime min-ister’s office or a ministry of economic coordina-tion) takes charge of debt strategy and policy, whichshould be embodied in the overall macroeconomictargets. In some developed countries, however, anindependent government debt office conducts debtoperations based on objectives set by the govern-ment as part of asset-liability management opera-tions. Ireland, New Zealand, Sweden, and theUnited Kingdom have set up such structures thatdelineate separate objectives for debt managementand monetary management. No matter what thestructure, each country should have a transparentframework for the efficient conduct of all debtoffice functions.

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Introduction

12.1 In circumstances where controls on foreignborrowing are still in place, it is possible for the cen-tral bank to compile information on private sectorborrowing from information provided by borrowersfor regulatory purposes, such as when they seekapproval for foreign borrowing. Also, commercialbanks might well be required to report on foreigntransactions of their private sector clients. However,as liberalization of financial transactions proceeds,and such information becomes less readily available,there is a need to develop methods of collecting dataon private sector debt through other means. Thischapter considers the collection of these data frombanks and “other sectors” when financial transac-tions are liberalized. The measurement of externaldebt in the form of traded securities is covered in thenext chapter.

12.2 From the standpoint of compiling external debtdata, information collected at the level of the individ-ual debt instrument provides the statistical agencywith the greatest flexibility in meeting user require-ments. Provided that sufficient detail on the charac-teristics of the instrument is supplied, potentially var-ied combinations of characteristics of external debtcould be produced as users request (the method bywhich the compiling agency stores the informationsupplied could limit the possibilities). Also, instru-ment-by-instrument detail supports detailed qualitychecks. However, some compilers may find that it isonly realistic to ask respondents to supply aggregatedata. If so, the design of the survey form is particu-larly important because it needs to endeavor to meetall foreseeable data needs—it is unlikely that theform can be changed very frequently, not leastbecause respondents will develop systems to compilethe required information—and incorporate quality-control features (for example, cross-checks on theform itself or with related data collections). If the sur-vey form is too complex, there could be a negative

impact on quality as respondents may have difficultysupplying the required information.

12.3 It is recognized that for compilers, compilingcomprehensive data for the private sector presents agreater degree of difficulty than for the public sector.Problems can arise from the limitations inherent inthe available information sources. For instance, dataon arrears may not be readily available from balancesheet reports, nor data for a debt-service schedule.Also, it may be difficult to monitor certain sectors ofthe economy, such as the household sector. In allsuch instances, the importance and relevance of thedata needs to be weighed against the likely costs ofcollection, and, where appropriate, alternativesources and methods used to produce data of anacceptable degree of accuracy and reliability (forexample, data from creditor sources).

Banks

Reporting of Debt

12.4 An important source of information on exter-nal debt is the banking sector. Banks are closely reg-ulated in nearly all countries—and so are usuallyidentifiable to the statistical agency—and have toreport balance sheet data to central banks or regula-tory agencies both for supervisory and monetarypolicy purposes. These reports can be a major sourceof information on the outstanding external debt ofbanks. External debt includes deposits of nonresi-dent banks with domestic banks, deposits of othernonresidents with domestic banks, and other exter-nal liabilities, such as bonds and notes, and otherdebt securities owned by nonresidents and issued bydomestic banks. Domestic banks include residentbranches of foreign-owned banks.

12.5 It is essential that the reporting requirementsthat the central bank agrees with the commercial

12. Banks and Other Sectors’ External Debt Statistics

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12 • Banks and Other Sectors’ External Debt Statistics

banks take account of the need for data on externaldebt. When changes in bank reporting are being con-sidered, a task group could be formed that includesrelevant statistical experts on external debt and otherexternal statistics. In particular, attention must bepaid to how external liabilities (and assets) aredefined, and the external debt, and balance of pay-ments, concept of residence (and not nationality orcurrency) should be used to determine what is anexternal liability or asset.

12.6 However, balance sheets typically do not con-tain sufficient detailed information on the maturityof loans and deposits; and additional information isrequired to calculate the debt service paymentschedule for the banking sector.1 This is bestachieved by obtaining and using information onindividual external debt instruments. When thesedata are not available to the compiling agency, anddepending on the type of debt liabilities, the com-piler can estimate projected interest costs using posi-tion data and appropriate representative interestrates, but some indication of a payment schedule isrequired for projecting principal payments.

Offshore Banks

12.7 Data on the external debt of “offshore banks”should be collected and included in the gross exter-nal debt position. Some compilers argue that banksthat are treated as “offshore” under exchange con-trol and other regulations should be excluded fromthe coverage of external debt statistics because thebanks borrow from and lend to nonresidents. Inother words, debt of such “offshore banks” does notrelate to developments in the domestic economyand should be excluded. However, even if netting islegally binding in the jurisdiction of one country,legal actions by third parties may prevent the localbanking institution from enforcing its right of off-set. Thus, if the loans of offshore banks becomeunrecoverable, these banks still need to find theresources to meet their debt obligations. Nonethe-less, as noted in Chapter 2, in some economies sep-arate identification of the gross external debt (andexternal assets) of resident “offshore banks” andother “offshore entities” is necessary because of the

potential size of their liabilities relative to the rest ofthe economy.

Other Issues

12.8 In addition to their on-balance-sheet liabilities,the compiler could consider collecting data on out-standing guarantees given by banks. Banks do guar-antee debts of private nonfinancial sector borrowers,and while not external debt of the banks, but ratherthe debt of other sectors, there is analytical interestin data on guarantees. Although data on bank guar-antees most likely will cover only part of the privatesector’s external debt, these data may be helpful incross-checking data provided by other sectors.

12.9 Central government and public enterprisessometimes borrow from resident banks instead ofdirectly from foreign lenders. The loans may bedenominated in foreign currency, and the ultimateborrower, not the commercial bank, assumes theexchange risk. There is potential for double countingif the government reports the foreign currency loanas an external liability along with the bank. If thebank borrows externally, it is the bank not the gov-ernment that has the external debt.

12.10 Also, other private sector entities may borrowforeign currency from resident banks, particularly ifthe nonbank private sector is not allowed to borrowdirectly abroad (so that the authorities have closecontrol over capital flows). In these cases, the com-piler has two sources of information: the private non-bank entity (perhaps from exchange control forms),and the reports of the bank. The preferred source isthe bank because the bank has the external debt, andbank records are normally more comprehensive.

Other Sectors

Enterprise Surveys

12.11 When no comprehensive exchange controlsexist, data on loans and other external debt of othersectors are best obtained through a periodic survey ofthose enterprises (including nonbank financial insti-tutions) that are involved in external transactions.2

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1Examples of the type of disaggregated information that couldbe collected from a balance sheet are set out in IMF (2000d),Monetary and Financial Statistics Manual (see, for instance, Box7.1, p. 76).

2IMF (1995), Balance of Payments Compilation Guide, pro-vides practical advice on model survey forms for the compilationof balance of payments and IIP data.


The accumulation of transactions data from thebalance of payments, together with valuation adjust-ments, is commonly used to estimate position databetween position surveys. The appendix to this chap-ter provides the methodology for such calculations.

12.12 To ensure good coverage of cross-borderactivity, it is necessary to develop and maintain aregister of nonbank enterprises that have or couldhave significant cross-border assets and liabili-ties. Without a good register, serious discrepanciesfrom reality could arise. Enterprises might beidentified from customs forms—it seems likelythat such entities will be involved in trade credittransactions—and/or from balance of paymentsreports, such as through a system that relies on bankreporting of individual transactions, and/or by theregulatory authorities, such as information held byforeign investment or monitoring boards. In Chapter14, the practice of the Australian Bureau of Statis-tics is described, and this provides more ideas onhow to develop a register, including the use of infor-mation from industry associations, newspaperarticles, etc.

12.13 In developing a register of enterprises toapproach, it is vitally important that the work becoordinated with the agency that has the responsbil-ity for the national accounts, as well as the balanceof payments compiling agency. Not only will bal-ance of payments and national accounts compilersbe interested in information on external liabilities,the national accounts compiling agency may alreadyhave developed a centralized national register ofreporting entities and be collecting some of theinformation required. Alternatively, registers mayhave been developed in different agencies for partic-ular sectors—for example, manufacturing enter-prises, banks, etc.—and a register for external debtpurposes may be built up by conducting an“exploratory” survey of all these enterprises, in orderto identify those that have external positions.

12.14 In determining the reporting population, vari-ous approaches are possible:• Census: Including in the survey all members of the

population;• Partial coverage collection: Including in the sur-

vey all enterprises above a certain threshold mea-sured in terms of their dimensions (for example,nominal capital) or other variable (for example,significant cross-border activity);

• Random sample: Including in the survey enter-prises that are preferably selected according to rig-orous sampling procedures, with the results“grossed” up for the whole population; and

• Stratified random sample: A procedure that groupspopulation components according to the size ofselected activity so that enterprises within differentstrata have different probabilities of selection. Usu-ally, this is a combination of the partial coverageand random sample options but is more sophisti-cated and might produce a high level of coveragewhile remaining relatively cost-effective.

12.15 It is usually preferable to approach enter-prises that engage in a number of activities at thegroup level because they may have a central organi-zation that handles the external financing transac-tions of the group. Also, approaching the enterpriseat this level reduces the workload for the compiler.However, if external financing transactions are han-dled by several centers in a group, and/or the groupcovers more than one type of institutional sector (forexample, a bank and a nonbank enterprise), arrange-ments should be made to collect data from each cen-ter, in consultation with the enterprise.

12.16 A survey of nonbank enterprises should coverloans from nonresident banks, securities issuedabroad (both long- and short-term), trade credits,and other external liabilities. If the information ondebt instruments is provided on an instrument-by-instrument basis, details collected could includename of lender, country and type of lender, currency,amount outstanding, start date of contract, due dateof contract, scheduled payments of principal, inter-est payments, put options, and relationship betweenborrower and lender. Similar information could berequired for securities, although the identity of thelender may be unknown to the borrower. Althoughthis information is detailed, it should be readilyavailable to the entity for its own accounting pur-poses and, in most instances, should be publicknowledge. Also, if possible, it is preferable to col-lect liability and asset data together on the same sur-vey form, not least because the balance-sheetapproach introduces a consistency in its own right,while the development of external debt within an IIPstatement, among other things, would focus atten-tion on external assets as well as liabilities.

12.17 When developing survey forms, writing veryclear reporting instructions is an essential but not

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easy task—different respondents must be clear aboutwhat types of transactions they should report. Theoverwhelming evidence from compilers is thatreport forms and instructions should be kept as sim-ple as possible. Practical experience invariablyshows that where compilers complicate the form andthe instructions, perhaps to collect that extra bit ofdetail, the compiler is disappointed with the infor-mation received. Reporting instructions must beclear on concepts, on what is to be reported, and onwho can be contacted at the statistical agency,together with telephone and fax numbers and e-mailaddresses, in the event of the respondent having aquestion about the reporting requirements.

12.18 The compiler is advised to undertake formtesting—that is, finding out from a sample ofrespondents whether the instructions are clear andworkable before they become operational. Also,seminars and workshops explaining the reportingrequirements for respondents are of value to bothrespondents and the compiling agency, and areencouraged by the Guide. On an ongoing basis, themaintenance of an electronic register that keepstrack of respondents who have called and when, whowas the contact person, their phone number, etc., isinformation that helps ensure a well-run statisticaloperation. Through such a register, corporate mem-ory at the statistical agency can be developed.

12.19 Even so, private nonbank entities may bemore reluctant than banks and the government toreport to the compiling agency. How can they be“encouraged?” There are at least three importantsteps that can be taken.• As mentioned above, there should be legal back-

ing for the surveys, so that as a last resort the com-piler has some means of redress if the respondentproves unwilling to report. However, this legalbacking must make clear that any data suppliedwill be used only for statistical purposes, and thisstatement must be honored in letter and spirit bythe compiling agency. Nonbank respondents maywell be reluctant to supply data if they believe thedata will be shared among other agencies.

• Other elements of government that have a policyinterest in external assets and liabilities should bemade aware of the reporting needs and encouragedto promote the need for good reporting wheneverpossible when dealing with private enterprises.Better data helps promote better-informed policy-making. In other words, the authorities should

build the idea of good reporting into their policyobjectives in this field. Often, those with policyresponsibilities have access to senior officials inprivate entities and so can deliver the message ofgood reporting at a more senior level than mightbe available to the statistical agency.

• The compiling agency along with other agenciesresponsible for statistics should encourage a “cul-ture of reporting.” This is not easily achieved in ashort time period and should not just cover exter-nal debt data, or the private nonbank sector. Stepsto encourage a culture of reporting include meet-ing potential respondents and discussing issues ofconcern; developing report forms that as easily aspossible fit in with management reporting systemsand are not overly complex; and disseminating andpromoting the final output in a transparent manner.If data are captured and compiled in an efficientmanner and the output is seen to be important, pri-vate sector respondents are more likely to report.

12.20 Even if data are supplied, how can they beconfirmed to be reliable? First, if data are supplied ina balance-sheet form this adds a degree of consis-tency in its own right. Also, if a publicly quoted com-pany supplies data, published accounts from thecompany are likely to be available against which datacan be checked.3 Second, wherever possible datashould be cross-checked with other sources. Forinstance, transactions data can be compared withchanges in position data if different sources are used.Net borrowing data from income and expenditureaccounts, or profit and loss accounts of companies,can be compared with the buildup of net financialassets and liabilities because the two are interrelated.Income data could be compared with position data tosee whether the implied rates of return on liabilitiesand assets are realistic. Data on nonbank liabilities toforeign banks could be cross-checked with the inter-national banking statistics from the BIS, althoughconceptual differences between BIS and nationaldata need to be taken into account.4 Some economiesmay make periodic requests to creditors to verify thestatus of loans that they have extended to organiza-tions in the country, but nonresident creditors may be

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3Because accounting standards do differ in some respects fromstatistical standards, this approach may provide a broad ratherthan close check.

4See the case study for Chile in Chapter 14 and the BIS reportComparison of Creditor and Debtor Data on Short-Term ExternalDebt (2002).


unwilling to provide information to foreign govern-ment agencies when private debtors are involved.

Other Approaches

Direct reporting companies

12.21 A variation of the enterprise surveys men-tioned above is the establishment of so-called directreporting companies (DRCs). DRCs are intended toconstitute a representative sample of companiesinvolved in cross-border activity, and to report on aregular and frequent basis to the compiling agencyon transactions and positions with nonresidents. Thisapproach, derived from an exchange-control-typeadministrative system, could be appropriately devel-oped in a partially liberalized environment. In somecountries, DRCs are divided into “general” and “par-tial” direct reporting companies.• General direct reporting companies (GDRCs) are

companies or groups of companies, the volume ofwhose cross-border transactions exceeds a certainthreshold in a given period. For GDRCs, with theexceptions of certain portfolio investment transac-tions (see below), all cross-border transactions arecovered in the reports to the compiling agency,including flows via foreign accounts and netting.There may be no threshold for the items to bereported. The reports may give details of the cur-rency, amount, economic nature, and geographicalbreakdown of the transactions. The reports ofGDRCs may not include flows/positions concern-ing portfolio investment cash management andinvestment income when these transactions areconducted through resident commercial banks.Instead, these types of transactions/positions arereported by the domestic commercial banksinvolved in the particular transactions. However, ifthese transactions are carried out or held directlyvia foreign accounts, they remain under theresponsibility of the GDRC in question to report,because the GDRC is the only domestic entityaware of these transactions/positions.

• Partial direct reporting companies (PDRCs) arecompanies that hold accounts abroad or participatein an international netting arrangement throughwhich payments are made or received. These com-panies are subject to direct reporting requirementswhen the monthly total of incoming and outgoingpayments through the accounts exceeds the agreedthreshold. The reports of PDRCs are similar tothose of the GDRCs, but they cover only flows/

positions via their foreign accounts and changes ofposition within these accounts. Other transac-tions/positions between PDRCs and nonresidentsare reported by the resident banking sector.

Registers of external loans

12.22 Some external debt compilers use so-calledregisters of external loans to obtain data on loansreceived by the nonbank sector. These data, usuallycollected for exchange control purposes, allow mon-itoring of both loans from nonresidents and nonmar-ketable securities issued to nonresidents. If theexchange controls are abolished, the administrativeaccounting documents created for that purposemight be transformed into reporting documents forstatistical purposes. The figures obtained from thissource usually cover both loans between related(parent companies and affiliates) and nonrelatedcompanies, and financing obtained through interna-tional bonds and notes, commercial paper, and otherissuance programs.

Monitoring Short-Term Debt and Trade Finance

12.23 Monitoring short-term debt—that is, loanswith an original maturity of one year or less—is ofgreat importance because high levels of short-termdebt can make an economy particularly vulnerableto shifts in market conditions and, in the case oftrade credits, can have an important impact on realeconomy activity.5 However, monitoring such liabil-ities is a complex process, not the least because thereare many small transactions and many participants.In particular, if foreign trade is large relative to totalproduction, there are likely to be many enterprisesthat receive foreign short-term credits.

12.24 Short-term loans and trade finance could becovered by the kind of enterprise surveys, and otherapproaches, discussed above. While collecting dataon a loan-by-loan basis has some advantages, infor-mation on private sector short-term debt is likely, forpractical reasons, to be compiled only in aggregate.Because of the sheer number of transactionsinvolved and their short maturity, information on

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5As was seen in some Asian economies in 1997–98, a suddenrestriction on trade credit finance can depress imports, impactingon the production process and the level of exports when theseactivities have a high import propensity.


short-term debt may not necessarily be easy to com-pile on a transaction-by-transaction basis for all cat-egories of short-term debt.

12.25 Also, policymakers may require more up-to-date detailed information so that the short-termfinancing position of the economy can be closelymonitored. For banks, this might include daily orweekly reports covering interbank lines—theamount, the confirming bank, etc.—because theselines are the core of external funding and sensitive tochanges in perceived credit worthiness. Also, keyborrowers might be asked to prepare monthly posi-tion reports on trade finance covering amounts, cur-rency, counterpart country, and sector.

12.26 An alternative approach for those countrieswith balance of payments compilation systems thatrely on banks’ reporting of individual transactions isto estimate the stock of trade credit debt by accumu-lating the transactions to the existing position data,taking account of exchange rate fluctuations. How-ever, the main drawback of this approach is thatbanks may not identify trade credit accurately, or itscoverage may not be comprehensive. For instance,new extensions of trade credit for importers might bebetter identified by banks than repayments of thatcredit, leaving trade credit stocks artificially high.6

Also, the recording of cross-border merchandisetrade financed through direct credit between impor-ters and their suppliers might be missed because itinvolves no payment transactions. Although compar-ing the level of imports recorded by customs withthe import payment figures recorded through bankreports might get around this latter problem, therewould be a need to ensure that the customs and thebanks are taking a consistent approach to classifyingand recording imports.

12.27 In the gross external debt position, tradefinanced or intermediated—such as through the dis-counting of bills—by a bank is not classified tradecredit but rather as a loan or short-term security.However, Chapter 7 provided a table for the presen-tation of all trade-related credit because of its impor-tance for the real economy.


12.28 In the external debt statement, positions infinancial derivatives should be recorded on a grossbasis and valued at market prices. However, at thetime of the preparation of the Guide, few countrieshad a system for measuring financial derivativesposition data. Furthermore, in some countries thestatistical recording of positions in financial deriva-tives is hampered by the existing accounting rulesfor banks and enterprises that do not require finan-cial derivatives positions to be recorded on-balance-sheet and valued at market prices.

12.29 In some countries where information onstocks is available, it is based on regular reports fromthe largest players, particularly the banking sector.Indeed, available information indicates that deriva-tives markets are highly concentrated, and so a sur-vey of the major banks and investment houses,which includes information on the counterparties totheir derivatives positions, along with the majorenterprises that borrow abroad, might cover a con-siderable amount of resident activity in financialderivative instruments. Given the complexitiesinvolved, when developing a financial derivativessurvey, it is strongly recommended that it be coordi-nated with those responsible for other macroeco-nomic data series that also require information onfinancial derivatives. Also, it is important that dataon market value of positions are collected, since themarket value determines the asset or liability posi-tion of the financial derivatives contract. Chapter 7includes tables that present the nominal or notionalpositions of foreign currency derivatives, and, if sig-nificant, interest rate derivatives. These data couldalso be collected.

12.30 By way of example, in a survey of financialderivatives positions the types of analytical detailthat compilers might consider collecting include:• Product category: Forwards (including futures and

swaps) and options;• Risk category: Exchange rate, interest rate, and

other risk (perhaps, if significant, disaggregatedinto commodity, credit, and “other”); and

• Counterparty information: General government,monetary authorities, banks, other financial insti-tutions, other residents, and nonresidents.

12.31 While the Guide does not explicitly recom-mend the collection of data on the notional or nomi-

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6To counter this problem, some countries have developed theirsystems such that repayment of trade credit is assumed after a cer-tain period of time (for example, three months). Any suchapproach should be supported by periodic direct surveys of tradecredit positions.


nal value for all risk types of financial derivatives,such information can be of analytical value. Forinstance, the nominal or notional amount providessome indication of the size of the risk transfersunderlying financial derivatives instruments, while,as a quality check, the ratio of market to nominalvalue that is reported could be compared with the“normal” ratio derived from the BIS’s semiannualstatistics on the open positions in the global over-the-counter (OTC) derivatives market.

12.32 The BIS semiannual derivatives data wereintroduced in June 1998.7 They cover the notionalamounts and gross market values outstanding of theworldwide consolidated OTC derivatives exposureof major banks and dealers in the G-10 countries,with four main categories of market risk reported:foreign exchange, interest rate, equity, and com-modities. Because they are not residence-based, thedirect usefulness of the BIS data in the compilationof residence-based statistics is limited. Nonetheless,the BIS data do provide a good indication of the rel-ative size and importance of different types of deriv-atives instruments, and, as mentioned above, of therelationship between market and notional amounts.

Direct Investment

12.33 The external debt statement includes informa-tion on liabilities of resident direct investment enter-prises to foreign direct investors, and of residentdirect investors to their foreign direct investmententerprises. Measuring direct investment activity isan integral element of balance of payments and IIPstatistics. Many economies take a particularly closeinterest in direct investment activities because of thebenefits this activity is perceived to bring to theeconomy. Thus, it is recommended that in compilingexternal debt, use be made of the information ondirect investment in the balance of payments andIIP.8 Care must be taken to avoid double counting ofsecurities, or other debt, in both direct investmentand their instrument category. Direct investmenttakes precedence; for example, a bond issued by a

resident direct investment enterprise and owned byits foreign direct investor is classified under directinvestment rather than under debt securities (that is,equivalent to portfolio investment in the balance ofpayments).

Household Sector

12.34 Obtaining data on the external debt of thehousehold sector is difficult. In many economies, thehousehold sector will focus its borrowing on residentfinancial institutions, not least because of familiarity.However, with modern forms of communication andtheir ability to advertise products across borders,borrowing from abroad might become more preva-lent. One method of collecting information might beto include foreign borrowing questions in a house-hold survey of expenditures, income, financialassets, and liabilities.

12.35 For countries that rely on a bank reportingsystem, specific procedures are sometimes set up tocapture data on cross-border asset and liabilities heldby residents with nonresident financial institutions,since these positions are not covered by the residentbanks’ reporting. Under these procedures, all house-holds are obliged to report such positions to the cen-tral bank on a regular basis (monthly, quarterly, orannually). Also, transactions settled through theseaccounts abroad are to be reported by households,with the frequency and detail of individual reportingdependent on the scale of the activity undertaken.

Appendix: Estimating Position Datawith Transactions Information

12.36 Changes in positions between end-periods areaccounted for by up to four factors: transactions;changes in the price of debt instruments; changes inexchange rates; and other adjustments, such asreclassifications. For all instruments, there can betransactions and other adjustments, but not all instru-ments are affected by changes in prices or exchangerates. This appendix considers the estimation ofposition data using transactions data, starting withinstruments that are relatively straightforward, andmoving on to those that raise more complex issues.Because estimating positions for instruments whoseprices change raises the most complex problems, adistinction is made between those instruments thatare not traded and those that are.

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7A regular press release on these data is available on the Inter-net, at the BIS website, http://www.bis.org/statistics/index.htm.

8In 2001, the IMF and OECD updated a survey of data availabil-ity, data sources, compilation practices, and methodology used tocompile FDI data. The metadata for 56 individual countries andcross-country comparison tables are available on the IMF’s web-site at http://www.imf.org/external/np/sta/di/mdb97.htm.


Nontraded Debt Instruments

12.37 For nontraded instruments, a distinctionneeds to be made between those whose value islinked to the unit of account and those whose valueis not.

Debt instruments with value linked to the unit of account

12.38 For a debt instrument issued in the unit ofaccount, the estimation of position data with transac-tions data, in principle, is simply a case of addingtransactions in the period to the previous position,and taking account of any other adjustments. How-ever, even for such instruments, mismeasurement ofposition data is possible if the coverage of transac-tions data is not complete—for instance, due toincomplete population coverage—or if there is mis-reporting of transactions, including an inability ofrespondents to report transactions when they occur.Indeed, the compilation of position data through theaccumulation of transactions data could lead to a sig-nificant mismeasurement over time, in such circum-stances. Thus, even for nontraded instruments whosevalue is linked to the unit of account, there is a needto undertake position surveys from time to time, bothto help ensure the quality of position data and also asa check on the reported transactions data.

Debt instruments with value linked to a foreign currency

12.39 For instruments whose value is linked to for-eign currencies, not only is there a need to takeaccount of the same factors as mentioned above, butalso of the currency composition of transactions andpositions.

12.40 It is recommended that if positions are tobe calculated for instruments linked to a foreigncurrency, data best be compiled on a currency-by-currency basis. In other words, in the originalcurrency, transactions in the period are added to posi-tions at the end of the previous period, and aftertaking account of any other adjustments in the period,the end-period position is converted into the unitof account using the end-period exchange rate.9

The positions in all foreign currencies, plus that inthe domestic currency, are aggregated into a totalposition.

12.41 Essential to such calculations is the avail-ability, at some point in the past, of data on thecurrency composition of position data. For instance,if the currency composition of position data is avail-able on an annual frequency at end-year, then inthe absence of information on the currency compo-sition of transactions data, quarterly position datacould be estimated on the assumption that thecurrency composition of transactions is the same asin the observed end-year position data. Before mak-ing such an assumption, it would be necessary tocheck the observed changes in currency composi-tion over a number of years—the less variable overtime the proportions for each currency, the morerobust the assumption might be. Once further end-year data are available, revisions to back data toreflect the new information are almost certain to berequired.

12.42 In the absence of data on the currency com-position of position data for the whole economy,one sector (for example, banks) might provide suchinformation. A comparison between the currencycomposition of bank liabilities and those for othersectors could be made for periods when both areavailable. Provided that there is some similarity,the data from banks could be drawn upon to esti-mate the currency proportions for the rest of theeconomy, until new data for all sectors becomeavailable.

12.43 An alternative approach is to ignore thecurrency composition and, in effect, assume thatall foreign currency liabilities are in the same cur-rency. This “currency” could be the trade-weightedexchange rate or the known dominant currency inthe country’s financial flows, such as the U.S. dollar.Under this approach, positions could be estimatedby revaluing both the previous end-period position,the transactions during the period, and any otheradjustment:10

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9For nontraded instruments, the amount of the change betweenend-period positions in domestic currency terms attributable toexchange rate variation is equal to the difference between the

opening and closing positions, less transactions over the period indomestic terms less any other adjustments in domestic currencyterms. For the calculation to be accurate, the transactions andother adjustments need to be translated into domestic currency atthe exchange rate at the time they occurred.

10The adjustment could increase or decrease positions.


xt xt xtK̂t = Kt–1(–––) + Ft(––) + At(––), (12.1)xt–1 x–t xa

whereK̂t = estimated end-period positionKt–1 = previous end-period positionFt = transactions in the period in the unit of accountxt = end-period exchange ratext–1 = end-previous period exchange ratex–t = average period exchange rateAt = adjustment in the periodxa = exchange rate at the time the adjustment

occurred.

In the above calculation, the exchange rate should beentered in terms of the number of units of the unitof account received for one unit of the foreign cur-rency. The example below illustrates the principlesinvolved.

12.44 Assume that country A’s gross external debtposition was 1,000 in domestic currency terms att–1, all of which was owed in U.S. dollars, and thatthere are transactions of 150 in domestic currencyterms during the period. There were no other adjust-ments. The exchange rate was 10 of the domesticcurrency to 1 U.S. dollar at t–1, and 14 to 1 U.S. dol-lar at t, with an average rate during the period of 12to 1 U.S. dollar:

14 14(1,000 × –– = 1,400) + (150 × –– = 175)10 12

= 1,575 (estimated end-period total).

12.45 Whichever approach is used to estimateend-period positions, in the absence of full cur-rency information, there will be estimation weak-nesses. Where end-period currency compositionsare assumed for subsequent periods, clearly theactual currency composition of transactions couldbe different, and this is also true when using onesector’s data. Not making any assumption aboutcurrency composition is essentially akin to assum-ing that all other currencies move in an identi-cal way in relation to the unit of account. In bothcases, the more volatile the exchange rate, thegreater the likelihood of mismeasurement. Evenmore so than for nontraded instruments linkedto the domestic currency, frequent observationsof position data for instruments whose value islinked to a foreign currency are recommended,otherwise significant mismeasurement could ariseover time.

Traded Debt Instruments

12.46 Calculating positions with transactions data isparticularly difficult for traded debt instruments,whose prices change from period to period. In addi-tion to taking account of other adjustments, and, ifneed be, movements in exchange rates, as above,there is a need to take account of movements in mar-ket prices. One particular difficulty is that there aremany traded instruments all with their own price.Also, unlike nontraded instruments, the debtor isunlikely to know the extent to which traded instru-ments are owned by nonresidents if nonresidentspurchase instruments in domestic markets, or thedebtor borrows in foreign markets. So, as noted inChapter 13, the compiler cannot rely on the debtorfor detailed information on traded instrumentsowned by nonresidents.

12.47 To make exact calculations, knowledge isrequired on the whole sequence of intraperiodprices, exchange rates, and transactions: such infor-mation may not be readily available to individualrespondents, let alone national compilers. So, somesimplifying assumptions or models are thereforeneeded to produce estimates.

12.48 The data model most widely employed in thefield of external statistics is that recommended in var-ious methodological publications prepared by theIMF.11 For this model, in addition to information onexchange rates, some estimate of market prices of theinstruments is needed. As with exchange rates, themore detailed information available to the compiler,the better. For market prices, the simplest approachmight be to base estimates on a representative gov-ernment bond price(s) for domestic instruments, ifavailable, and/or benchmark prices in other marketswhere domestic residents have issued instruments.

12.49 With the required information, the data modelcan be used for a variety of purposes: calculatingtransactions on the basis of position data; calculatingpositions with transactions data; or “validating” bothsets of data. The first two variants are particularlyuseful when only one of these variables is measureddirectly; the third when both variables are measured,

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11See the IMF (1995), Balance of Payments Compilation Guide,paragraphs 732–43 and 778–83, and the IMF (1996), CoordinatedPortfolio Investment Survey Guide, Appendix VIII, pp. 155–58.The BIS and the OECD contributed to the latter publication.


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using either the same source or different sources orsamples (in which case it is necessary to check onwhether reported data on positions and transactionsare mutually consistent). The model was originallyemployed to derive transactions data from positionsdata:

x–t p–t x–t p–tF̂t = Kt (–– ––) – Kt–1(––– –––), (12.2)xt pt xt–1 pt–1

whereF̂t = estimate of transactionspt = end-period pricesp–t = average period prices.

12.50 However, it can also be used to derive positionsdata with transactions data. Indeed, equation (12.3) issimilar to equation (12.1), once the adjustment factoris introduced, except that equation (12.3) alsoincludes price effects, based on period averages. If thevalue of the instrument is linked to the unit of account,then the exchange rate factors are redundant.

xt pt xt pt xt ptK̂t = Kt–1(––– –––) + Ft (–– ––) + At (–– ––), (12.3)xt–1 pt–1 x–t p–t xa pa

wherepa = price at which adjustment occurred.

12.51 The example below illustrates the principlesinvolved. Again assume that country A’s gross exter-nal debt position was 1,000 in domestic currencyterms at t–1, all of which was owed in U.S. dollars,and there are transactions of 150 in domestic cur-rency terms during the period. There were no otheradjustments. The exchange rate was 10 of thedomestic currency to 1 U.S. dollar at t–1, and 14 to 1U.S. dollar at t, with an average rate during theperiod of 12 to 1 U.S. dollar. The securities owed tononresidents were valued at 1.1 at t–1, at 1.045 at t,and at 1.066 during the period:

14 1.045 [1,000 × (–– × –––––) = 1,330]10 1.1

14 1.045 + [150 × (–– × –––––) = 171.5]12 1.066

= 1,501.5 (estimated end-period total).

12.52 The accuracy of the model depends on thevolatility of financial prices and transactions in theperiod covered; in particular, the accuracy of esti-mates is inversely related to the combined amount ofintraperiod dispersion in prices and transactions.

Estimated values would approach the “true” valueswhen transactions are spread more uniformly and/orprices (including those of currencies) are less dis-persed around their mean. Such conditions are morelikely to prevail when the reference period chosenfor compiling statistics is short (a month, or a quar-ter, rather than a year).

12.53 Also, accuracy improves when flows aresmall compared with the initial stock, in which caseintraperiod valuation effects would be of secondaryimportance. As a consequence, lower-frequency sta-tistics compiled using the model could still be rea-sonably accurate when transactions are very small,even in periods of highly dispersed prices andexchange rates.

12.54 In addition, research at the IMF (Committeri,2000) has shown that the availability of moredetailed financial information, allowing disaggre-gated estimates based on homogeneous groupings ofinstruments and currencies, results in estimates thatare closer to the actual values of the relevant vari-ables, irrespective of the intraperiod dispersion ofprices and exchange rates. Creating homogeneousgroupings might be achieved by collecting data onan instrument-by-instrument basis or on an aggre-gate basis, where information is collected by cur-rency, maturity, and by type of instrument (such aswhether the instrument has a fixed or variable rateof interest).

12.55 Clearly, the more periods over which esti-mates are carried forward, the greater the possibilitythat the estimates will diverge from “reality.” So, fre-quent observations of position data for instrumentswhose price can change are recommended.

12.56 The data model set out in equation (12.3)above also offers manageable formulas for estimat-ing the reconciliation adjustment (equation (12.4)),and its price and exchange rate components:12

12Adding equations (12.4a) and (12.4b) would not necessarilygive equation (12.4), even if there were no “other adjustments.”The difference represents the compound effect in equation (12.4)of changes in p and x, which cannot be further divided into “price”and “exchange rate” elements. The difference will be zero onlywhen either x or p is constant. See Committeri (2000), pp. 6 and 8.Assuming no “other adjustments,” one approach could be to esti-mate the exchange rate component first, and calculate the pricecomponent by residual; that is, subtract equation (12.4b) fromequation (12.4).


xt pt xt ptADJt = Kt–1(––– ––– – 1) + Ft (–– –– – 1)xt–1 pt–1 x–t p–txt pt+ At (–– –– – 1) (12.4)xa pa

pt pt ptADJtprice= Kt–1(––– –1) + Ft (–– – 1) + At (–– – 1) (12.4a)pt–1 p–t pa

xt xt xtADJtxrate= Kt–1(––– –1) + Ft (–– –1) + At (–– – 1), (12.4b)xt–1 x–t xa

where

ADJt = total reconciliation adjustment betweenpositions and transactions

ADJtprice = the price component of the total reconcilia-

tion adjustment

ADJtxrate = the exchange rate component of the total

reconciliation adjustment.

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Introduction

13.1 External debt in the form of traded securitiescorresponds to debt securities in the inward portfolioinvestment component of the balance of paymentsand IIP. In recent decades, the relaxation of restric-tions on the foreign investment activities of banksand other institutional investors, combined with con-tinued financial innovation, has resulted in a surge ofcross-border investment in bonds (and equities).This has increased the interest of policymakers indata on this activity.

13.2 However, ensuring comprehensive coverage oftraded securities is among the most difficult in thefield of balance of payments and external debt statis-tics. In particular, the resident issuer is, in manycases, not in a position to identify the beneficialowner of their securities, and so may be unaware ofwhether the creditor is a resident or nonresident.Thus, almost inevitably, to compile position data,other than by accumulating flows on a previous posi-tion, the compiler needs to obtain information on thestock of traded securities of residents, and the own-ers of those securities, from a variety of sources.While it is relatively straightforward, but not a sim-ple task, to obtain data on nontraded debt liabilities,for the following reasons, it is more difficult to iden-tify the owner of a traded security.• Liberalization has facilitated the development of

new channels through which investment can flow.In other words, compilers can no longer rely solelyon traditional domestic data sources, such asbanks or security dealers, because investorsincreasingly use foreign intermediaries, and secu-rity issuers may access foreign markets directly.

• Unlike banks, which have a tradition of reportingto the central banks, as noted in the previous chap-ter, nonbank economic agents may be reluctant toreport to the authorities on their ownership oftraded securities, because, among others, of con-cern that data sent to the statistical agency may be

passed on to other agencies. This, once again,highlights the need for the promotion of statisticalintegrity within the country.1 Noncompliance byrespondents leads to gaps in coverage at a timewhen activity is rising.

• The participation of various financial intermedi-aries in international transactions and the practiceof registering of investment under nominee com-panies and in trusts can obscure the beneficialowner of the security.

• International markets in certain “new” instrumentshave grown quickly in the past decade, causingdifficulty in determining the “true” owner of thesecurity. An example is the use of securities inreverse security transactions.

• Rarely, if at all, is it possible for a government tohave legal powers to require a nonresident investorto report on their ownership of securities issued bydomestic residents.

Ways in which these difficulties might be overcomeare examined in this chapter.2

General Observations

13.3 In looking at ways to capture activity in securi-ties for external debt purposes, countries should takeinto account any existing system they already havein place for the collection of data on portfolio invest-

13. Traded Securities

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1Integrity of disseminated data is one of the four dimensions ofthe IMF’s Special Data Dissemination Standard (SDDS) and Gen-eral Data Dissemination System (GDDS). Among the type ofactions that the SDDS and GDDS outline to promote integrity isthe dissemination of the terms and conditions under which officialstatistics are produced, including those relating to the confiden-tiality of individually identifiable information.

2Although a practical guide for the measurement of assets, ahelpful source of information on compiling position data fortraded securities is IMF (1996), Coordinated Portfolio InvestmentSurvey Guide, and its second edition (IMF, 2002) is available onthe Internet at the IMF’s website, http://www.imf.org/np/sta/pi/cpisgd.htm.


ment and, more generally, balance of payments data,and also arguably, national accounts data. Respon-dents will know the existing system, and a consider-able amount of human capital will have beeninvested in it at the compiling agency. Those con-cerned with external debt statistics should draw onthis knowledge and expertise, not least because adetailed system of collecting data on inward and out-ward security investment can be resource intensive.

13.4 Also, there is a close linkage between cross-border securities activity and other data series suchas direct investment. More important, inward, andoutward, portfolio investment is directly affected bydomestic activity. Whereas direct investment gener-ally involves the establishment of a longer-term rela-tionship between parent companies and their foreignaffiliates, securities investment involves securities—both domestic and foreign—that potentially can betraded between residents and nonresidents. Depend-ing on regulations and institutional arrangements,ownership of domestic and foreign securities canchange quickly. Indeed, as exchange controls arelifted, inward or outward capital flows can arisefrom security transactions of both residents and non-residents. So, while the focus in the Guide is on for-eign investment in securities issued by residents,when considering how to measure this activity dueregard should be given to the measurement of resi-dents’ investment in securities—issued by both resi-dents and nonresidents.

13.5 This close relationship between data on tradedsecurities in external debt, the balance of payments,and the national accounts means that it is importantfor agencies to cooperate. Otherwise potentially use-ful information may not be utilized, while at worst,respondents could end up reporting essentially thesame information to two different statistical agen-cies. Cooperation need not only involve statisticalagencies. In other government agencies there will bepotential users of the data collected. For instance,information on nonresident ownership of govern-ment securities is likely to be of interest to financeministries in helping to formulate government debtpolicy. Policy ministries can help the compiler indevising report forms, encouraging responses, and inevaluating the (aggregate) data.

13.6 Finally, any development of the data system tocapture investment in domestic securities by nonres-idents will inevitably lead to questions about the

computer system on which data are to be stored andmanipulated. Computer systems are obviously toolsthat help facilitate a more efficient statistical opera-tion, but before a computer system is installed, it isnecessary to consider the form of the data captureand manipulation; the data output required both infinal form and from interrogation of the system; aswell as any need to be compatible with data stored inother systems.

Key Considerations

13.7 An important starting point in deciding how tomeasure positions (and flows) in traded securities isascertaining how and through which channels secu-rity investment flows into and out of the country.This involves talking to market participants and gen-erally gaining an understanding of the domesticsecurity markets. The issues to explore are:• How do nonresidents invest in domestic securities?• Through which institutions do they invest?• Where do nonresidents arrange for the custody of

their domestic securities? How are records held?• Where are trades settled?• Are security codes used in monitoring security

positions?• Do residents issue securities directly abroad? Do

residents invest in these securities?

13.8 The importance of preliminary research cannotbe overstated because, once completed, the compilercan decide at which point or points in the “chain” ofactivity it is most appropriate to collect information.There is no one obvious answer for all compilers.For legal, institutional, and historical reasons, differ-ent countries have different market structures andpractices, and so what suits one country may not suitanother. Nonetheless, the pros and cons of collectinginformation from different types of market partici-pants can be indicated, and these are set out in Table13.1. The relevant importance of the various advan-tages and disadvantages will depend on individualeconomy circumstances. For different instrumentsand markets, different collection methods may beappropriate.

13.9 Before discussing the advantages and disadvan-tages of approaching different types of respondents,the relationship between the collection of transactionsand position data needs to be considered. There arevarious ways transactions and position data can inter-

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13 • Traded Securities

act: (1) transactions data can be compiled separatelyfrom position data, and cross-checks introduced tovalidate both sets of data;3 or (2) transactions data canbe added to a previous position and, with appropriatereevaluations and any other adjustments, a new esti-mated position calculated (although an independentbenchmark position survey at periodic intervals is

essential to check and improve the quality of the esti-mated position data)—see the appendix to Chapter12; or (3) position data can be compiled on a security-by-security basis, supported by a database with infor-mation on individual securities issued by domesticresidents (Box 13.1), using individual transactionsdata to update the individual holdings of securities(although even then periodic verification of thederived position data is recommended using alterna-tive or additional inquiries). Whichever method isused, decisions on whom to approach and what torequest in terms of position data are at least influ-

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Table 13.1. Inward Security Investment: Potential Respondents—Advantages and Disadvantagesfor Positions and Transactions Data

Potential Respondent Advantages Disadvantages

Issuer of security Will know about securities issued. Unlikely to know beneficial owner of the security either atissue or during secondary market trading.

Financial intermediaryBanks Transactions in domestic currency Nature of transaction may be difficult to establish. May have a (receipts/payments) require settlement through resident problem in identifying direct investment transactions. Although

banks.Transactions recorded could be a method for compiling position data in the short term, a more cumulated on a previous position and, direct measure of the stock position might be required in thewith appropriate valuation adjustments, medium term, depending on the complexity of the reporting provide new position data. system. Also, only covers investment in securities issued in the

domestic market.

Issuing agency Will know about securities issued. May not know beneficial owners at issue and, unless a dealer,(security house/bank) will not know about secondary trading.

Dealer Will have information on sales and May not cover all nonresident purchases of resident securities.(security house/bank) purchases of securities. As with banks, May have a problem with nominees and identifying direct

transactions data could be used to investment transactions.compile position data.

Fund manager Will have information on beneficial Unlikely to cover all nonresident purchases and holdings of owners. resident securities.

Organized exchange Will have a record of transactions on May not cover all nonresident purchases and holdings of the exchange and perhaps positions. resident securities. May have a problem with nominee accounts.Data on positions might also be available via member firms.

Settlement agency Will have a record of transactions. May not cover all nonresident purchases and holdings ofresident securities. May have a problem with nominee accountsand identifying direct investment transactions/positions.Records may not be kept in a form appropriate for externaldebt/balance of payments purposes.

Registrar Will know who owns which securities. Use of bearer securities undermines the use of a securitiesregister. May have a problem with nominee accounts. May notcover transactions particularly well.

Custodian Information on ownership available. Coverage of nonresident purchases and holdings of resident Fewer in number than investors. Should securities is uncertain. May have a problem in identifying know information on the outstanding nonresidents, although tax status may help, and direct value of holdings. investment transactions. May not know exact details of

transactions/may have difficulty extracting data in line withbalance of payments methodology. Double counting a potentialproblem if subcustodians used.

3See IMF (1996), Coordinated Portfolio Investment SurveyGuide, Appendix VIII, for an explanation of how to reconcileposition and transactions data, and to estimate income from posi-tion data.


enced by the approach taken to collecting transactionsdata. So, in the discussion below, both transactionsand positions data are discussed.

Nonresident Investment inDomestically Issued Securities:Potential Respondents

13.10 An obvious approach for compilers is to col-lect information on nonresident investment in securi-ties issued domestically by residents from domestic

financial intermediaries. This approach assumes thatnonresidents will involve these intermediaries whenundertaking transactions in the domestic market. Forinstance, for transactions and positions in govern-ment securities, the government might considermaking such a reporting requirement a condition ofany licensing approval that the domestic financialentity may need in order to have settlement accountsin domestic government securities.

13.11 Typically, banks are approached for data onexternal transactions and positions because of their

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In measuring positions in traded securities, information may be col-lected from respondents at the level of the individual instrument.Such an approach potentially provides great flexibility in meetingrequirements for external debt statistics. However, to utilize fullythe potential of such information, the compiler is advised todevelop or acquire a database that contains detailed informationon individual securities—price, country of issuer, industrial sectorof issuer, etc.—and that uniquely identifies securities through asecurity identification code.1 Through such a database, individualsecurities that are reported with an identification code can belocated in the database, and the associated information can bedrawn upon to compile information not only on outstanding posi-tions but, depending on the scope of the associated informationcontained, statistics on the debt-service payments schedule, thecurrency composition of external debt, etc. Also, such an approachcan enhance data quality by allowing the compiler to check theaccuracy of submitted data and to resolve conflicting reports.

Sources of Information

Information on individual securities can be obtained from com-mercial sources, international organizations, and security num-bering agencies.

By far the most comprehensive and complete databases arethose available from commercial sources, usually at a commer-cial price. The best of these commercial sources supply high-quality, timely, comprehensive data to the international financialcommunity to support investment activity. At the time of writ-ing, some of the leading commercial vendors, in alphabetic order,are Bloomberg, Euromoney Bondware, Interactive Data, Interna-tional Financing Review, International Securities Market Associa-tion, Reuters, and Telekurs.2

The Bank for International Settlements (BIS) maintains a data-base of international debt securities that is available to membercentral banks and perhaps other governmental organizations, asdescribed in Chapter 17.

The Association of National Numbering Agencies has a data-base of individual securities that is commercially available. Bylinking the databases of national numbering agencies (NNAs)—the entities that assign the international security identificationnumber (ISIN) in their own jurisdiction—this database provideskey descriptive information on individual securities. Coverageof individual securities differs in completeness among NNAs,and information on market prices is not included. To under-stand more about the information available on this database, itis recommended that the compiler approach the NNA thatallocates ISIN codes to securities issued within the domesticeconomy.

Role of the Security Identification Code

As noted above, in a compilation approach that uses a databaseof individual securities, the security identification code is ofcentral importance—the respondent needs to provide a codeso that the database can identify the security. However,different respondents could submit different security identifiersfor the same security because any widely traded security couldbe allocated a domestic as well as an international securityidentifier. For instance, in the United States, a domestic securitycode (known as CUSIP) will be allocated to a domestic secu-rity. As a result, private investors have adopted a variety ofdifferent security identification systems as their primary iden-tifier. National compilers should discuss the use of securityidentifiers with potential survey respondents. If national com-pilers can rely on survey respondents to use primarily onecoding system—for instance, the ISIN—this enhances the effi-ciency of the compilation procedure. If not, then the agency isadvised to acquire a database(s) that contains all the variousidentifier codes that a given security has been assigned by thedifferent coding systems. These cross-reference databases maywell be available from the same commercial firms mentionedabove.

Box 13.1. Security Databases

1More detailed information on securities database is available in theIMF (2002), Coordinated Portfolio Investment Survey Guide, second edi-tion, available at http://www.imf.org/np/sta/pi/cpisgd.htm.2These names are provided for information purposes only and implyno endorsement of any kind; any compiler who approaches any com-mercial database vendor will need to make his or her own judgmentsabout whether the product being offered meets the compiler’s needs.


role in the payments system; if domestic currency isused to settle transactions, a resident bank is likelyto be involved. However, money flows throughbanks for a variety of reasons, and banks may havedifficulty in establishing the specific nature of atransaction as a securities transaction. Also, it isimportant that transactions involving nonresidentsare captured not only when money comes into thecountry but also whenever nonresidents transact indomestic currency, such as when a nonresidentdraws down a domestic bank account to purchase aresident security. This is the key issue: can banksidentify and report in a comprehensive mannerinvestment by nonresidents in domestic securities?The possible use of data from banks in their role ascustodians is examined ahead.

13.12 Another method used is to gather data onsecurities from investment dealers, including banks,that conduct portfolio investment business on behalfof nonresidents. In other words, those who arrangeand execute the deals. Dealers usually keep recordsof client transactions and may be better able to iden-tify portfolio transactions than banks through theirpayments system activity. Invariably, the number offinancial intermediaries are likely to be fewer innumber than investors, and, legal circumstances per-mitting, should be approachable. This method ofapproach depends, of course, on nonresidents usingdomestic intermediaries. Also, these institutions willneed to be able to identify residents and nonresidentsand keep records in a manner that allows their use inexternal debt, as well as balance of payments and IIPcompilation.

13.13 Canada has adopted a system of capturingforeign investment in securities using dealer reports,and this method is set out in Chapter 14. The dealersreport individual transactions involving nonresi-dents and include the value of the deal and theunique code for the security (developed for settle-ment purposes).4 Information kept on a database ofindividual securities is used to confirm the resi-dence of the issuer of the security and provide addi-tional information. Canada’s detailed and complex

statistical system also generates income data on anaccrual basis.

13.14 Some countries carry out special surveysthat are addressed to resident fund (investment)managers, and request information on own accountand client account investments in resident andnonresident securities by resident and nonresidentinvestors, thus providing the necessary data onresidents’ debt liabilities to nonresidents. Data onthe country and institutional sectoral distributionof ownership may also be requested. The infor-mation can provide good coverage of the house-hold sector’s portfolio assets, provided that theyuse resident fund managers. However, such asurvey will not provide comprehensive coverageof nonresident ownership of resident securitiesunless nonresidents use domestic fund managersextensively.

13.15 Another method is to capture nonresidentinvestment in domestic securities at the point of thetrade or settlement—for instance, using informationon transactions from the stock market. At the least,the stock exchange usually has to keep a record ofindividual transactions, and at best may act in a set-tlement capacity and see the cash change hands. Itmay be possible for this information to be suppliedto the compiling agency. Sometimes there may be aseparate but similar market mechanism for bondtrades. Through these markets, nonresident invest-ment transactions and holdings may be obtained. Forinstance, the exchange might have or can obtain theauthority to request that information be reported to iton who owns what securities. This might be under-taken not only for statistical but also for regulatoryand policy purposes.

13.16 However, there may be reluctance for thestock exchange or settlement agency to release theinformation required by the compiling agency, andthe prevalence of nominee accounts may lead tomisidentification of the true investor (a commonproblem when “intermediaries” report). Other issuesthat could arise are whether the records kept can bereadily utilized for external debt and balance of pay-ments statistics purposes, and the comprehensive-ness of the coverage of nonresident investment inresident securities.

13.17 Close links with the stock exchange may beimportant for the compiler in other regards. The

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4While national numbering agencies (NNAs) frequently issuetheir own code for securities issued in their jurisdiction, they alsoallocate a unique international security identification number(ISIN) code for each security. More information on ISIN codes isavailable in IMF (2002), Appendix VII, pp. 151–53.


stock exchange will be a source of information onmarket developments; it may well be the agency thatneeds to be kept informed by quoted corporations ofnew securities issues—helpful for information onsecurity issues in foreign markets by residents (anddomestic security issues by nonresidents); it may bethe agency allocating code numbers to individualsecurities issued in the domestic market; and indi-vidual investors may need to inform the stockexchange of large equity holdings, thus helping thecompiler to identify direct investment positions andtransactions.

13.18 Another avenue is to approach registrars,who store information on the owners of securities(for example, to make coupon payments). Forinstance, details of ownership of debt securitiesissued by the government in domestic markets arefrequently held on a computerized book-entry regis-ter, with change of ownership being evidenced byan entry on this computerized register, rather thanthe transfer of a physical certificate. Typically, theseregisters contain useful information such as, foreach security, the outstanding balance for eachinvestor, and the amount of accrued interest. Also,debt securities can be valued both at market as wellas nominal value and can be classified by original aswell as remaining maturity. However, problemsarise in identifying ownership, given the frequentuse of nominee accounts, not least for administra-tive efficiency.

13.19 Yet another method of measuring nonresidentinvestment in securities issued by domestic residentsis to collect data from custodians. Many countriesuse custodian surveys of one type or another, and anapproach should be explored for compiling at leastsome element of the data on nonresident ownershipof traded securities. Domestic securities owned bynonresidents may be deposited with local custodiansfor “safekeeping,” and these institutions, primarilybanks, could be approached through a survey toreport transactions and ownership of domestic secu-rities by nonresidents. Such a survey can providegood coverage of resident securities denominated inthe domestic currency and traded in national orga-nized markets.

13.20 However, resident securities denominated inforeign currency, issued and usually traded in for-eign organized markets (for example, internationalbonds, etc.), are unlikely to be captured by such a

survey. Also, there are other possible drawbacks thatthe compiler needs to consider.

13.21 The custodian may have difficulty in distin-guishing residents from nonresidents, although apossible different tax treatment from that applied toresidents may be one way in which this distinctioncan be made.

13.22 A local custodian may be acting on theinstructions of a “global” custodian, located inanother economy, and so may not know the name ofthe beneficial owner of the security—the securitymight be registered in the name of a foreign globalcustodian. Resident custodians are likely to recordsecurity holdings in the name of the global custodi-ans as nonresident holdings, but resident investorscould subsequently purchase the securities but leavethem entrusted with the global custodian, causing amismeasurement of nonresident ownership. Periodicsurveys to confirm the beneficial owner of securitiesmay be warranted.

13.23 Another potential problem, and one thatarises with all transactions and positions reportedthrough financial intermediaries, is the difficulty indistinguishing securities related to direct investmentactivity from other cross-border security activity,leading to the possibility of double counting ofinvestment activity if direct investment data are sep-arately collected, which is usually the case.

13.24 Securities data from custodians can bereported on an individual or aggregate basis. Asmentioned above, data reported on an individualbasis is best supported by a database that recordsindividual securities issued by domestic residents.This database can reduce the burden on the respon-dent and confirm the data reported. This is a methodsuccessfully employed by Austria, but, as with theCanadian system, there can be considerable resourcecost for the compiling agency.

13.25 Alternatively, aggregate data can be requested.As always, checks are required: for instance, withaggregate data a custodian might report the num-ber of securities owned rather than their value. Itshould also be recognized when requesting aggre-gate information that custodians may not hold theirrecords of nonresident ownership of domestic secu-rities in a way that is conducive to external debtreporting. Therefore preliminary discussions are

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essential to ascertain which data might be readilyavailable.

Issues of Securities by Residents in Foreign Markets

13.26 Measuring foreign investment in securitiesissued abroad by residents can be difficult. Foreignintermediaries will not report to the domestic com-piling agency. Swapping data with foreign compilersis one option, but this approach is difficult to imple-ment because the compiler would need to know allthe compilers to approach, and the nonresident com-piler would need to have the requisite data. A morepromising approach is to obtain information ongross issues and redemptions of international issueseither from issuers themselves or from other sources,including the domestic stock exchange or other offi-cial bodies that should be informed of any newissues by quoted companies. International sources ofinformation, such as the BIS international securitiesdatabase, discussed in Chapter 17, could also proveuseful.

13.27 If a database of individual securities is main-tained—or aggregate information on foreign securityissuance is reported by resident issuers—so that netnew issues in foreign markets—gross issues andgross redemptions—are recorded, and the outstand-ing amounts of the securities issued by residents inforeign markets can be calculated, a reasonableassumption could be that these securities are pur-chased by nonresidents, excluding those known tobe purchased by residents. In other words, externaldebt in the form of nonresident investment in debtsecurities issued in foreign markets by residents,including government, could be calculated by, allother things being equal, netting out domestic own-ership of resident debt securities issued in foreignmarkets from the total outstanding. Information onresident holdings of these debt liabilities could comefrom domestic respondents, either the investorsthemselves or financial institutions involved in thisactivity. Besides being a method of calculating anelement of external debt, the resultant informationon resident and nonresident ownership of debt secu-rities issued in foreign markets is of interest in itsown right, as explained in Chapter 7.

13.28 This approach is a perfectly acceptable com-pilation technique and would require the compiler to

liaise with the agency that complied data on domes-tic investment in domestic securities for the financialaccounts. Indeed, some countries employ this tech-nique to measure inward investment into all privatesector traded securities.

Information on Securities Involved in Reverse Security Transactions

13.29 If the collateralized loan approach is employedto record reverse security transactions (such as repur-chase agreements, repos), a memorandum table(Table 4.5) is provided in Chapter 4 for the presenta-tion of data on securities issued by residents that resi-dents acquire from or provide to nonresidents underthese arrangements. It is expected that the majority ofsuch transactions will occur in the domestic market,most likely in the government securities market.Most commonly, repos are transacted by financialinstitutions with other financial institutions, includ-ing central banks. Requiring domestic financial insti-tutions to report domestic and nonresident securitiessold to and purchased from nonresidents underreverse transactions, perhaps in their balance-sheetreturns to central banks and/or statistical agencies, islikely to cover the bulk of the business. Other entitiessuch as nonfinancial enterprises and governmentsmay be involved in reverse security transactions, per-haps even in domestically issued securities in foreignmarkets. So the compiler is advised to investigate thesignificance of information from these institutionalsectors as well.

13.30 However, in compiling data on securitiesissued by residents and traded under reverse securitytransactions by residents with nonresidents, careneeds to be taken to avoid double counting. Experi-ence indicates that where security registers are usedto identify nonresident ownership and/or where cus-todians report, it is not always possible to identifysecurities subject to repos. So, if a custodian pro-vides information on nonresident ownership of resi-dent securities, it may be inclusive of securitiespurchased and sold under reverse security transac-tions; that is, the information might already includeresident securities acquired by nonresidents fromresidents under reverse transactions, contrary to thecollateralized loan approach. It is very important forthe compiler to understand how securities involvedin reverse security transactions are recorded in theposition information provided.

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Possible Mismeasurement

13.31 Clearly, the more that transactions in domes-tic securities are concentrated in the domestic econ-omy, the greater is the likelihood that domesticfinancial intermediaries can provide adequate cover-age and, thus, a lower likelihood that there will beundercounting. The difficulty is then in ensuring thatresident and nonresident owners are correctly identi-fied and the concepts outlined in the Guide areadhered to.

13.32 On the other hand, overcounting is more pos-sible where a number of methods are used to collectdata. While more than one method may be needed toensure comprehensive coverage—for instance, themeasurement of foreign investment in governmentsecurities may differ from that for private securi-ties—the compiler should be aware of the increasedpossibility for the double counting of activity whenmore than one method is used.

13.33 To reduce the possibility of mismeasurement,particular care needs to be taken in deciding on therespondent population; as noted in the previouschapter, a register of reporters, kept current, is essen-tial and could be drawn from a centralized nationalregister of reporting entities maintained for nationalaccounts reporting purposes.

Periodic Position Surveys

13.34 As mentioned above, in the short term someeconomies might compile position data by accumu-lating transactions on a previous position. However,it is important to conduct periodic benchmark posi-tion surveys, perhaps once a year. The sources ofposition data could be different from those for trans-actions data. For instance, data on transactions mightbe compiled from information supplied by dealers ororganized exchanges, whereas custodian informationmight be used for the position data. The results ofthe position survey can then be checked against thecumulative transactions data; in other words, recon-ciliation can be undertaken. This reconciliation isparticularly important when financial intermediaries

are reporting transactions because it can revealinconsistencies and errors in reporting that might nototherwise be spotted. In some ways, independentverification of the data is helpful for the robustnessof the compilation system. Alternatively, the sameinstitutions could be approached for both transac-tions and position data so that any discrepancies canbe rectified and improvements made for futureyears.

Counterpart Information

13.35 Because of the need to improve the coverageof portfolio investment assets globally, and alsobecause of the difficulty of identifying nonresidentownership of resident securities, the IMF, in cooper-ation with other international organizations, has pro-moted the development of a Coordinated PortfolioInvestment Survey (CPIS). This survey was con-ducted for the first time with a reference date ofend-December 1997 and was designed to collectcomprehensive information, with country attribu-tion, of resident holdings of nonresident securities,both equity and long-term debt securities. It involved29 countries using harmonized definitions and con-cepts based on BPM5. By exchanging bilateral data,the coverage and quality of portfolio debt liabilitieswas also improved. The results of the first surveywere published in 1999.5

13.36 At the time of preparation of the Guide, theCPIS is about to embark on its second survey, with areference date of end-December 2001, and thereaftercould become a regular undertaking. As coverage isimproved, such as more major investing countriesparticipating and the weaker areas of measurementstrengthened (for example, coverage of householdinvestment), then over time these creditor-based datacould gain in importance as a source of informationfor external debt compilers.

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5See IMF (1999), Results of the 1997 Coordinated PortfolioInvestment Survey, and IMF (2000a), Analysis of the 1997 Coordi-nated Portfolio Investment Survey Results and Plans for the 2001Survey.

Introduction

14.1 This chapter provides case studies of countryexperience in various aspects of the compilation anduse of external debt data. In addition, Box 14.1 dis-cusses the European Union statistics on the exces-sive deficit procedure. The country case studies areprovided in alphabetical order:

• Australia: Experience in compiling external debtdata—register compilation and form design;

• Austria: Measurement of IIP;• Canada: Measurement of foreign portfolio invest-

ment in Canadian bonds;

• Chile: Reconciliation of external debt statisticswith BIS International Banking Statistics;

• India: How debt information systems are beingused for external debt management;

• India: Monitoring and management of nonresidentdeposits in India;

• Israel: Measurement of external debt;• Mexico: Registration of private debt;• New Zealand: Experience in collecting foreign

currency hedging information;• Philippines: System for monitoring the external

debt of the private sector;• Turkey: Measurement of short-term external debt; and• Uganda: Data requirements for the HIPC Initiative.

14. Country Experience

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Article 104c of the 1991 Treaty on Monetary Union (the Treaty)states that EU countries should avoid excessive governmentdeficits, and that the European Commission (the Commission)should monitor the development of the budgetary situation andof the stock of government debt. In particular, the Commissionshould examine compliance with budgetary discipline on the basisof whether the ratio of the planned or actual government deficitto GDP and the ratio of debt to GDP exceed a reference value.The reference values are 3 percent for government deficit, and 60percent for debt, as specified in the Protocol on the excessivedeficit procedure (the Protocol) that is annexed to the Treaty.

The Protocol defines government as general government (thatis, central government, state and local government, and socialsecurity funds); the deficit as net borrowing as defined in theEuropean System of Accounts: ESA 1995 (Eurostat, 1996), ESA95;and debt as total gross debt at nominal value outstanding at theend of the year, consolidated between and within the sectors ofgeneral government.The Protocol also requires EU countries toreport their planned or actual deficits and the levels of theirdebt promptly and regularly to the Commission, which in turnprovides the statistical data used for the application of the Pro-tocol to the Council of Finance Ministers.

This basic legislation is further developed in Council Regulation3605/93 on the application of the Protocol (the Council Regula-tion). Council Regulation 475/2000 revised this Regulation, in

order to introduce the references to ESA95.The Council Regu-lation defines government debt as total gross debt at nominalvalue (face value) outstanding at the end of the year for the gen-eral government sector, excluding those liabilities for which thecorresponding financial assets are owned by the general govern-ment sector.

Government debt is constituted by the liabilities of general gov-ernment in the following categories: currency and deposits;securities other than shares (excluding financial derivatives); andloans, as defined in ESA95.

Some debt instruments, such as trade credits, and otheraccounts payable, are not included in the list of debt liabilities(because of practical considerations). Liabilities denominated inforeign currency, or exchanged from one foreign currencythrough contractual agreements to one or more other foreigncurrency, shall be converted into the other foreign currency atthe rate agreed upon in those contracts and shall be convertedinto the national currency on the basis of the representativemarket exchange rate prevailing on the last working day of eachyear.This would also apply in the case of liabilities denominatedin the national currency and exchanged through contractualagreements to a foreign currency. Finally, liabilities denominatedin a foreign currency and exchanged through contractual agree-ments to the national currency shall be converted into thenational currency at the rate agreed upon in those contracts.

Box 14.1. European Union (EU): Statistics on the Excessive Deficit Procedure


Australia

Experience in Compiling External Debt Data:Register Compilation and Form Design1

14.2 The Australian Bureau of Statistics (ABS)compiles and publishes balance of payments and IIPstatistics quarterly according to the recommenda-tions of both the BPM5 and 1993 SNA. External debtdata are a part of an extended IIP dataset, which hasbeen augmented to provide data series that meethigh-priority, domestic-user requirements.

14.3 The main data source for IIP data is the Surveyof International Investment (SII). This quarterly sur-vey collects information from business enterprises,government, investment managers, and custodians,

as appropriate, about investment activity into and outof Australia. Based on Australia’s long experience,this case study provides advice on compiling a regis-ter of potential respondents to an external debt sur-vey and on methods for survey form design that willhelp ensure consistent and high-quality data. Also,for information, some of the external debt data seriesAustralia disseminates that are additional to thoseincluded in the IIP data are listed.

Developing a register of respondent entities

14.4 In an open economy with a freely floatingexchange rate for nearly two decades, investmentflows to or from Australia are not subject to controls orregulatory approval (although for some types of corpo-rations, approval of foreign ownership is required). Inorder to measure external debt, surveys are undertakenof organizations from which the data can best beobtained. Some organizations are targeted for their

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1Prepared by the Australian Bureau of Statistics.

The Council Regulation also establishes the procedure fortransmitting data to the Commission. As from the beginning of1994, EU member states were required to report their plannedand actual government deficit and levels of government debt tothe Commission twice a year, the first time before March 1 ofthe current year, and the second time before September 1 of thecurrent year. Before March 1 of year n, EU member statesreport to the Commission their estimate of the level of actualgovernment debt at the end of year n – 1 and their levels ofactual government debt for years n – 2, n – 3, and n – 4. Con-cerning the deficit, they report to the Commission their plannedgovernment deficit for year n, an up-to-date estimate of theiractual government deficit for year n – 1, and their actual govern-ment deficits for years n – 2, n – 3, and n – 4.They simultane-ously provide the Commission for years n, n – 1, and n – 2 withtheir corresponding public accounts budget deficits according tothe definition that is given most prominence nationally and thefigures that explain the difference between these publicaccounts budget deficits data and their government deficit.Before September 1 the data required are the same, but insteadof the estimate of the level of actual government debt at the endof year n – 1, actual data are to be provided. In member states,the exercise requires close coordination among the ministry offinance, national statistical institute, and central bank.

EU member states also provide the Commission with the fig-ures for their government investment expenditure and interestexpenditure (to calculate other ratios such as, for example, pri-mary deficit—that is, the amount of the deficit without interestexpenditure). Finally, EU member states also provide the Com-mission with a forecast of their GDP for year n and the actual

amount of their GDP for years n – 1, n – 2, n – 3, and n – 4 (inorder to calculate the ratios).

As mentioned above, the conceptual framework used for themeasurement of government deficits and debt is the ESA95. Inrecent years, ensuring consistent recording treatment in all ofthe EU member states of economic and financial transactionsthat are not clearly defined in ESA95 has been a problem.Withthe aim of ensuring consistency of recording practice, Eurostathas developed a well-defined procedure for dealing with thesetransactions, including statisticians from all member statesworking together through task forces, working groups, andother committees. Following this, Eurostat consults the Com-mittee on Monetary, Financial, and Balance of Payments Statistics(CMFB), comprising senior representatives of central banks andnational statistical institutes, as well as the European CentralBank, Eurostat, and other Commission services. After havingheard the position of its members, the CMFB formulates, andpresents to Eurostat, its (nonbinding) opinion. Eurostat makesthe final decision in complete independence and neutrality,according to purely technical criteria. It does not decide on theindividual cases as they relate to the EU member states, butrather decides on the principles of accounting treatment of spe-cific transactions. Once determined, the Eurostat decision auto-matically applies to similar cases in all the EU countries. Thedecision on each issue is recorded in a methodological noteaddressed to the institutions concerned, notably the Commis-sion, CMFB, central banks, and national statistical institutes. It isalso disseminated through press releases and the Internet. Themain methodological decisions have been collected in the ESA95Manual on Government Deficit and Debt (Eurostat, 2000).

Box 14.1 (concluded)

14 • Country Experience

role as end-investors/investees, and others are targetedas intermediaries (investment managers or custodi-ans) to report on behalf of their clients. To undertakesuch surveys, a register of entities to approach hasbeen developed and is maintained by the ABS.

14.5 The main ABS business register—used forsurveys of the economy, and generally sourcedfrom business taxation reports—is focused more onoperating businesses with employees, rather thanenterprise groups. It includes a large number oforganizations that have no international investmentsbut is deficient in its coverage of those parts of busi-nesses involved in financing that may have noemployees but through which all the internationalfinance accessed by the group is channeled. Thus,any survey population drawn randomly from thislarge register for measuring international investmentwould be inefficient in terms of reporting load, pub-lic resources, and quality assurance. The ABS hastherefore developed a separate register of enterprisegroups with international involvement. Sources ofinformation on enterprises for this specialized inter-national investment register, and other suggestedsources, are as follows:• Existing registers of businesses maintained by the

statistical agency or other government agencies.Enterprises on this register can be approachedwith brief exploratory surveys to ascertain whetherthey have significant external debt liabilities.

• Existing business data collections already run bythe statistical agency or other government data-collection agencies. Information necessary for aninternational investment register may be elicitedfrom another survey, either by direct inspection ofthe other survey’s register or by adding one or twoexploratory questions to that survey. A range ofABS surveys include questions that can identifypotential respondents to external debt surveys, andvice versa.

• Government administrative sources. Dependingon local legislation and administrative arrange-ments or the authority of the collection agency,these sources might include:– taxation records, files, or lists;– information held by foreign investment appro-

val or monitoring boards;– information held by other regulatory authori-

ties, such as lists of entities coming under theirsupervision and data monitored through super-vision requirements (for example, registeredbanks, other deposit-accepting institutions,

securities brokers, investment managers, invest-ment advisers, and authorized pension ormutual funds);

– listings of registered custodial businesses thatcan hold debt securities and other assets onbehalf of nonresidents, and lists of registeredinvestment managers that can act on behalf ofnonresidents;

– statutory company reports and company regis-tration details;

– records held in foreign exchange control orinternational transaction-reporting systems—for example, records identifying the originatorsor recipients of large portfolio investment flows(this source is not available in Australia);

– submissions made to the Foreign InvestmentReview Board, various materials held by theReserve Bank of Australia, and annual reportsof other government bodies; and

– other official and regulatory sources, many pub-licly available, that include annual statutoryaccounts for public companies held by the Aus-tralian Securities and Investment Commission.

• Media reports. Newspapers and periodicals areparticularly useful sources for information onpotential reporting entities. A high proportion ofsignificant transactions are reported in the media,and these are used not only to update the registerbut also to confirm data reported in the SII. Apartfrom significant transactions, the media have awide coverage of smaller transactions, and a highproportion of unusual transactions. The use oftraditional print media can be supplemented withinformation obtained electronically from commer-cial business news services and via the Internet.

• Publicly available databases from which a widevariety of information is available. The informationdiffers in completeness and accuracy, and in theextent to which it is of use for a survey of interna-tional investment. These sources include the stockexchange register, possibly packaged by the stockexchange with additional information; commercialequity registries’ information services; internationalcredit rating agencies’ publications (Moody’s, Stan-dard & Poor’s, etc.); and market research reports orservices, such as reviews by accounting or broker-age firms. The ABS uses several Australian StockExchange products such as monthly updates ofshare issues listed on the exchange, and their pricesand indices.

• Trade associations, and their reports and releases,can be a useful source. Apart from the public rela-

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tions and liaison aspects of a close relationshipbetween the statistical agency and trade associa-tions, many either list publicly or can make avail-able lists of members, often with indications of theirimportance or the range of services provided. Partic-ularly in the financial sector, their members are alsolikely to be significant users of official statistics andthus have a vested interest in accurate data andassisting statistical or data collection agencies.

14.6 As enterprises are recognized from the varioussources above as potentially engaged in cross-borderfinance, they are included in an “exploratory survey,”which identifies if they have any foreign investmentactivity, and if so whether they have a parent organi-zation in Australia from which data should beobtained. The “exploratory survey” also collectssome broad investment benchmark information foruse in designing the ongoing investment survey.

14.7 The international investment survey registerneeds to identify the legal entities in the enterprisegroup not only for efficiency and quality of datacollection,2 but also for the identification of directinvestment relationships and the categorization ofsome debt as direct investment capital. Periodicrequests are made to the reporting organizationsregarding the legal entities covered in their surveyreturns. This ensures that as new acquisitions aremade, the survey reports capture their external debt,and that as businesses are sold off from a group,arrangements are made to continue to capture theexternal debt of that business.

14.8 Other sources for maintaining the informationin the international investment survey register oncorporate structures include a regular review of thecorporate structure of the top few hundred busi-nesses in Australia, as well as the general press andcorporate registration sources listed above.

Survey form design

14.9 In collecting and compiling external debt data,the ABS places a major emphasis on the reconcilia-

tion and consistency of data. First, external debt sta-tistics are part of a broader system of financialaccounts, which allows many checks for coherenceand consistency. For instance, comparing data com-piled on the total size of markets for the various debtinstruments with individual institutional sectors’assets and liabilities can help identify possible gapsthat might relate to external debt. Second, reportingenterprises are expected to provide balanced bal-ance-sheet data for national accounts purposes,which helps to ensure complete coverage and accu-racy in reporting and sets a framework for moredetailed data on cross-border positions.

14.10 More specifically, in measuring Australia’sexternal debt data, the SII survey form collectsinward and outward investment for the full range ofdebt instruments entered into by direct, portfolio,and other investors. For each debt instrument, the SIIsurvey form is structured so that data are reported inline with the IIP reconciliation format,3 including:• The position (level or stock) of external financial

assets and liabilities of residents at the beginningand end of the survey quarter;

• Financial transactions (investment flows) resultingin increases and decreases in the levels of theseassets and liabilities each quarter;

• Other changes in the levels of these assets and lia-bilities; and

• Income that has accrued on these assets andliabilities.

14.11 Using this IIP reconciliation format not onlyforces respondents to consider the consistency of thedata reported, it also enables compilers to readilyidentify and query inconsistencies in the reporteddata. The ABS has found that full data on transac-tions, and the other reasons for the change in posi-tions each quarter, are usually available.

14.12 The format and wording used in the collec-tion forms, together with the wording in the detailedexplanatory notes that are supplied to all respon-dents, are closely aligned to the wording in BPM5.The explanatory notes provide numerous examplesof what should be included (and excluded) for eachtype of debt instrument.

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2The enterprise groups that report are the Australian headoffices on behalf of all branches, subsidiaries, and consolidatedassociates, rather than each legal entity that might have an elementof overseas investment or debt. Approaching entities at the grouplevel limits the number of respondent organizations to those thatcan best report the information.

3That is, the difference in opening and closing positions is“explained” by transactions, valuation changes, and “otheradjustments.”


14.13 One of the advantages of collecting all thedata on international investment on the same form(in the case of the SII, on the same page for eachinstrument) is that the possibility of double countingis eliminated. Because the boundaries between debtand equity, and direct, portfolio, and other invest-ment are subject to different interpretations, and alsosubject to error and mismeasurement, a valuableconsistency check on the data is provided by requir-ing that the disaggregated data sum to a total; that is,the report form is internally consistent. Collectingdebt and equity data separately, sometimes even bydifferent agencies, inevitably creates the potentialfor under- and/or double counting.

14.14 To further enhance the quality of externaldebt statistics, a substantial proportion of Australia’sdomestically issued external debt securities is mea-sured by the reporting of individual securities ownedby nonresidents. These securities are held by custo-dians on behalf of nonresident clients, and full iden-tification of the holdings is obtained. Information onprices is used to estimate the transactions and pricechanges between the reported positions.

Extensions to IIP data

14.15 As mentioned above, the ABS has extendedthe IIP dataset to meet domestic users’ needs forexternal debt statistics. The more important exten-sions include:• A more detailed institutional sector breakdown of

the debtor so that, for example, the external debtof the financial sectors can be analyzed in moredetail than set out in BPM5;

• A public/private ownership dissection of Aus-tralian debtors;

• A presentation of external assets held in the formof debt instruments, as well as external debt liabil-ities so that each institutional sector’s gross debtcan be seen in the context of each sector’s netexternal debt;

• A presentation of external debt by location ofissuance (debt issued in Australia and debt issuedabroad); and

• The classification of external debt assets and lia-bilities both by type of currency and by remainingmaturity (based on the final maturity date of thedebt).

14.16 Remaining-maturity data on a final maturitydate basis can be used to approximate debt-service

schedules for principal, given that, for Australia, theamounts of part payments of principal on externaldebt are small and so are not separately collected.The security-by-security reporting for debt issued byentities domiciled in Australia provides precise datafor the cash-flow elements of debt amortizationschedules, but the requirement for separating princi-pal and interest in amortization schedules necessi-tates interest rate forecasting for other instruments.

Austria

Measurement of IIP4

14.17 External debt statistics of Austria are derivedfrom the information published on the IIP. This casestudy sets out the process by which the Austrian IIPdata are compiled, and their relationship with exter-nal debt and financial accounts data. There are threesections, covering the collection system for the IIPand balance of payments—because some IIP itemsare compiled by accumulation of flows; the methodof compiling the IIP, including all particularities ofindividual items; and the links among the IIP, exter-nal debt, and the financial accounts data.

The collection system

14.18 The current collection system for balance ofpayments and IIP data was introduced in 1991. It is a“closed system” in that it is self-balancing, withbeginning and closing stocks reported along withtransactions. The stocks data are used for the compi-lation of the IIP (mainly other investment), and thetransactions are incorporated into all areas of thebalance of payments. There is continuous monitor-ing of foreign payments.

14.19 Reports are received from the banks and non-banks, with the bank reports comprising informationon the banks’ accounts held abroad, and on accountsheld with domestic banks by foreign banks and non-banks. Nonbanks report on their accounts heldabroad, intercompany working balances, and clear-ing accounts. Detailed transactions data reported

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4Prepared by the Oesterreichische Nationalbank. For furtherreference, see Oesterreichische Nationalbank (2000); EuropeanCentral Bank (1999); Oesterreichische Nationalbank (1995),Reports and Summaries, 1/1995; and Oesterreichische National-bank (1999), Focus on Austria, 1/1999.


include the nature of the counterparty, Austrian orforeign, and, if the latter, the country of residence.Reports have to be provided for all combination ofcurrency, country, and type of accounts relevant tothe balance of payments (short-/long-term, deposits/loans, assets/liabilities, etc.). Annual and quarterlysurveys of trade credits are incorporated both in thebalance of payments and the IIP.

14.20 The Oesterreichische Nationalbank (ONB)maintains both a comprehensive company databaseand a comprehensive database of securities. Thecompany database is used to make correct sectoralallocations of reported transactions, particularly inthe area of income, transfers, and the financialaccount. The securities database is used in conjunc-tion with portfolio investment collected from banksand nonbanks to produce outstanding stocks of port-folio investment (see the section “Measurement ofPortfolio Investment,” below).

14.21 Annual surveys of direct investment stocks areconducted, and information on the direct investmentrelations between Austrian and foreign companiesderived from these surveys are used to identify trans-actions and stocks of direct investment loans, andflows of direct investment income reported else-where. In combination with general economic indi-cators (such as nominal GDP) and expectations, thesurvey data are used to estimate reinvested earnings.To anticipate and identify direct investment trans-actions, information is taken from various newssources.

Reporting agents

14.22 In order to reduce the reporting burden forrespondents, direct investment below certain thresh-olds (below Austrian schillings (ATS) 5 million forinward investment and below ATS 10 million foroutward investment) only have to be reported everytwo years by alternate surveys; that is, half of theenterprises concerned report in the first year and theother half in the second year. For those enterprisesthat do not report direct investment stocks for a cer-tain period, estimates are made on the basis of thereport of the previous year.

(i) The banking sector: The following entities arerequired to report: credit institutions, building andloan associations (Bausparkassen), enterprises thatcarry out factoring business, and all enterprisesundertaking business similar to “banking.” Accord-

ing to the Foreign Exchange Act (Kundmachung DL1–3/91, 2/93, 1/96), banks are required to report, ona daily/monthly basis, all transactions carried out viathe domestic banking system, including transactionson behalf of their customers. More specifically, theyreport the following:• All settlements carried out through the accounts

of domestic banks held abroad and throughthe accounts of foreign banks and nonbanksheld by domestic banks as well as the beginningand end-of-month stocks of these accounts(Devisentableaumeldung);

• All sales/purchases and (beginning/end-of-month)stocks of foreign currency transactions (Valu-tentableaumeldung, over-the-counter or OTCmoney); and

• Monthly stocks of securities, as defined in theBPM5, that banks acting as primary custodianshold for their own account or on behalf of theirresident and nonresident customers (Wertpapier-standmeldung).

14.23 In addition, banks (acting as a direct investorand/or as a direct investment company) arerequested to respond to an annual survey concerningdirect investment if the value of the nominal capitalof the direct investment exceeds the threshold ofATS 1 million and 10 percent of overall nominalcapital, or if the nominal capital does not exceedATS 1 million but the balance-sheet total of thedirect investment enterprise exceeds ATS 500 mil-lion and the 10 percent criterion is fulfilled.

(ii) The nonbank sector (enterprises and householdsnot included in (i)): According to the ForeignExchange Act (Kundmachung DL 1–3/91, 2/93,1/96), nonbanks are required to report on a monthlybasis all settlements and positions on accounts heldwith banks abroad as well as short-term and long-term loans granted to nonresidents or provided bynonresidents to residents, if the annual volume oftransactions exceeds a certain threshold (Ausland-skontenmeldung), or otherwise on an annual basis.Nonbank private companies and private households(acting as a direct investor and/or as a direct invest-ment company) are requested to respond to anannual survey concerning direct investment if thevalue of the nominal capital of the direct investmentexceeds the threshold of ATS 1 million and 10 per-cent of overall nominal capital. In addition, compa-nies have to submit quarterly and annual surveys(covering a selected sample and a full range, respec-

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tively) on trade credits. In addition, nonbanks(including general government) are requested toreport annually their holdings of domestic and for-eign securities held outside the custody of domesticbanks (held in safekeeping, held in custody withbanks, etc.), unless the total market value of theseholdings of securities is less than the threshold ofATS 1 million at the end of the year.

(iii) General government: Public authorities reportall transactions of relevance to the balance of pay-ments to the ONB. In addition, some data that areused for checking purposes are received from theFederal Ministry of Finance (particularly concerningthe area of current and capital payments of the pub-lic sector vis-à-vis EU institutions).

(iv) Monetary authority: The ONB reports on theexternal monetary position and monthly flows andstocks in the same way as the banking sector. Specialquarterly reports on stocks and flows are also com-piled by the Accounting Department of the ONB forbalance of payments and IIP purposes. These reportsare mainly used to check monthly flows, to obtaindata on an accrual basis, and to calculate reserveassets for the IIP.

Measurement of portfolio investment

14.24 Portfolio investment flows and stocks aremeasured through a comprehensive and reliablecompilation system that is based on the reporting ofsecurities on a security-by-security basis. To facili-tate this work, a database of individual securities ismaintained (see below). This system, developed dur-ing 1988–89, is not only reliable but provides theflexibility to meet changing user requirements andmarket circumstances. Previously, the experiencehad been that with the fast-developing internationalfinancial markets, instructions to reporting agentswere becoming increasingly complicated in order tomeet the needs of the balance of payments and IIP.

14.25 With the present system, the banks reporttransactions and stocks of individual securities, iden-tifying each with the ISIN code. The Austrian banksappreciate using the ISIN codes since these codesare required for their own business purpose (forexample, the settlement of security transactions).Once a security is reported with an ISIN code, it canbe identified in the securities database that the ONBmaintains. The database contains the necessary bal-ance of payments and IIP classifications (the nature

of the financial instrument, the sector and country ofissuer, etc.). Because securities are reported on anindividual basis, transactions and stocks can bereconciled.

14.26 The securities database was developed and ismaintained by the ONB. The core of the databaserelies on information purchased from the Austrianand German national numbering agencies (NNAs)—the Oesterreichische Kontrollbank (OKB) and theGerman Wertpapiermitteilungen. The OKB providesdata on securities issued by residents in the domesticmarket, and Austrian schilling or euro-denominatedsecurities issued by nonresidents in Austria; theWertpapiermitteilung provides data on securitiesissued in foreign markets, including securities issuedby Austrian residents and denominated in currenciesother than the Austrian schilling or euro. Also,reporting banks have to supply information on secu-rities that to the best knowledge of the reportingbank do not have an ISIN code—so-called internalsecurities. If information on the same security isreceived from more than one institution, then theOKB data are usually given preference. Informationon current market prices is obtained from theTelekurs. The database is updated on a weeklybasis.

14.27 Using the information gathered on individualsecurities, the Statistics Department generates an“internal master file” of data, which is used by theONB for the compilation of portfolio investmenttransaction and stock data. In early 2000, this masterfile contained around 150,000 debt securities andsome 50,000 equity securities, thus covering around99 percent of the securities traded by Austrian resi-dents on a cross-border basis.

14.28 Comprehensive quality checks and amend-ments are made by the ONB in order to render theinformation received from external sources suitablefor use in the IIP and balance of payments compila-tion. These checking procedures comprise formalcontrols (completeness of information), as well asplausibility checks. Detailed quality checks arerequired not least because the NNAs maintain theirdatabases for their customers (banks), whose busi-ness needs for information differ from those of sta-tistical compilers. Consequently, data fields that areparticularly important for statistical purposes (forexample, outstanding amount) are not always of thedesired quality.

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Compiling the IIP

14.29 An annual IIP statement is drawn up consis-tent with the recommendations of BPM5, with a fewexceptions. A geographical attribution betweeneuro-area and non-euro-area data is possible to asubstantial extent. This section explains the compila-tion procedure for individual functional categories ofthe IIP.

Direct investment

14.30 For direct investment, Austria follows the rec-ommendations of the international standards, includ-ing both the application of the so-called directionalprinciple (that is, assets and liabilities reportedaccording to the direction of the direct investmentrelationship) and the inclusion of reinvested earn-ings. The annual direct investment survey providesfinal position data some 18 months after the refer-ence end-period (time t). Provisional position data,available six to nine months after the reference end-period (t), are calculated by adding accumulatedflows (including reinvested earnings) to the previousend-reference period (t–1).

14.31 One exception is data for real estate, whichare compiled exclusively using accumulated flows(approximately 7 percent on the assets side and 2percent on the liabilities side of overall assets andliabilities of direct investment stocks, respectively).

14.32 Because the data from the annual survey arevalued at book value, the reconciliation withrecorded transactions (at market value) is problem-atic. Although price and other adjustments (in thesense of reclassifications) can be identified to a lim-ited extent, “other adjustments” (in the sense of theresidual adjustment between changes in stocks andtransactions) can be very high. Exchange rate adjust-ments are calculated on the basis of average monthlyexchange rates when IIP positions are derived fromthe accumulation of flows, and end-of-monthexchange rates when IIP positions are directlymeasured.

14.33 Market valuation can be compiled addition-ally based on an “earning-method estimation” (thatis, discounting potential future cash earnings).

Portfolio investment

14.34 Portfolio investment data are compiled inconformity with the BPM5 recommendations,

including the appropriate instrument and sector attri-bution. As described above, the security-by-securityreporting system combined with the securities data-base is at the core of the compilation of these data—on both stocks and transactions, and inward and out-ward investment. On the asset side, the monthlybank and annual nonbank reports provide reliableposition data on domestic sector asset holders.

14.35 As a consequence of the security-by-securityapproach, stocks, transactions, exchange rate, andprice adjustments are closely reconciled, withremaining differences calculated by residual; otheradjustments for sectoral and instrument adjustmentscan be identified; and stocks are valued at marketprices, including interest costs that have accrued.Country attribution is possible for the asset informa-tion, based on the country of residence of the issuer,but the country of the owner of the domestic debt lia-bility is not known.

Financial derivatives

14.36 IIP data for financial derivatives are a combi-nation of stocks (approximately 20 percent of thetotal) and accumulated transactions (approximately80 percent of the total). These data largely coverOTC (or off-exchange) derivatives. The stock data,reported using ISIN codes, are highly reliable andare calculated at market prices; for other reporteddata no clear valuation principle can be identified,although it is believed they are measured at close tomarket value. Stocks are available on a net basis;there are no fully reliable stock data available on agross basis.

Other investment

14.37 Other investment data are compiled mainly inconformity with the BPM5 recommendations, withthe exception of trade credits between affiliatedenterprises, which are indistinguishably included inthe “other investment” item instead of beingrecorded under direct investment. A combination ofstocks (approximately 90 percent of the total) andaccumulated flows (approximately 10 percent) isused to calculate these data. The stock data aremainly derived from the settlement system with theexception of trade credits, which are measureddirectly from quarterly and annual surveys. Forloans and other assets/liabilities where positions arebelow the thresholds for direct reporting by report-ing agents, accumulated flows are used to calculatepositions.

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14.38 Reporting agents have to reconcile, in thesame report, stocks and flows for “other invest-ment” accounts. Price adjustments (mainly relatingto asset trading), other adjustments (reclassifica-tions), and residual adjustments (reporting errors orstock corrections) can be taken directly from thereports provided. Exchange rate adjustments arecalculated using average monthly exchange rates fortransactions and for reported adjustments, and end-of-month exchange rates for stocks. Other invest-ment assets and liabilities are based on nominalvalues.

Reserve assets

14.39 The stock position for reserve assets isdirectly reported by the Accounting Department ofthe ONB in the form of special quarterly reports.These reports comprise stocks, transactions, and allkinds of adjustments. The data are taken directlyfrom the accounting database. Stocks and transac-tions of currency and deposits are not included in thespecial quarterly reports because they are alreadycovered by the regular monthly reports submitted bythe ONB (see item (iv) under “Reporting Agents,”above). Discrepancies between accounting princi-ples and BPM5 concepts are seen as being insignifi-cant. Stocks are reported on a market value basis,including closing market prices for gold and closingmidmarket exchange rates.

Relationship of IIP with external debt andfinancial accounts

Gross external debt

14.40 Austria’s gross external debt position can bederived from the IIP. At present, external debt dataare compiled at market price and are broken downby sector. Data on a remaining-maturity basis areavailable in the case of debt securities.

Financial accounts

14.41 The financial accounts implemented by theONB in accordance with the European System ofAccounts: ESA95 (Eurostat, 1996) cover, in the formof asset and liability statements, the financial claimsand liabilities of all institutional sectors. The balancesheet of the “rest of the world” sector for the finan-cial accounts draws heavily on the IIP data. Thus,the position “nonresidents’ net financial assets”(financial accounts) corresponds to the domestic sec-tors’ “net liabilities to the rest of the world” (IIP).The latter denotes a negative net IIP position—that

is, “net claims of the rest of the world sector on Aus-trian residents.”

Canada

Measurement of Foreign PortfolioInvestment in Canadian Bonds5

14.42 Nonresidents have been sharply increasingtheir investment in Canadian bonds since the 1980s.From a value of Can$56.5 billion in 1980, the invest-ment of foreigners reached Can$393 billion by 1999,more than 40 percent of the value of all Canadianbonds outstanding. The interest on these debt obliga-tions (Can$27.5 billion in 1999) is a major factor inthe deficit for investment income in Canada’s currentaccount. Given the magnitude and the wide diversityof bonds held by nonresidents, Canada has a detailedand complex statistical system to help ensure ade-quate and consistent statistics.

14.43 Data on nonresident investment in Canadianbonds is largely reported on a security-by-securitybasis by (1) major investment dealers, banks,insurance companies, and pension and mutual funds,on a monthly frequency, and (2) the largest debtissuers. These data are reported on a monthly basis,mainly on electronic tapes supplied by informationservice providers. Data are provided using a specificrecord layout describing the detailed characteristicsof the instruments. Each month, more than 500,000security transactions are collected, of which about10,000 relate to Canadian bonds. Year-end positiondata are obtained from an annual census survey, withpositions calculated according to four differentmethods of valuation.

14.44 The Canadian system is dependent on a data-base that maintains detailed characteristics on eachspecific bond issued. Indeed, each Canadian bondissue is identified by issuer, sector (federal govern-ment, private sector, etc.), and industrial classifica-tion; for each bond held by nonresidents the dates ofissue and of maturity, the currency of issue, theinterest rate, the timing of interest payments, etc.are identified; and nonresident holders are identifiedon the basis of their respective country of residence,when available, or at least by broad geographical

135

5Prepared by Statistics Canada.


area, and whether or not they are related to theCanadian issuers.

14.45 Using the detailed information on individualbonds, this case study reviews how these statisticsare generated for the transactions and positions dataand describes the various prices that are used tovalue bonds.6

Financial transactions and positions

14.46 There are four types of financial transactionsthat affect the position data: new issues, trade in exist-ing securities, accrual of interest, and redemptions.

New issues

14.47 In the Canadian system, new bond issues soldto nonresidents are restricted to newly issued Cana-dian bonds floated directly abroad (that is, foreignissues and the portion of global issues floated in theforeign markets). Nonresident purchases of newCanadian bonds floated in the domestic market,including the domestic portion of global bonds, areclassified as trade in existing issues. Transactionsassociated with new issues denominated in foreigncurrencies are entered in the system in their originalcurrencies and are converted into Canadian dollarsusing the noon average exchange rate of the monthin which the transactions took place. When theCanadian dollar proceeds from the new issue areknown, this information is directly used as the valueof the transaction.

Trading of existing bonds

14.48 Trading in Canadian bonds involving resi-dents and nonresidents largely occurs in domesticissues, especially Government of Canada bonds. Forbonds traded in the same month and year of theirissue, the system deems the trading to have occurredat the date of new issue; otherwise, the trading isdeemed to have occurred on the fifteenth day of themonth of trading.

14.49 Bonds traded under repurchase agreements(repos) are effectively loans with the bonds used ascollateral. Since respondents include them in theirmonthly trading, these transactions are reclassifiedfrom portfolio investment to loans. This can be eas-

ily achieved for financial intermediaries that sepa-rately identify trading of securities involving repos.Where financial intermediaries do not separatelyidentify securities involved in repos, the systemmatches the sale and purchase of the same securitiesin a single month and evaluates a yield rate in orderto identify transactions to be classified as repotransactions.

14.50 Transactions involving stripped securities—that is, the coupon payments are traded separatelyfrom the principal amount—are processed as trans-actions in bonds issued by the original issuer but arenot linked back to the specific bond issue that wasstripped. The strips are recorded as zero-couponbonds, with income calculated as the differencebetween the transaction price and the redemptionvalue.

14.51 For a number of reasons, a few security deal-ers do not identify transactions in existing bonds ona security-by-security basis. These bonds areregrouped by sector of issuer and are treated as acomponent of a synthetic single issue of the sector(for example, bonds issued by provincial govern-ments). Once adjusted to exclude bonds under reposand strips, the system checks that each bond tradedhas previously been recorded in the system as havingbeen issued. If not, an adjustment is made in theinventory to record the bond as a new issue.

Accrual of interest costs

14.52 In the Canadian system, the differencebetween the issue price and the redemption priceaccrues as interest over the life of the bond. In addi-tion, the system computes the accrual of couponpayments on each outstanding bond issue. Untilpaid, these two components continuously increasethe value of the bond, and Canada’s stock of externaldebt in bonds.

Redemptions

14.53 Redemptions represent the amount of theprincipal payment made by the issuer at the date ofmaturity of the bond. Redemptions are generatedautomatically by the system at maturity. While thereis generally one date of maturity, some bonds mayhave several maturity dates as the redemptions arespread over time (for example, sinking funds bond).For bonds issued in tranches, the system proratesthe redemptions according to the weight of thetranches. Redemptions of bonds in foreign curren-

136

6A fuller description of the Canadian system is available on theInternet at the IMF website, http://www.imf.org/external/bopage/stindex.htm.


cies are converted into Canadian dollars at themonthly noon average rate for the month ofredemption. Again, when the Canadian dollar pro-ceeds are known, this information is used to calcu-late the value of redemptions.

Valuation of financial transactions and positions

14.54 From the time a bond is issued through to thetime it is redeemed, its price fluctuates largely as aresult of movements in interest rates in the market.In the Canadian statistical system, four prices aremaintained: issue price, book value, market price atyear-end, and redemption price. In turn, each ofthese prices is used to derive the related statistics.For example, the prices on new issues are used toderive capital flows associated with new issues,while redemption prices are used to generateredemptions data. Transactions, both sales and pur-chases for the month, are recorded at market prices.The stock of outstanding bonds is currently valued atbook—or nominal—value and at market value.

Issue prices

14.55 At the time of issue, the bonds are generallypriced at the prevailing market price. This marketprice is in turn equivalent to the present value of thestream of future payments, discounted at the marketinterest rate. If the coupon rate is set equivalent tothe prevailing interest rate, the issue price will be thesame as the redemption price. If the coupon rate isdifferent from the prevailing interest rate, the issuewill be priced at discount or premium to the redemp-tion price.

14.56 In general, a bond is issued on a given dateand, hence, has one issue price. There are, however,bonds, especially Government of Canada bonds, thatare issued in tranches over a period of time. Eachtranche has the same maturity date and coupon rateas an existing issue, but the issue price of eachtranche varies according to the interest rate prevail-ing at the time the tranche was issued. Hence, eachtranche of these bonds may have a different issueprice.

Book value

14.57 The book value can be calculated from differ-ent viewpoints. From the point of view of the issuerof a bond, the book value is the issue price plus theaccrual of interest costs not yet paid out. From theviewpoint of the owners of the bond, the book value

consists of the acquisition cost plus the incomeearned but not yet received. Given that bonds mayhave been purchased at various prices, there could bemany book values.

14.58 In the Canadian statistical system, only thebook value of the issuer is maintained. This bookvalue is made up of the issue price plus the accrualof interest costs not paid out by the issuer. The inter-est is calculated as the accrual of the coupon plusthe accrual of the difference between the issue priceand the redemption price. Hence, at any given time,the book value—nominal value, in the terminologyof the Guide—of the issuer is made up of threeparts: the issue price, the accrual of the couponnot yet paid out, and the amortization of the dis-count/premium, if any, between the issue and theredemption prices.

Market prices

14.59 Description of market prices. At a given time,the current market price of a bond is usually calcu-lated using a sample of recent buying and sellingtransactions in financial market. Throughout its life-time, a bond will have many market prices depend-ing on the time at which the value is observed. Forinstance, the issue price is, in most cases, the marketprice that prevailed at the time the bond was issued,and the redemption price is the market price that pre-vails at the time the bond matures.

14.60 Derivation of market prices. In the Canadiansystem, market prices are either observed frominformation obtained in the bond trading survey inthe month preceding the valuation, or calculated. Tothe extent that bonds are traded with nonresidents inthe month preceding the period of valuation, such asDecember trading for end-December valuation, theaverage price in such trading is used as the proxy formarket prices when calculating transactions. Forbonds whose market price are not readily available,the system estimates the present value of the futurestream of payments of the bond using a market yieldmatrix. The matrix enables one to generate marketprices for a broad range of Canadian bonds (by sec-tor, currency, and years left to maturity) and is regu-larly updated in the system.

Redemption prices

14.61 The redemption price is the amount the issueris required to pay the holder at maturity of the bond;it is the future value of the principal after the

137


coupons have been paid out. The redemption price ofa bond is the same as the market price that will pre-vail on that bond at the date of its maturity.

Features of the system

14.62 The degree of detail maintained and the flexi-bility of the Canadian system make it possible togenerate numerous outputs on nonresident owner-ship of Canadian bonds. Canadian bonds can bevalued according to four different methods: issueprice, maturity price, book (nominal) value, andmarket value. The market value is published inCanada’s IIP.

14.63 Functions are integrated in the system toderive positions, transactions, interest (paid,accrued, or payable), and commissions for a specificperiod of time in original currency or Canadian dol-lars. Exchange rate effects on the positions can alsobe calculated. In addition, Statistics Canada can cal-culate the funds that will be needed to service thedebt in the years to come, taking into account thecoupons to be paid as well as the retirements. Theremaining term of maturity can also be calculated bytype and by sector.

Chile

Reconciliation of External Debt Statistics with BIS International Banking Statistics7

14.64 If international capital markets are to functionproperly, statistics on debtor countries’ external lia-bilities are necessary. But when the figures pub-lished by a country, from the debtor perspective,differ from those published by international agen-cies, from the creditor perspective, experience hasshown that the credibility of the statistics publishedby the country is directly affected, leading to uncer-tainty about actual indebtedness, and so to ineffi-ciency in the capital markets.

14.65 As with a number of other countries, Chile isone of the countries whose external debt statistics,disseminated monthly by the Central Bank of Chile(BCCH), do not coincide with the internationalbanking statistics published by the BIS. To reconcile

the two institutions’ figures, in August 1998 theManagement Office of the International Division ofthe BCCH committed resources to undertake exten-sive research, and establish the necessary contactswith both the BIS and the monetary authorities ofvarious countries, to discover reasons for the dis-crepancies. The work culminated in a visit by BCCHofficials to the BIS in Basel, Switzerland, in late1999. One of the conclusions of the investigationwas that BIS statistics embody a broader conceptthan external debt as measured by the BCCH.Whereas the central bank publishes external debtstatistics, the BIS data refer to claims against thecountry, including items such as local claims in for-eign currencies to residents in Chile and other liabil-ities that are not within Chile’s core definition ofexternal debt.

14.66 Drawing on this work, and using data for end-June 1999, this case study explains why differencesarise between the external liability figures publishedby the BCCH and the BIS.

14.67 As explained in Chapter 17, the BIS pub-lishes international banking statistics on both a loca-tional and a consolidated basis. This case study firstcompares BCCH data with BIS locational-baseddata, and then with BIS consolidated data, beforedrawing some conclusions.

Comparison with BIS locational data

14.68 BIS locational data provide information onthe external assets and liabilities of all banks—known as BIS reporting institutions—located inwhat is known as the BIS reporting area.8 Withinexternal assets, the value of the external loans out-standing is shown separately, with an attribution bycurrency, institutional sector, and country of debtor.BCCH’s research has discovered that the statisticspublished by the BCCH on debt to foreign financialinstitutions are more comparable with the BIS’sexternal loans data than with the BIS’s externalassets data.

138

7Prepared by the Central Bank of Chile.

8At the time of writing, the reporting area comprises the G-10plus eight countries: Austria, Belgium, Canada, Denmark, Fin-land, France, Germany, Ireland, Italy, Japan, Luxembourg, theNetherlands, Norway, Portugal, Spain, Sweden, Switzerland, theUnited Kingdom, and the United States. The quarterly reports alsoinclude the so-called offshore centers: The Bahamas, Bahrain,Cayman Islands, Hong Kong SAR, the Netherlands Antilles, andSingapore.


14.69 Table 14.1 presents the outstanding externalloan claims of BIS reporting institutions on Chile asat end-June 1999, as reported by the BCCH and BIS.As can be seen, the BIS reports a total $2,783 mil-lion higher than that reported by the BCCH.

14.70 On investigation, the difference is largelyexplained by three items that the BCCH doesnot classify as external loans from BIS reportinginstitutions.

14.71 First, the BIS apparently includes in its fig-ures external loans used to finance foreign trade pro-vided in the form of instruments issued by the debtorto the foreign supplier or third party, which are sub-sequently discounted by banks (thus becoming aform of forfaiting activity). In Chile these instru-ments are known as cobranzas. In contrast, at thetime of writing, the external debt figures publishedby Chile include only those cobranzas of medium-and long-term maturity, which are classified as debtowed to suppliers.9 According to the BCCH’s esti-mates, total cobranzas (short-, medium-, and long-term) at end-June 1999 amounted to approximately$5,425 million, of which $1,900 million could beclaims held by BIS reporting institutions, withremaining maturities up to one year,10 and thusreported as short-term claims in BIS statistics.

14.72 Second, in its published data, the BCCHattributes lending provided to Chile by foreign

government financial institutions for specificprojects to government agencies. On the otherhand, even though the government institutionsconcerned are not BIS reporters, some such lendingis included in the BIS locational (and consolidated)banking statistics. For instance, lending by theKreditanstalt für Wiederaufbau (KFW) is includedin the reports sent by Germany to the BIS, whilelending by the Export Development Corporationof Canada (EDC), which is also not a BIS reporter,is included in the reports prepared by the finan-cial institutions with which it deals. For end-June1999 data, these two agencies accounted for $721million of the difference between BIS and BCCHdata.

14.73 Third, loans contracted by Chilean enter-prises and used to finance investments directlyabroad are not recorded in the BCCH data but areincluded in both the BIS’s locational and the consol-idated banking statistics. At end-June 1999, theseloans amounted to $500 million, of which 20 percentwas of a short-term remaining maturity.

14.74 As can be seen from Table 14.2, the threefactors discussed above more than account for thedifference between the BIS and BCCH reporteddata.

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Table 14.1. Outstanding External LoanClaims of BIS Reporting Institutions onChile, as at End-June 1999

Millions of U.S. Dollars

(1) BCCH reported data 15,901(2) BIS reported data (locational basis) 18,684_______(3) Discrepancy between sources ((1) – (2)) –2,783

Table 14.2. Adjusted Data for OutstandingExternal Loan Claims of BIS ReportingInstitutions on Chile, as at End-June 1999

Millions of U.S. Dollars

Reported data(1) BCCH reported data 15,901(2) BIS reported data (locational basis) 18,684______(3) Discrepancy between sources ((1) – (2)) –2,783

Factors explaining the discrepancy between sources1

(4) Cobranzas (forfaiting activity) 1,900(5) Debt with government financial institutions 721(6) Loans used to finance operations abroad 500______(7) Total adjustment ((4) + (5) + (6)) 3,121

Adjusted difference (discrepancy (3) plus total adjustment (7)) 338

1A positive figure indicates amounts reported by the BIS as external loanclaims on Chile that are not included in BCCH data for external loans from BISreporting institutions.

9Because debtors are the source of information, these loans areclassified as debt to suppliers, even though they are subsequentlydiscounted by banks in the BIS reporting area (forfaiting).

10The estimate of short-term claims is derived from the BISconsolidated data, which does provide a breakdown of claims byshort-term remaining maturity.


Comparison with BIS consolidated data

14.75 The BIS consolidated international bankingdata provide information on the external assets ofbanks headquartered in the reporting area, exclud-ing banks headquartered in certain offshore centers(which are included in the locational data). Con-solidation means that all the claims of eachbank, including all offices throughout the world, arereported, except intrabank claims, which areexcluded. Branches and subsidiaries of bankslocated in the reporting area but headquarteredoutside the reporting area provide information onlyon their own claims and liabilities (that is, on anunconsolidated basis). The consolidated BIS datainclude a breakdown by debtor sector and by short-and long-term remaining maturity and present thedebtor position of each country vis-à-vis each of thecreditor countries. Loans are not shown separately.Taking all this into consideration, it is clear that theasset figures of the locational and consolidated datadiffer substantially.

14.76 As with the locational data, it can be seen inTable 14.3 that the outstanding external claims ofBIS reporting institutions on Chile as at end-June1999 as reported by the BIS were higher than those

reported by the BCCH ($23,491 million and $15,850million, respectively).11

14.77 In addition to the three items discussed above,one of the reasons for the difference is that the BISconsiders local foreign exchange positions of officesof foreign banks resident in Chile as external lia-bilities of Chile, whereas in measuring externaldebt, liabilities of residents to other residents areexcluded. These positions amounted to $3,343 mil-lion12 at end-June 1999, and were financed in largepart by funds obtained on the local market.

14.78 The data on bond claims of BIS reportinginstitutions are another potential source of discrep-ancy. However, the value of the claims of BIS report-ing institutions are unclear, since they are notseparately identified in either the BIS or BCCH data.Bond liabilities to nonresidents are included by theBCCH in Chile’s external debt statistics, but individ-

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Table 14.3. Outstanding External Claims of BIS Reporting Institutions on Chile,as at End-June 1999(Millions of U.S. dollars)

Medium- andTotal Short-term1 long-term

Reported data(1) BCCH reported data 15,850 3,911 11,939(2) BIS reported data (locational basis) 23,491 9,347 14,1442______ ______ ______(3) Discrepancy between sources ((1)–(2)) –7,641 –5,436 –2,205

Factors explaining the discrepancy between sources3

(4) Foreign currency assets of offices of foreign banks 3,343 2,454 889(5) Bonds 823 253 637(6) Cobranzas (forfaiting activity) 1,900 1,900 0(7) Debt with governmental financial institutions 721 84 570(8) Loans used to finance investments abroad 500 100 400______ ______ ______(9) Total adjustment ((4)+(5)+(6))+(7)+(8)) 7,287 4,791 2,496

Adjusted difference (discrepancy (3) plus total adjustment (9)) –354 –645 291

1On a remaining maturity of one year or less.2Includes foreign liabilities whose maturity cannot be determined.3A positive figure indicates amounts reported by the BIS as external claims on Chile that are not included in the BCCH data for external liabilities to BIS

reporting institutions.

11The BCCH reported data in Table 14.3 are those for loanswith BIS reporting institutions in the reporting area, converted to aconsolidated basis so as to make the data comparable with thoseof the BIS.

12Source: Financial information of the Superintendency ofBanks and Financial Institutions.


ual groups of creditors are not identified. At end-June 1999, Chile’s total bond liabilities were valuedat $4,116 million, and it is estimated that around 20percent, or $823 million, represented claims by BISreporting institutions, on a consolidated basis. Ofthis total, $253 million were thought to be of short-term maturity. It is known that many of theseChilean liabilities are held in the United States byfinancial institutions such as investment funds andbank holding companies. These institutions arerequired to report their holdings of such securities tothe U.S. Federal Reserve for inclusion in the reportentitled “Country Exposure Lending Survey,” whichis the source of the statistics reported to the BIS bythe U.S. authorities.

Conclusions

14.79 From the research undertaken by the BCCH,the following conclusions can be drawn:• To ensure proper use of data, and for comparisons

to be made between figures that are conceptuallymeasuring the same thing, the methodologicalframework used to compile published data shouldbe clearly explained by each disseminating agency.

• The primary data sources (debtors for the BCCHand creditors for the BIS) are responsible for sig-nificant differences, especially in the case of debttransferred to a different creditor. In particular, forcertain claims reported to the BIS, such as bonds,while they are included in Chile’s external debtstatistics published by the BCCH, they cannot beallocated to a specific creditor.

• There is the need to clarify the nature of the itemsreported to the BIS. For instance, the BIS consid-ers local foreign exchange positions of offices offoreign banks in Chile an external liability,although they represent a claim by a resident onanother resident. Whether these claims should beregarded as external liabilities is obviously debat-able (they are not in this Guide), since the positionis financed with local resources and therefore doesnot represent net indebtedness abroad.

• Quality control is essential and has a major impacton the comparability of statistics published by dif-ferent institutions. Consequently, ensuring correctapplication of established methodology shouldalways be a concern.

• To provide more complete external debt statistics,Chile is currently working on the compilation ofdata for instruments such as cobranzas and loansused to finance investments abroad, which,

although falling into the category of externaldebt, are not included in Chile’s debt statisticsbecause the necessary information is not avail-able. To solve this problem, surveys and otherdata-collection methods are being introduced.

India

How Debt Information Systems Are BeingUsed for External Debt Management13

14.80 Effective monitoring is a prerequisite for suc-cessful debt management. Indeed, information onthe status and composition of external debt and debt-service payments provides the basic input for debt-management decisions. With the enormous growthin the volume and complexity of loan records, debt-management decisions require the easy retrieval ofinformation, and the ability to undertake analysisand scenario-building exercises, such as the exami-nation of the impact of alternative debt-managementstrategies. In this context, manual record keeping isno longer sufficient; rather, there is a need to developa computerized database that will facilitate bothinformation retrieval and scenario exercises.

14.81 In India, comprehensive coverage, activemonitoring, and the computerization of external debtdata have all played a key role in the continuousimprovement of the country’s external debt position(Table 14.4). The exhaustive coverage and timelyavailability of data has allowed effective monitoringof the debt stock and debt-service payments. Forinstance, information on projected debt-service pay-ments—that is, contractual liabilities in futureyears—has provided policymakers with early warn-ing against the bunching of repayments, so thatcorrective steps could be taken in advance. Also,the computerized database has facilitated the evalua-tion of the impact of alternative borrowing strate-gies. Effective monitoring through computerization,therefore, has become essential to India’s debtmanagement.

Benefits of a good information system

14.82 The benefits of a good debt information sys-tem are outlined here, drawing on India’s experience.

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13Prepared by the Ministry of Finance of India.


External debt management

14.83 One of the salient features of external debtmanagement in India has been an annual cap or ceil-ing on External Commercial Borrowings (EComBs).EComBs are defined to include commercial bankloans, export credits, and bonds issued in the inter-national capital markets. The borrowers are publicsector, financial institutions, and private sectorentities. As a sovereign entity the Government ofIndia does not borrow in the international capitalmarkets.

14.84 Every year a cap is fixed on EComB approv-als, which takes into consideration the commercialborrowing requirement of different sectors of theeconomy, and medium-term balance of paymentprojections. The end-objective is to keep the debt-service ratio within the prudent limits of debt man-agement. The exercise is undertaken with the help ofcomputerized scenario building, the inputs for whichare (1) projected debt-service payments on disbursedoutstanding debt; (2) disbursements of debt “in thepipeline” and the projected debt service; (3) futureEComB approvals and their impact on inflows anddebt service based on an assessment of the interna-tional capital market situation.

Sovereign external debt management

14.85 India does not access international capitalmarkets as a sovereign entity. But the need forsovereign external debt management has arisenbecause the World Bank now requires borrowers tomake their own decisions regarding choice of cur-

rency, interest, and maturity mix on Bank borrow-ings. Some other multilateral institutions are alsoconsidering a similar approach. Also, with theWorld Bank soon to offer free-standing hedgingproducts (derivatives products), such as interest andcurrency swap, interest rate caps, collars, etc., activemanagement of sovereign external debt will becomenecessary.

14.86 To meet the new circumstances, India isdeveloping a modeling exercise for sovereign exter-nal debt. The objective is to develop benchmarksthat lead to an optimal currency, interest, and matu-rity mix of sovereign external debt so as to minimizethe costs of government borrowings for any givenlevel of risk. These benchmarks would be a guidefor future borrowing and active debt-managementdecisions. Since the debt data for the governmentaccount are 100 percent computerized, historicaldata can be retrieved, and projections of futurepayments made readily available, for analysis andscenario-building exercises.

14.87 A separate exercise is also under way to con-sider the prepayment of World Bank fixed-rateloans, which have interest rates significantly aboveprevailing market rates.

Contingent liabilities

14.88 The Government of India has provided guar-antees on a selective basis for borrowings fromabroad by public sector enterprises, developmentalfinancial institutions, and, in some instances, privatesector companies. By maintaining records of such

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Table 14.4. India’s External Debt and Key Debt Indicators

As at March 31_____________________________________________________________1991 1992 1995 1996 1997 1998 1999 2000P1

(Billions of U.S. dollars, end-period)

(1) Long-term debt 75.3 78.2 94.7 88.7 86.7 88.5 93.3 94.4(2) Short-term debt 8.5 7.1 4.3 5.0 6.7 5.0 4.4 4.0(3) Total external debt 83.8 85.3 99.0 93.7 93.5 93.5 97.7 98.4

(Ratios, in percent)

(4) Ratio of external debt to GDP 30.4 41.0 30.9 27.1 24.7 24.4 23.5 22.0(5) Ratio of debt service to current receipts 35.3 30.2 25.9 26.2 23.0 19.5 19.0 16.0(6) Ratio of short-term debt to total debt 10.2 8.3 4.3 5.4 7.2 5.4 4.5 4.1(7) Ratio of short-term debt to foreign exchange reserves 382.1 125.6 20.5 29.5 30.1 19.4 14.9 10.6

1Provisional.


explicit contingent liabilities in the computer systemalong with external debt data, these liabilities areregularly monitored. Because the government is nowdiscouraging the issue of fresh guarantees, exceptwhere considered absolutely necessary (such as forcertain infrastructure projects), total outstandingguarantees are on a declining trend—the share ofgovernment guaranteed debt in total nongovernmentdebt declined from 33.1 percent at end-March 1994to 14.4 percent at end-December 1999. Table 14.5provides these data and a disaggregation of guaran-tees by institutional sector (financial, public, andprivate).

Computerization and networking

14.89 Nearly 80 percent of external debt data iscomputerized using the Commonwealth Secre-tariat’s Debt Recording and Management System(CS-DRMS).14 The adoption of the CS-DRMS sys-tem, in the late 1980s, was a major step forward,marking the beginning of the use of external debtdata as a management information system input fordebt-management decisions. Efforts are now underway to extend the scope of computerization to theremaining data, which are currently captured on amanual reporting basis.

Interagency involvement

14.90 The main agencies involved in the com-pilation of external debt data are the Ministry ofFinance, the Reserve Bank of India, and the Ministryof Defense. The computerized database containingdata reported by all the different agencies is housedin a central server in the External Debt ManagementUnit (EDMU) in the Ministry of Finance. The infor-mation from the centralized database is then avail-able for analysis and scenario-building exercises.Through Local Area Network, the database is alsoaccessible to various users in the Ministry of Financeas an input for policy decisions.

14.91 External debt data are updated on a quarterlybasis. The dissemination policy is that of full trans-parency of reporting, with statistics published in theEconomic Survey of the Ministry of Finance and theAnnual Report of the Reserve Bank of India. In addi-tion, since 1993 the Ministry of Finance has pub-lished an annual Status Report on External Debt,which is circulated in the Parliament of India. Thisreport, which provides an exhaustive analysis ofexternal debt data, has helped raise public awarenessof external debt issues.

14.92 Such transparency and awareness also leadsto public feedback, which acts as an early warningsystem, especially in situations where key debt indi-

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Table 14.5. India’s Central Government Guarantees on External Debt

March 31 December 31__________________________________________________ ____________1994 1995 1996 1997 1998 19991 19991

(Billions of U.S. dollars, end-period)

(1) Government debt 55.9 59.5 53.1 49.1 46.5 46.1 46.9(2) Nongovernment debt 36.8 39.5 40.7 44.4 47.0 51.5 52.1(3) Of which with government guarantee (a) + (b) + (c)2 12.2 12.3 10.2 8.2 7.3 7.1 7.5

(a) Financial sector 3.3 3.3 2.7 2.3 2.3 2.4 2.6(b) Public sector 8.6 8.7 7.1 5.6 4.6 4.3 4.6(c) Private sector 0.3 0.4 0.4 0.4 0.3 0.3 0.3

(4) Total external debt (1) + (2) 92.7 99.0 93.7 93.5 93.5 97.7 99.0(5) Government debt and guaranteed debt (1) + (3) 68.1 71.8 63.2 57.3 53.8 53.2 54.4

(Ratios, in percent)(6) Ratio of government debt and guaranteed debt

to total external debt (5)/(4) 73.5 72.5 67.4 61.3 57.5 54.5 55.0(7) Ratio of government guaranteed debt to

nongovernment debt (3)/(2) 33.1 31.2 25.0 18.5 15.5 13.7 14.4

1Provisional.2Direct guarantees on external debt provided by the central government.

14The CS-DRMS is described in Chapter 18.


cators are beginning to move in the wrong direction.The transparency and comprehensive monitoringalso ensures that no component of debt is unre-ported. This, together with low levels of short-termdebt, contributed to India’s success in withstandingthe effects of the financial crises of 1997/98.

14.93 Senior staff in the key government agenciesundertake periodic reviews of the measurement ofexternal debt to ensure best practice and continuousimprovement in the quality and coverage of data. In1992, the Task Force/Policy Group Report on Exter-nal Debt Statistics recommended adoption of inter-nationally accepted classifications and definitions,and stressed the need for transparency of data,unusual at the time for an emerging economy. Onthe report’s recommendation, the EDMU was setup in the Ministry of Finance to coordinate debt-monitoring activities, and provides data inputs fordebt-management decisions. A World Bank Institu-tional Development Fund (IDF) grant of $0.475million played a key role in providing funding sup-port for the various debt-monitoring and manage-ment activities undertaken by the EDMU. TheReport of the Technical Group on External Debt,which came out in 1998, took into consideration thechanging international requirements for debt datamonitoring and reporting.

14.94 There are ongoing efforts to further improvethe quality of data and increase the scope of comput-erization. Thus, for example, given the significanceof short-term debt for overall external debt manage-ment, a Study Group has been created to look intoways of ensuring its more effective monitoring andcoverage. The group is expected to suggest that acomputerized short-term debt database be createdthat is amenable to analysis and scenario exercises.Given the volatility of short-term debt flows and thepossibility of their nonrenewal in times of crisis,such flows are already strictly monitored and permit-ted only for trade-related purposes. Another StudyGroup has been created to look into ways of ensur-ing more effective monitoring and computerizationof nonresident Indian deposits data (see the next sec-tion). Further, since external debt flows are to beseen in the overall balance of payments context,other balance of payments components becomeimportant and can have a bearing on external debtflows. A separate Study Group, therefore, has beenset up for streamlining monitoring and computeriza-tion of nondebt flows.

14.95 Efforts are also under way to make India a“resource center” and a “center of excellence” forexternal debt-management activities so that Indianexperience and expertise can be shared with othercountries, and learning opportunities broadened.

Monitoring and Management of NonresidentDeposits in India15

14.96 In the 1970s, the growth of the currentaccount deficit prompted India to explore alterna-tives to the traditional source of external finance:concessional borrowing. This led to borrowing fromcommercial sources, and the introduction of specialdeposit schemes for nonresident Indians (NRIs).Different NRI deposit schemes were developed inorder to meet the various asset preferences of NRIs.This section describes the features of these schemes,the method of data collection, information on theirevolution during the 1990s, and some lessons fromthe Indian experience.

Nonresident deposit schemes

14.97 Essentially there are two types of nonresidentdeposit schemes: domestic-currency-denominateddeposits and foreign-currency-denominated deposits.The first nonresident deposit scheme, introduced inFebruary 1970, was a domestic currency accountcalled the Non-Resident External Rupee Account[NR(E)RA]. Under this scheme, both principaland interest could be repatriated without any restric-tion, while the exchange risks were borne by thedepositors. The rates of interest were initiallyset by the Reserve Bank of India (RBI) but were fullyfreed from official control by September 1997.The first foreign-currency-denominated schemewas introduced in November 1975 and was entitledthe Foreign Currency Non-Resident (Account)[FCNR(A)]. This account was repatriable, with inter-est rates fixed by the RBI, taking into account move-ments in international interest rates. Although thedeposit liabilities were held by the commercialbanks, the exchange risk was borne by the RBI, andimplemented through a mechanism of purchases andsales of foreign currency at notional exchange ratesby the RBI from the banks. This scheme was with-drawn with effect from August 1994 in view of its

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15Prepared in the Division of International Finance, Departmentof Economic Analysis and Policy, Reserve Bank of India, Mumbai.


quasi-fiscal costs and implications for the centralbank’s balance sheet.

14.98 Subsequently, additional schemes have beenintroduced, and discontinued, as circumstances havewarranted. In particular, nonrepatriable depositschemes were introduced in the early 1990s. Atthe time of writing, the latest in the series of non-resident rupee accounts is the Non-Resident Spe-cial Rupee Account [NR(S)RA] introduced in April1999, and, among foreign currency accounts, theForeign Currency Non-Resident (Bank) [FCNR(B)]scheme. The exchange risk for the latter is managedby the commercial banks and not the RBI. Further-more, a large proportion of FCNR(B) deposits—for instance, over 90 percent at end-March 2000—arematched by foreign currency assets, which facilitatesasset-liability management by accepting banks.

14.99 Also, there has occasionally been issuance ofbonds by the State Bank of India, a commercialbank, aimed at nonresidents. Furthermore, nonresi-dent Indians and Overseas Corporate Bodies canchannel funds into India through direct investment,the nonresident ordinary deposit (NRO) scheme, pri-vate remittances, and a special scheme for returningcitizens to import gold and silver.

Monitoring

14.100 As a part of overall financial sector manage-ment, the RBI monitors total NRI deposits, bothstocks and flows, and adjusts its policies relating tothese deposits as warranted by the domestic andinternational circumstances. Banks are required toreport the necessary information on NRI depositsthrough various regular statements and returns pro-vided to the RBI, including a fortnightly return. Thereports are specifically designed to capture the stockand flow data on the various NRI deposits. Further, astudy group financed from the IDF of the WorldBank is reviewing the reporting arrangements forNRI deposits.

14.101 NRI deposits data come from a large numberof branches of commercial banks at widely spreadplaces across India, and many of these branches donot have enough communication infrastructure tosubmit data in electronic form. These limitations maynot be serious since the flow data in respect of suchbranch offices do not vary significantly over shortperiods of time. In fact, it was estimated that about500 large branches of commercial banks in India

accounted for over 85 percent of the overall foreignexchange business, including NRI deposits. The defi-ciency of coverage could, however, be addressed byremote branches reporting data to their regional orzonal offices, which, in turn, could transmit the con-solidated information in electronic form to the RBIthrough their Head Offices. This new reporting sys-tem would provide the stock position of NRI depositsdisaggregated by account type, by country of creditor,by maturity (both remaining and original) and by typeof currency at the end of every quarter for principal,and, separately, interest costs that have accrued.

Evolution

14.102 Table 14.6 provides information on the evolu-tion of various nonresident deposit accounts duringthe 1990s. The outstanding balances under NRIdeposits have increased from $14 billion at end-March 1991 to $23 billion at end-March 2000. NRIdeposits as a percentage of India’s external debtremained broadly unchanged over the decade. Therewas a marked shift in the composition of NRIdeposits from foreign currency deposits (about 74percent of the total in 1991 to about 40 percent in2000) to domestic-currency-denominated deposits(from about 26 percent in 1991 to 60 percent in 2000),with a significant decline in short-term deposits.Indeed, foreign-currency-denominated deposits actu-ally fell over the decade. This shift occurred as thegovernment decided to stop providing exchange rateguarantees on foreign currency deposits, as lossesemerged; and to deregulate interest rates—previouslyinterest rates on these deposits were held at levelssignificantly above interest rates prevailing in inter-national markets. Also, while not shown in the table,nonrepatriable rupee deposits have been increasing,to over 30 percent of the total NRI deposits as at end-March 2000. Of the total repatriable NRI deposits,the proportion of short-term repatriable depositsdeclined from around 27 percent at end-March 1991to about 9 percent at end-March 2000.

Lessons from the Indian experience

14.103 A number of lessons emanate from theIndian experience with nonresident deposit schemes.

14.104 First, for policy purposes, good informationis required. In particular, as a part of external debtmanagement, there needs to be careful monitoring ofthe currency portfolio, especially in terms of cur-rency denomination of deposits, and of the maturity

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profile, both in terms of original and remainingmaturity. The latter data help to identify any bunch-ing of payments, and so it is useful to program thedebt-recording software systems to generate data ona remaining-maturity basis.

14.105 Second, from a policy viewpoint, the centralbank or the government should refrain from provid-ing exchange guarantee to the depositors, since suchguarantees take the form of contingent external lia-bilities and could pose a systemic threat whenreserves are low and exchange rates depreciate verysharply. The focus should be on domestic currencydeposits of longer maturity. A steady repaymentschedule is preferred because this enables the com-

mercial banks to reduce the potential for seriousasset-liability mismatches that may arise.

14.106 Third, when devising these schemes, interestrates on the deposits should be aligned with domes-tic and international rates, so as to ensure thatdeposits are attracted while remaining cost effective.Also, an assessment of the degree of substitutionbetween NRI deposits and normal flows from non-residents in the form of private transfers, workers’remittances, and other non-debt-creating flows fromNRIs is required.

14.107 Finally, following the residence criterion, allnonresident deposits should be part of external debt.

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Table 14.6. Indicators of Nonresident Deposits in India(Millions of U.S. dollars)

As at end-March______________________________________________________Items 1991 1993 1995 1997 1999 2000

FCNR(A)1 10,103 10,617 7,051 2,306 0 0FCNR(B)2 0 0 3,063 7,496 8,323 9,069FC(B&O)D3 265 1,037 0 0 0 0FCON4 0 0 10 4 0 0NR(E)RA5 3,618 2,740 4,556 4,983 6,220 6,992NR(NR)RD6 0 621 2,486 5,604 6,758 7,037NR(S)RA7 0 0 0 0 0 0Total NRI deposits 13,986 15,015 17,166 20,393 21,301 23,098

Domestic-currency-denominated NRI deposits 3,618 3,361 7,042 10,587 12,978 14,029(Percent of total NRI deposits) (25.9) (22.4) (41.0) (51.9) (60.9) (60.7)

Foreign-currency-denominated NRI deposits 10,368 11,654 10,124 9,806 8,323 9,069(Percent of total NRI deposits) (74.1) (77.6) (59.0) (48.1) (39.1) (39.3)

Total external debt8 83,801 90,023 99,008 93,470 97,666 98,435Long-term 75,257 83,683 94,739 86,744 93,279 94,392Short-term 8,544 6,340 4,269 6,726 4,387 4,043

Proportion of NRI deposits in India’s external debt9 16.7% 16.0% 14.8% 15.8% 14.9% 16.3%Proportion of long-term NRI deposits in long-term external debt9 13.6% 13.2% 13.1% 12.7% 12.6% 15.4%Proportion of short-term NRI deposits in short-term external debt 43.8% 53.3% 53.4% 56.1% 50.1% 36.6%

Proportion of long-term repatriable NRI deposits in total repatriable NRI deposits 73.2% 76.7% 84.5% 74.5% 84.9% 90.8%

Proportion of short-term repatriable NRI deposits in total repatriable NRI deposits 26.8% 23.3% 15.5% 25.5% 15.1% 9.2%

Note:This table does not include amounts mobilized from nonresident Indians through issuance of bonds from time to time.1Foreign Currency Non-Repatriable (Account) [FCNR(A)] was withdrawn effective August 1994.2Foreign Currency Non-Resident (Banks) [FCNR(B)] was introduced in May 1993.3Foreign Currency (Banks and Others) Deposits [FC(B&O)D] were withdrawn with effect from July 1993.4Foreign Currency (Ordinary Non-Repatriable) Deposit Scheme [FCON] was withdrawn from August 1994.5Non-Resident (External) Rupee Account [NR(E)RA] was introduced in February 1970.6Non-Resident (Non-Repatriable) Rupee Deposits [NR(NR)RD] was introduced in June 1992.7Non-Resident Special Rupee Account [NR(S)RA] was introduced in April 1999.8Repatriable nonresident deposits(both foreign-currency- and domestic-currency-denominated—such as FCNR(A), FCNR(B), NR(E)RA and FC(B&O)D

form part of India’s external debt.9Excludes NR(NR)RD accounts, which are not repatriable and so are not included in external debt.


However, India does not include nonresident non-repatriable deposits in its external debt statisticsbecause the principal is not repatriable and hence noexternal liabilities arise, and the funds stay withinthe Indian economy.

Israel

Measurement of External Debt16

14.108 The Bank of Israel’s Foreign ExchangeActivity Department (FEAD) measures Israel’sexternal debt position, using detailed loan-by-loandata provided by the Israeli Government and thenonbank private sector. Reported balance sheet dataare used to compile external debt data of banks. Theexternal debt data are published quarterly and, alongwith external assets owned by Israeli residents, areincluded in the Israeli IIP statement. This case studydescribes the loan-by-loan system used by theFEAD and the output it generates.

Reporting of loan-by-loan data

14.109 Most of the external debt data of the publicsector are obtained, on a regular basis, from the Min-istry of Finance. These data cover all loans that thegovernment receives from creditors abroad, includ-ing government bond issues in international markets.The nonbank private sector (a private individual or afirm) must report within 15 days of receipt any loansreceived from abroad that have a value equivalent to$100,000 or more. These data cover all loans thatfirms and individuals receive from creditors abroad,including Israeli companies’ issues of bonds in inter-national markets and ownership loans received.

14.110 The following details of each loan arereported (see Figure 14.1) and entered into theFEAD’s system:• Primary details: Loan receipt date, amount, and

currency;• Borrower: Name and borrower type (such as gov-

ernment, central bank, firm, or individual);• Lender: Name, country of residence, and lender

type (such as foreign bank, branch of Israeli bankabroad, foreign government, IMF, World Bank,issue of tradable bonds, foreign firm, individualforeign resident, or ownership loan);

• Interest rate type: Fixed or variable rate;• Interest rate (percent): Fixed rate or spread above

variable rate;• Principal payment schedule: Includes final pay-

ment date; and• Interest payment schedule.

14.111 Also, during the entry of these details intothe database the following additional fields are auto-matically calculated:• Credit term (months): Defined as the number of

months from the date of receipt of the loan untilfinal repayment; this field can be used to attributethe debt by loan term: short-term debt, medium-term debt, and long-term debt;

• Grace (months): the number of months betweenthe date of receipt of the loan and the first repay-ment of the principal;

• Calculated interest (on loan receipt date): Forfixed-rate loans, this is the interest rate figureitself; for variable-rate loans, this is equal to thevalue of the variable rate base plus the spreadabove it; and

• Spread above LIBOR (on loan receipt date): Forfixed-rate loans, this is the calculated spread aboveLIBOR (London interbank offered rate).

Aggregate data compiled17

14.112 In addition to calculated aggregated loanand bond figures, and commercial bank balance-sheet data, the FEAD maintains aggregate externaldebt data on nonresidents’ ownership of domesti-cally issued bonds, and on the balance of suppliers’credit received by Israeli importers (and extended byIsraeli exporters), based on an FEAD quarterly sur-vey of companies involved in foreign trade. Thesame system contains figures on external assetsowned by residents, including equities, bonds, loans,deposits, and direct investment (ownership loans).

14.113 Data quality checks are undertaken at theindividual loan level and also by comparing theloan-by-loan data with information on transactions,which are drawn mainly from bank reports, and withthe balance-sheet data of large companies. The data-base covers all public and banking sector loans andover 90 percent of the nonbank private sector loans.

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16Prepared by the Bank of Israel.

17Apart from debt-related data, the same system contains dataon nonresident portfolio investment in Israeli equities and directinvestment of nonresidents in Israel.


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Figure 14.1. Israel: Report Form on Loans Received by Local Residents from Foreign Residents1

1. Loan details

2. Borrower details (local resident)

3. Lender details (foreign resident)

4. Principal payment schedule

7. Details of loan reporter

5. Interest rate details

6. Interest payment schedule

New loan

Sum

1. Regular payments

Comments:

Interest rate type:

Additional payments - write below (comments)

2. Irregular payments

First payment date

* To be filled out if loan form is handled byan Israeli commercial bank.

Sum

No. of payments Frequency(months)

Final payment date

Interest rate (%)

Fixed

Interest payment schedule coincides withprincipal payment schedule.

LIBOR (“interest rate” is spread above LIBOR)Interest freeOther

Borrower identifying number(identity card/corp. reg. no.)

Loan particulars update Early redemption Loan renewal

Lender name

Bank code* Branch code* Loan number (for BOI use)

Name Signature Date Telephone no. Address

Lender type Lender code * Lender country Country code *

Borrower name Economic branch Economic branch code *

Currency Currency Code * Receipt Date

First payment date No. of payments Frequency(months)

1

2

3

4

5

6

Date

Sum Date

Sum Date

Sum Date

Sum

Sum

Date

1

Regular payments (equidistant payment dates)2

Interest sum discounted in advance:3

Irregular payments:Dates

4

1Reporting requirement is that of the local resident—an individual or a corporation—receiving a loan of at least $100,000; with the report to be submittedwithin 15 days of loan receipt.


Output

14.114 From the information held on the database,the Bank of Israel publishes quarterly tables on theexternal debt, in U.S. dollar terms. For the public,nonbank private, and banking sectors, and by sourceof external debt, data are presented on the stock ofoutstanding external debt; the original term to matu-rity; the principal currency composition; and exter-nal debt receipts and principal payments. Alsoprovided is information by sector on net debt—thatis, gross debt liabilities less ownership of foreigndebt liabilities by Israeli residents—and principaland interest repayment schedules.

Mexico

Registration of Private Debt18

14.115 The Mexican system of measuring privatesector external debt has developed over the past twodecades. Beginning with external debt difficulties ofthe early 1980s, the system has evolved as exchangecontrols have been repealed and economic condi-tions have changed. This case study explains thatevolution, and sets out the present situation.

14.116 On August 5, 1982, Mexico declared amoratorium on principal payments on external debt.On September 1, 1982, across-the-board exchangecontrols were instituted and replaced three monthslater by a simple exchange control system, wherebytwo foreign exchange markets would operate simul-taneously: one subject to control and the other not.

Data collection methods in the era of exchange controls

14.117 At the time of the introduction of exchangecontrols in 1982, the Mexican government had noofficial data on the amount of private sector externaldebt outstanding. So there was a need to develop adebt-registration system, whose main purpose was tofacilitate exchange control operations. In the pay-ments moratorium notice of August 5, 1982, andsubsequently in the exchange control decree pub-lished on December 13, 1982, those private enter-prises requesting foreign exchange to service their

debts were required to register their financing withthe Secretaría de Hacienda y Crédito Público (Secre-tariat of Finance and Public Credit—SHCP). A spe-cial unit within the SHCP was set up to startmonitoring private external debt, and this unit cre-ated a Register of Loans Payable in ForeignExchange to Financial Institutions Abroad (the Reg-ister), and introduced a report form called the Con-stancia de Registro (Record of Registration) tocollect the data. This report form needed to be com-pleted for a private enterprise to receive authoriza-tion to obtain foreign exchange from national banks.

14.118 The report form identified the main contrac-tual features of foreign exchange borrowing by pri-vate sector enterprises from foreign financialinstitutions. It covered the type of financing, theexisting loan balance, the method of payment, andthe payment schedule listing each outstanding pay-ment with due date, and principal and interestamounts. When the registration requirement wasintroduced, all the enterprises quickly came forwardto register their external debt because they could nototherwise obtain foreign exchange to service theirdebts.

14.119 In addition to the loans registered in theSHCP, a register of debt to nonbank foreign suppli-ers was created in October 1982 in the Secretariat ofTrade and Industrial Development (SECOFI), withthe same purpose as the register of foreign currencyloans. In other words, the record of registration pro-vided information on debt service to the authorities,and was a requirement for residents if they needed toobtain foreign currency from national banks. Thisregister was closed in January 1983, and the out-standing balances were refinanced by suppliersunder a long-term scheme.

14.120 Also, in 1983, the central bank set up a fundthrough which private sector debtors could repayforeign creditors. This helped to improve the regis-tration of private sector debt. This fund was part ofthe program known as FICORCA (Trusteeship Cov-erage of Exchange Risk), and existed from April toOctober 1983. This program required private sectorenterprises to restructure their foreign debts—forinstance, into maturities of eight years with fouryears’ grace, or six years with three years’ grace. Ifthe enterprise made the payments in local currency,FICORCA would pay principal and interest in for-eign currency to the account of the enterprise, so that

149

18Prepared by the Department of Public Credit, Mexico.


the enterprise could service its restructured debts toforeign banks. A similar program was reintroducedfor a short period in 1987 and 1988 and was knownas the FICORCA Facility Agreement.

14.121 Once private enterprises regained access toexternal financing, in 1984, they were required to reg-ister new debt with the SHCP. Indeed, the authoritiesdecided that, in order to continue to have access toforeign exchange, private enterprises would berequired not only to report new debt at the time of cre-ation, but also to report twice a year on their outstand-ing debt. This continued until 1991. So, twice a yearthe authorities made public announcements to all pri-vate sector enterprises and published in the mostwidely distributed major newspapers in the countrythe registration numbers of loans to report betweenJanuary 1 and March 31 and between July 1 and Sep-tember 30 of each year. Enterprises were required toprovide the authorized documentation for the originalborrowing and the subsequent debt servicing.

14.122 In addition to the loans registered in theSHCP, a register of debt to nonbank suppliers wascreated in SECOFI. Thus, in October 1982, the regis-ter of amounts owed to foreign suppliers was set upwith the same purpose as the register of foreign cur-rency loans. In other words, the record of registrationprovided information on debt service, and permittedthe purchase of foreign currency from national banksby the debtors. This register was closed in January1983, and the outstanding balances were refinancedby suppliers under a long-term scheme.

14.123 Outstanding amounts payable by the Mexi-can banking system, nationalized in September1982, were never subject to registration. The centralbank only required completion of a survey form thatis still used, showing the position of the banks’accounts but not future payments.

Data collection methods following the repeal of exchange controls

14.124 An official Exchange Control Decreerepealed exchange controls on November 10, 1991,since there was no longer any reason to maintain thetwo-tiered foreign exchange market at the controlledand market rates as established. Also, the Register ofForeign Currency Loans Payable Abroad to FinancialInstitutions and the Constancia de Registro were abol-ished. Indeed, since the termination of the exchange

control regime, private enterprises are no longerlegally required to report the status of their externalliabilities to the SHCP. However, the SHCP has foundit necessary to continue to monitor and publish dataon private sector external debt. This required thereestablishment of a means of collecting data thatcovered the main features of borrowing by privatesector enterprises from foreign financial institutions.

14.125 Initially after the repeal of exchange con-trols, data were collected periodically through sur-vey questionnaires sent to the major enterpriseshaving a representative level of indebtedness relativeto total private external debt. With the cooperation ofsome 100 indebted industrial groups, a database wasdesigned for processing the data collected. This wasused to draw up a statistical bulletin on private sectorexternal debt and included a number of statisticaltables that gave a clear picture of the level of exter-nal indebtedness. The level of participation bydebtors was initially excellent.

14.126 However, following another crisis in themid-1990s, it was once again necessary to imple-ment a system whereby private enterprises providedinformation on an ongoing as opposed to periodicbasis. An official request, similar to the publicannouncements mentioned above, was preparedrequiring the private enterprises to report estimatesof principal payments both on recent borrowing andon earlier outstanding amounts. In addition, databegan to be sourced from the Mexican Stock Market(BMV) to complement the private external debt sta-tistics; the BMV releases a quarterly financial reporton borrowing by industrial corporations.

14.127 Most recently, the system has evolved suchthat data on private sector external debt are collectedfrom a number of sources so as to ensure that thedata published are reliable, are collected expedi-tiously, and are informative.

14.128 The principal source of information is nowthe BMV, which collects data quarterly on Mexicancorporate liabilities. The BMV report form includesa breakdown of external debt by type of credit, usingthe following classification system: commercialbanks, bonds, and foreign trade credit. The reportform also provides the name of the creditor, theamount of the financing, currency of issuance, theborrowing date, the maturity date, and the estimatedpayments over the next four years, including the out-

150


standing balances, the repayment schedule for thecoming four years, and a classification by loan type.

14.129 Other external data sources include foreign-owned credit rating agencies, such as Duff andPhelps, Moody’s, and Standard & Poor’s. The publi-cations of these agencies include information ondebt they rate, which SHCP consults. Also, the debtunit frequently checks with the Undersecretariat ofthe SHCP for the information submitted by privateenterprises when they withhold tax payments oninterest payable abroad.

14.130 With this information, the SHCP reviewseach credit and cross-checks the different sources, soas not to duplicate information.

14.131 Enterprises that are not listed on the BMV,have no debt ratings, and file no tax returns arerequested to cooperate by completing a survey ques-tionnaire, providing information to the SHCP on allthe characteristics of their liabilities, updating theinformation on balances on a quarterly frequency.

14.132 All the information collected is maintainedin a database, which is carefully checked to ensurethat the debt of enterprises is not entered more thanonce, so as to avoid duplicate reports. From this data-base, a number of outputs can be generated, includ-ing the level of indebtedness and debt classificationby enterprise, creditor, currency, and maturity.

Verification of figures

14.133 When exchange controls were establishedand after having registered the debt of most indus-trial groups, reports were produced from the data-base classifying the debt by creditor and with thedetails of each financing. This information wascross-checked with data from the major foreigncreditor banks through their representative offices inMexico. The overall balances by creditor bank wereverified with the unit that received the report formfrom the creditor bank. This type of verification isnot undertaken today, since it is mandatory for credi-tor banks to report to the central bank under the rulesauthorizing them to grant loans to Mexico. Thereport now covers both public sector and private sec-tor external debt. Efforts are currently being made tohave the form include information not only on thebalances outstanding as traditionally reported, butalso on the payment schedule for the outstanding

debt, by quarter for the first year and annually for thefollowing three years.19

Dissemination

14.134 The statistical data on Mexico’s total externaldebt, including private debt, are published in the sta-tistical tables in Mexico Economic and FinancialStatistics—Data Book, a biannual document publishedby the SHCP and distributed to foreign banks in theSHCP’s quarterly review entitled Estadísticas oportu-nas de finanzas públicas y deuda pública (TimelyPublic Finance and Public Debt Statistics), publishedthrough the Directorate General of Financial Plan-ning. The data also appear in the quarterly presenta-tion on the Internet via the SHCP’s webpage.

14.135 Information on private sector debt is pre-sented for the commercial banks and the nonbankprivate sector, and the sources of finance are pro-vided—commercial banks, and other liabilities forcommercial bank debtors; and capital markets, com-mercial banks, and external trade-related debt fornonbank private sector debtors. An annual amortiza-tion schedule for the nonbank private sector externaldebt for the remaining portion of the current year,and the following three years, is provided.

New Zealand

Experience in Collecting Foreign CurrencyHedging Information20

14.136 In 1998, major users of external debt statis-tics in New Zealand were concerned that by not tak-ing account of hedging activity, New Zealand’spublished external debt statistics were overstatingthe extent of the economy’s exposure to currencymovements. As a consequence, in June 1999, Statis-tics New Zealand (SNZ) first published indicativeinformation about the hedging of New Zealand’sexternal debt denominated in foreign currency—forMarch 31, 1998 and 1999—alongside, and as a sup-

151

19While the compilation of these creditor bank data is the exclu-sive responsibility of the central bank, the obligation to report tothe authorities and the public on the performance of external pri-vate debt is the responsibility of the Finance Secretariat. Also, theFinance Secretariat is responsible for establishing the guidelinesfor authorization of the operations of foreign financial institutionsin Mexico, and, in conjunction with the central bank, it verifies theactivity of foreign banks.

20Prepared by Statistics New Zealand.


plement to, New Zealand’s Overseas Debt sta-tistics.21 These supplementary data—disaggregatedby currency and into two institutional sectors—provided estimates of the extent of hedging of NewZealand’s foreign currency external debt usingfinancial derivatives contracts and natural hedges.The data also provided estimates of unhedged exter-nal debt. In addition, net market value estimates ofthe financial derivatives contracts were published,also with a sectoral breakdown. SNZ has continuedto publish supplementary hedging information annu-ally. This case study sets out the experience of SNZin setting up and operating the survey in its earlyyears, and the lessons learned.

14.137 In the presentation of external debt statistics,foreign-currency-denominated external debt is con-verted into New Zealand dollars at the exchange rateprevailing at the survey date (March 31). Given thismethodology, and with external debt denominated inforeign currencies accounting for about half of NewZealand’s gross external debt at the time, the depreci-ation of the New Zealand dollar between March 31,1997 and 1998 was estimated to have accounted for38 percent of the increase in the value of NewZealand’s external debt between those two dates.Anticipating significant user interest when the March1998 external debt statistics data were published, theSNZ gave prominence to this estimate and to thecompilation methodology used. Nevertheless, somemajor users of the statistics questioned their rele-vance, believing that the total external debt statisticsoverstated the true external exposure of the economy,because a significant portion of the debt was proba-bly hedged against exchange rate movements.

The project

14.138 With the collection and publication of statis-tics on New Zealand’s net asset and liability posi-tions in financial derivatives not due until 2001, in1998 the SNZ felt an immediate need for hedginginformation that would place the published externaldebt statistics into a risk-management context. Con-sequently, the SNZ undertook a project to collectdata on:

• The extent of the foreign currency hedging of NewZealand’s overseas debt; and

• Estimates of the net market value of the financialderivatives contracts.

14.139 Data were to be collected from those resi-dent enterprises that accounted for approximately 80percent of external debt denominated in foreign cur-rencies. In view of the limited coverage of the hedg-ing supplement, the results were intended to beindicative estimates.

14.140 The project began in October 1998, with theintention of collecting retrospective data as at March31, 1998, by December 31, 1998. Thereafter, a deci-sion would be made about whether to proceed with afurther collection of data as at March 31, 1999. Itwas expected that the need for the hedging supple-ment would cease once the project to implementBPM5 in full was completed, in 2001.

14.141 The project was undertaken by the staff ofthe Balance of Payments Division (BOP staff) ofthe SNZ. An essential feature of the early stages ofthe project was the close consultation betweenthe BOP staff and Reserve Bank of New Zealand(RBNZ) staff, and, separately, a private sector bankwith which the BOP staff had had previous dis-cussions on the impact of financial derivatives onbalance of payments statistics. The RBNZ offeredadvice and consultation on several occasions duringthe course of the project. The private sector bankoffered advice from the perspectives of a user of thepublished statistics, and the perspective of being amarket participant and data supplier. The coopera-tion and advice received from both these organiza-tions was invaluable to the success of the project.

14.142 Initial development work within SNZincluded determining an initial set of data require-ments and identifying the enterprises to be surveyedfrom the population of the Total Overseas Debtsurvey. In the event, 20 enterprises (plus the officialsector) were selected, of which all except onereported the data for the 1998 survey. While one fur-ther enterprise was unable to supply data for the1999 and 2000 surveys, nevertheless the effectivesample of the hedging supplement encompassed 75to 81 percent of total foreign-currency-denominatedexternal debt in the 1998, 1999, and 2000 surveys.While these enterprises were at first expected to bemostly banks, in fact nine of the enterprises selected

152

21“Overseas debt” is the term used for the SNZ survey that col-lects data on New Zealand’s external debt, and the published sta-tistics. The survey measures New Zealand’s total overseas debt asat March 31 each year, and collects data from both private andgovernment sector organizations.


were nonbank corporates. For the purposes of thesurvey, a two-sector classification was used: banks,and the “corporate and official” sector.

Consultations

14.143 The initial set of data requirements was dis-cussed with the private sector bank, and separatelywith the RBNZ. This first round of consultationsidentified:• The need for a short-term/long-term split based on

original maturity, since some respondents wereexpected to find the reporting of hedges for short-term instruments too difficult due to daily refi-nancing (“rollover”) and pricing;

• The need to split the data request into “hedging byfinancial derivatives contract” and “natural hedge”;

• The need to ask respondents to report their hedg-ing with both residents and nonresidents; by ask-ing respondents to report all their positions, thelikelihood of double counting would be reduced.

14.144 Following the amendments to the drafthedging supplement questionnaire, a second roundof consultation was undertaken—an essential aspectof the project. This consultation comprised per-sonal visits by BOP staff to ten of the enterprisesselected to be surveyed, involved a discussion of theobjectives of the questionnaire and its reportingrequirements, and allowed BOP staff to hear theviews of the respondents. Those respondents not vis-ited personally were contacted by telephone, and acopy of the draft questionnaire sent for comment; innearly all these cases feedback on the questionnairewas received. SNZ staff encountered a high level ofcooperation among virtually all of the respondentsvisited or contacted, certainly once the objectives ofthe hedging supplement were explained.

14.145 A clear message arising from the consulta-tions, which were reviewed with the RBNZ, was theneed to customize the questionnaire, both in terms ofthe sector of the respondent and each individualrespondent within each sector. For the nonbank cor-porates, it was decided to differentiate the “naturalhedge” question into “hedging by balance sheetassets,” and “hedging by other means—for example,expected foreign exchange receipts from exports.”This made the scope of the inquiry clearer to respon-dents and enhanced the usefulness of the results forrisk analysis purposes by separating hedges that takethe form of balance-sheet assets from those that do

not. The process for the collection of retrospectivedata for March 31, 1998 was too far advanced forthis distinction to be included in that survey, but itwas incorporated into the 1999 survey.

14.146 Other features of particular interest emerg-ing from the second round of consultations were asfollows:• Whatever the term of the underlying liability,

associated derivatives contracts are often of ashorter term and rolled over (or renegotiated)through the life of the underlying liability. Theeffect is that at each rollover, the issuer will bookto their accounts profits and losses made on theirderivatives contracts. Because the survey is asnapshot of the market value of contracts in placeas at March 31, the market-value results take noaccount of profits or losses recorded from the ear-lier succession of contracts.

• Banks in general, and some of the nonbanks withcomplex financial operations, found it difficult toextract the required market-value information.Given that frequent rollovers of debt, and the pool-ing of assets and liabilities for risk-managementpurposes characterized banks’ operations, directmatching of an overseas liability to a particularhedge was often not possible, and alternative waysof providing information were established on acase-by-case basis. Therefore, the market-valueresults for banks were regarded as indicative esti-mates only. Generally, the market-value estimatesfor the less complex nonbanks were regarded as ofbetter quality, since these were typically enter-prises with a small number of external foreign cur-rency liabilities matched to specific financialderivatives contracts.

• Distinguishing the residence of counterparties tothe derivatives contracts was a problem for somerespondents. Those nonbank corporates who dealtdirectly with nonresident counterparties were eas-ily able to do this; other nonbank corporates whodealt with resident intermediaries indicated thattheir usual practice was to deal with a residentbank. Banks indicated that their practice was toengage with nonresident counterparties.

Hedging supplement questionnaire

14.147 Incorporating the lessons of the consulta-tions, the data requirements were set out in twoquestionnaire types: one type structured for banks,the other for nonbank corporates (Figure 14.2). In

153


154

Fig

ure.

14.2

.N

ew Z

eala

nd:F

ore

ign

Cur

renc

y L

iabi

litie

s—Q

uest

ionn

aire

s fo

r B

anks

an

d N

onb

ank

Co

rpo

rate

Ent

itie

s

Que

stio

nnai

re fo

r B

anks

TA

BL

E 1

Hed

ging

of L

ong

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m F

ore

ign

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renc

y L

iabi

litie

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Con

trac

tual

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rsea

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bilit

ies

Perc

enta

ge o

f the

se c

ontr

actu

al o

vers

eas

liabi

litie

s as

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Cur

renc

y(2)

ofou

tsta

ndin

g as

at

31 M

arch

200

0H

edge

d by

:__

____

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____

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____

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____

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____

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ntra

ctua

l ove

rsea

s lia

bilit

ies

reco

rd a

mou

nts

in fo

reig

n cu

rren

cy (m

illion

)fin

anci

al d

eriv

ativ

es c

ontr

acts

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nce

shee

t as

sets

Not

Hed

ged

12

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AU

D

JPY

CH

F

DEM (1) T

hese

with

ori

gina

l con

trac

tual

mat

urity

of 1

yea

r or

mor

e.(2

) The

follo

win

g cu

rren

cies

are

list

ed h

ere

as a

n ex

ampl

e on

ly.C

olum

ns 1

–4—

see

“Not

es t

o Ta

bles

”

Any

co

mm

ents

reg

ardi

ng in

form

atio

n yo

u ga

ve in

thi

s ta

ble:


155

Que

stio

nnai

re fo

r B

anks

TA

BL

E 2

Hed

ging

of S

hort

-Ter

m F

ore

ign

Cur

renc

y L

iabi

litie

s(1)

Con

trac

tual

ove

rsea

s lia

bilit

ies

Tota

l NZ

dol

lar

orig

inal

valu

e ou

tsta

ndin

g as

at

31 M

arch

200

0Pe

rcen

tage

of t

hese

con

trac

tual

ove

rsea

s lia

bilit

ies

as:

of o

blig

atio

n on

con

trac

tual

__

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____

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____

____

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Cur

renc

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of c

ontr

actu

al

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rd a

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nts

inH

edge

d by

:ov

erse

aslia

bilit

ies

at 3

1 M

arch

200

0__

____

____

____

____

____

____

____

____

____

____

____

___

over

seas

liab

ilitie

sfo

reig

n cu

rren

cy (m

illion

)fin

anci

al d

eriv

ativ

es c

ontr

acts

bala

nce

shee

t as

sets

Not

Hed

ged

$NZ

(m)

12

3a3b

3c4

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AU

D

JPY

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F

DEM (1) T

hese

with

ori

gina

l con

trac

tual

mat

urity

of l

ess

than

1 y

ear.

(2) T

he fo

llow

ing

curr

enci

es a

re li

sted

her

e as

an

exam

ple

only.

Col

umns

1–

4—se

e “N

otes

to

Tabl

es”

Any

co

mm

ents

reg

ardi

ng in

form

atio

n yo

u ga

ve in

thi

s ta

ble:

TH

AN

KYO

UFO

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TIM

E.


156

Fig

ure

14.2

(co

ntin

ued)

Que

stio

nnai

re fo

r C

orp

ora

tes

TA

BL

E 3

Hed

ging

of L

ong

-Ter

m F

ore

ign

Cur

renc

y L

iabi

litie

s(1)

Con

trac

tual

Mar

ket

valu

e of

the

der

ivat

ive

cont

ract

s th

at h

edge

ove

rsea

s

over

seas

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sPe

rcen

tage

of t

hese

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trac

tual

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rsea

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as:

liabi

litie

s as

at

31 M

arch

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ith a

____

____

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outs

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atur

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ty__

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ardi

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atio

n yo

u ga

ve in

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stio

nnai

re fo

r C

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E 4

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ore

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renc

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trac

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158

Fig

ure

14.2

(co

nclu

ded)

GU

IDE

TO

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Gen

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efer

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ties

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ish,

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rovi

de a

ll da

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er in

one

tab

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ase

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te:T

hese

are

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plifi

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xam

ples

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gui

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mpl

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Tabl

e lin

e 1

US

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ovem

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1999

—T

he N

Z c

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ny e

nter

s in

to c

ontr

actu

al li

abili

ty o

f $U

S500

mill

ion

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onre

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nder

s (c

olum

n 1

& 2

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t th

e sa

me

time,

the

NZ

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row

er e

nter

s 10

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f U.S

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ings

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act

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ion

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r $U

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rate

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$U

S0.6

9.A

t 31

Mar

ch 2

000—

the

exch

ange

rat

e is

1$N

Z =

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e m

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t va

lue

of t

he d

eriv

ativ

e co

ntra

ct o

n $U

S500

mill

ion

is $

NZ

909

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ion,

and

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ecor

ded

in a

net

ass

ets

posi

tion

aspo

sitiv

e $N

Z18

4 m

illio

n (c

olum

n 4C

;909

–725

=18

4).

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mpl

e 2

Tabl

e lin

e 2

AU

DN

ovem

ber

1999

—T

he N

Z c

ompa

ny e

nter

s in

to c

ontr

actu

al li

abili

ty o

f $A

U10

0 m

illio

n to

non

-res

iden

t le

nder

s (c

olum

n 1

& 2

).A

t th

e sa

me

time,

the

NZ

bor

row

er e

nter

s 85

% o

f AU

bor

row

ings

in a

sw

ap c

ontr

act

with

a n

onre

side

nt c

ount

erpa

rty

whe

reby

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NZ

bor

row

er r

ecei

ves

$NZ

106

mill

ion

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chan

ge fo

r $A

U85

mill

ion

at e

xcha

nge

rate

1$N

Z =

$A

U0.

80

At

31 M

arch

200

0—th

e ex

chan

ge r

ate

is 1

$NZ

= $

AU

0.83

,the

mar

ket

valu

e of

the

der

ivat

ive

cont

ract

on

$AU

85 m

illio

n is

$N

Z10

2 m

illio

n,an

d is

rec

orde

d in

a n

et li

abili

ty p

ositi

onas

neg

ativ

e $N

Z4

mill

ion

(col

umn

4D;8

5 –

106

= –

4).

Exa

mpl

e 3

Tabl

e lin

e 3

DE

MD

EM li

abili

ties

com

plet

ely

mat

ched

to,

e.g.

,exp

ecte

d ex

port

rec

eipt

s.

Exa

mpl

e 4

Tabl

e lin

e 4

JPY

Shor

t-te

rm t

rade

cre

dits

and

JPY

not

cov

ered

at

all.

Exa

mpl

e 5

Tabl

e lin

e 5

CH

FC

HF

liabi

litie

s m

atch

ed t

o fo

reig

n-cu

rren

cy-d

enom

inat

ed a

sset

s re

cord

ed o

n th

e ba

lanc

e sh

eet—

e.g.

,for

eign

cur

renc

y ba

nk d

epos

its,e

xpor

t bi

lls a

nd fo

reig

n tr

ade

debt

ors,

inve

stm

ents

in o

vers

eas

subs

idia

ries

.H

edgi

ng o

f Fo

reig

n C

urre

ncy

Lia

bilit

ies

Con

trac

tual

Mar

ket

valu

e of

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ivat

ive

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ract

s th

at h

edge

ove

rsea

s

over

seas

liab

ilitie

sPe

rcen

tage

of t

hese

con

trac

tual

ove

rsea

s lia

bilit

ies

as:

liabi

litie

s as

at

31 M

arch

200

0 w

ith a

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

___

outs

tand

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atur

ally

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nt c

ount

er-p

arty

non-

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dent

cou

nter

-par

ty__

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

___

Cur

renc

y(2)

at 3

1 M

arch

200

0H

edge

d by

:H

edge

d by

finan

cial

fin

anci

alfin

anci

al

finan

cial

__

____

____

____

____

____

of c

ontr

actu

alre

cord

am

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addition, within each questionnaire type, the basicform was customized into several versions to meetthe needs of various respondents. Typically, the cus-tomized form of the questionnaire was determinedduring the consultation meeting with a respondent,redrafted by BOP staff, and sent back to the respon-dent for confirmation and then completion. Addi-tionally, a set of definitions of terms used and aguide to the questionnaire with worked exampleswere supplied to each respondent.

14.148 Each of the two questionnaire types had twoparts; the first part requested foreign currency exter-nal debt data and established the extent and type ofhedging; the second part requested market-valueinformation. Separate tables requested data on along-term and short-term attribution (original matu-rity basis).

14.149 In the section on the extent and type ofhedging, respondents are asked to report:• The currency of their original contractual overseas

liabilities as at the survey date, March 31;• The foreign currency amounts of their contractual

overseas liabilities as at the survey date, March 31(this figure was to be the same as reported in theoverseas debt survey); and

• The percentage of these overseas liabilities that atthe survey date were:– hedged, using financial derivatives;– hedged naturally against balance sheet assets;– hedged naturally against other receipts (non-

bank corporates only); or– not hedged.

14.150 In the market-value section of the question-naire, respondents were asked to report the marketvalue of derivatives contracts that hedge overseasliabilities as at the survey date. Net asset and net lia-bility positions were asked for separately, and byresident and nonresident counterparties.

Implementation

14.151 After the first survey, it was decided that theresults were of sufficient quality and significance towarrant continuation of the project. So, data werecollected as at March 31, 1999, and the 1998 and1999 results were published as supplementary infor-mation alongside the 1999 Overseas Debt statistics.In line with expectations at the start of the project,the supplementary hedging information was pub-

lished with a status of “indicative estimates” (asopposed to “official statistics”), because of the lim-ited coverage of the survey and the indicative natureof the net market-value financial derivatives datafrom the banks and certain nonbanks. Nonetheless,users reacted favorably to the release of these data,and there was an increase in confidence in the qual-ity of the Overseas Debt statistics.

14.152 Therefore, the hedging supplement wasrepeated in 2000, with the sample of respondententerprises updated using more recent informationavailable from the Total Overseas Debt and AnnualCapital Account surveys.

Lessons learned

14.153 Responsiveness to the needs of users of pub-lished statistics and of respondents is important. Thehedging supplement project arose from user con-cerns, while the responsiveness to the circumstancesof respondents contributed to the usefulness of thepublished results. For instance, customizing thequestionnaire according to sector and within sectorsensured better-quality data than would have beenachieved with one standard questionnaire, and dis-cussing alternatives with respondents when theywere unable to supply the market-value financialderivatives data as originally requested allowed theBOP staff to produce estimates that might not other-wise have been possible.

14.154 Consultation was essential. There were sev-eral aspects to this:• Consultation with respondents was essential. Per-

sonal visits were of greatest value because theyallowed a two-way exchange of information;increased respondent understanding of, and sup-port for, the survey objectives; and enabled BOPstaff to learn more about market practice, resultingin a better questionnaire, better-quality data, and agreater understanding of the data supplied.

• Bringing together respondents (those people whoactually complete the questionnaire) and users ofthe published statistics from the same organizationwas very useful; these two groups sometimes hadlittle knowledge of each other’s positions. Bring-ing them together with the BOP staff provided theopportunity for all parties to better appreciate theroles of all the parties involved.

• Pooling of knowledge was key. The consultationand liaison between the SNZ and the private bank,

159


and the statistical office and the central bank, werean essential feature of the project. The privatebank provided the perspectives of a user of the sta-tistical output, a market participant, and a datasupplier; and the central bank offered conceptualand technical advice, and an overall perspective offinancial market operations. In addition, consulta-tion between SNZ and the survey respondentsgave further insight into market operations. Thispooling of information was especially beneficialbecause the measurement of hedging was a newand highly technical subject, and new territory fora national statistical office.

Future of the supplement

14.155 The original intention had been that, pro-vided the results warranted, the hedging supplementwould continue only until 2001, when the project toimplement BPM5 in full would be completed. How-ever, following the positive user response, it wasdecided to continue the supplement, but in a modi-fied form. Net market-value data are to be collectedin the new Quarterly International InvestmentSurvey—a balance of payments form being broughtinto line with BPM5 requirements—which, as origi-nally planned, will cover both hedged and tradingpositions in financial derivatives. The hedgingsupplement will continue to be repeated annually,for data as at March 31, but will collect data only onthe extent of hedging by type, sector, and currency.That is, the function of the hedging supplement willbe to continue to complement the external debtstatistics.

Philippines

System for Monitoring the External Debt of the Private Sector22

14.156 The Philippines extensively taps foreignfunds to help support its large development financ-ing requirements. Cognizant of the need for a sys-tematic approach to managing external borrowings,the government enacted a law on foreign borrow-ings in the mid-1960s that instituted broad policiesand safeguards on foreign borrowings. Subsequentlegislation defined borrowing limits and vested

authority in the central bank to oversee compliancewith the law from a foreign exchange standpoint.

14.157 Administrative mechanisms were estab-lished in the early 1970s to implement the provi-sions of law and rationalize the debt-managementprocess. The monitoring system covers foreignborrowings of both the public and private sectors.The government has always recognized the impor-tant role that the private sector plays in spurringeconomic growth and development, and hence theneed to monitor its foreign borrowing. Withexchange controls then in place, it was not difficultto implement the system and ensure compliancetherewith. The system has evolved over the years toaddress new developments, including the progres-sive dismantling of barriers to capital movements.The 1990s also highlighted the importance of moni-toring private sector borrowings as private sectorenterprises incurred substantial amounts of externaldebt during the period to finance their developmentprojects and other major undertakings, includingthose under build-operate-transfer and similararrangements.

14.158 Management of the country’s external debtinvolves the concerted efforts of various governmentagencies, including the central socioeconomic plan-ning body—a top-level interagency committee andthe Finance Department. The Bangko Sentral ngPilipinas (Bangko Sentral, or the Bank)23 is at theforefront of these activities, having been mandatedto ensure compliance with the provisions of lawregarding foreign exchange concerns. The Bankkeeps track of the debt stock, maintains outstandingliabilities within manageable levels, and ensures thatborrowings are obtained on the best available terms.It currently performs these activities through theMonetary Board (its highest policymaking body)and the International Operations Department24

(which handles the day-to-day activities of debtmanagement).

160

22Prepared by the Bangko Sentral ng Pilipinas.

23The former Central Bank of the Philippines was reorganizedinto the Bangko Sentral ng Pilipinas effective July 3, 1993. As thenew central monetary authority provided for in the PhilippineConstitution, it enjoys fiscal and administrative autonomy.

24Formerly the Management of External Debt Department(MEDD), which was originally organized in 1970 as the ExternalDebt Monitoring Office. MEDD was renamed as InternationalOperations Department in October 1999 with the broadening of itsresponsibilities to include trade and investments.


Debt-management tools

14.159 The Bank presently employs a number ofdebt-management tools that were initiated and fine-tuned during the past three decades. These includeBangko Sentral policy issuances, which outline therules, regulations, guidelines, and procedures forforeign borrowing activities (new issuances arepromptly disseminated to the public and are comple-mented by press releases and structured briefingsessions, as appropriate); and administrative mecha-nisms, including an approval and registrationprocess and a debt-monitoring system, both of whichcover liabilities of all sectors of the economy.

Loan approval and registration

14.160 Approval for a loan proposal is applied forby a private sector borrower and must be granted bythe Bangko Sentral before the covering documentsmay be executed and the funds disbursed. TheBank’s evaluation process involves a thoroughreview of the proposal to determine, among otherthings, consistency of loan purpose with the coun-try’s overall development thrust, benefits expectedfrom the project, reasonableness of financial termsand conditions, and the loan’s impact on the coun-try’s total debt-service burden vis-à-vis the econ-omy’s capacity to meet maturing obligations.

14.161 In order to ensure compliance with the termsand conditions of the Bangko Sentral’s approval, theprivate sector is required to register foreign loansfollowing receipt of borrowed funds. The borroweris required to submit a copy of the signed loan docu-ments as well as proofs of disbursement and utiliza-tion of loan proceeds. After documents are found tobe satisfactory, a Bangko Sentral Registration Docu-ment (BSRD) is issued that authorizes the borrowerto buy foreign exchange from local banks for debtservicing on scheduled due dates. However, pur-chases of foreign exchange from banks to cover anypayments not consistent with the loan termsreflected in the BSRD require prior Bangko Sentralapproval.

14.162 Prior to the 1990s, and consistent with exist-ing controls on foreign exchange inflows and out-flows, all foreign borrowing proposals had to beapproved and registered by the old central bank. Eachpurchase of foreign exchange from the banking sys-tem for debt servicing was likewise subject to priorcentral bank approval. But with the liberalization of

foreign exchange rules starting in the early 1990s,regulations were modified such that private sectorborrowers25 were, in general, given the option not toundergo the approval and registration processes, pro-vided they did not purchase foreign exchange fordebt servicing from the banking system.26 Thisapproach is consistent with the freedom residentsnow have in the use of their foreign exchangereceipts that were previously subject to the manda-tory surrender requirement.

14.163 Nonetheless, despite the relaxation of for-eign exchange regulations, most borrowers (particu-larly those with substantial funding requirements)choose to obtain approval from the Bangko Sentralfor their foreign borrowings to ensure access tobanking system resources, whenever necessary, tomeet maturing debt payments. A large number ofinternational creditors also require Philippine enter-prises to have their borrowings approved by and reg-istered with the Bangko Sentral to preclude anypossible difficulty in servicing the account.

Monitoring system for external debt

14.164 The current (September 2000) external-debt-monitoring system covers all external obliga-tions under any maturity category (short-, medium-,and long-term) in any form (loans, advances,deposits, bonds, etc.) owed by the different sectorsof the economy (the monetary authority, central gov-ernment, bank and nonbank enterprises, both state-and privately owned) to all types of creditors (multi-lateral and bilateral sources, foreign banks and non-bank financial institutions, foreign suppliers andbuyers, bondholders/noteholders, and others).

14.165 The system, which relies on reports fromvarious sources, processes and stores information ina central database, and generates reports using pro-grams developed by the Bangko Sentral. Bankstransmit data electronically while others submithard-copy reports. Steps are being undertaken for a

161

25There was no change in policy on public sector borrowingsbecause the policy emanates from provisions of the PhilippineConstitution and other legislation.

26Exceptions to this rule are borrowings that would involve orresult in any liability, whether real or contingent, on the part of apublic sector enterprise or a local bank to a nonresident (for exam-ple, arising from guarantees), which continue to be covered by theapproval and registration process.


gradual shift to electronic reporting, at least for themajor nonbank entities.

Reporting system

14.166 Report forms are designed considering thetype of data required (data collected are used bothfor regulatory as well as statistical purposes) and thesource of information. There are four major datasources that report to the Bangko Sentral on a regu-lar basis.• Borrowers: Borrowers (bank and nonbank) are

important data sources because they have first-hand knowledge of transactions in, and balancesof, their foreign loans. Familiarity with the report-ing system, which was instituted during the eraof exchange controls, facilitates compliance byborrowers because the required internal systemsand procedures have long been established. Withthe liberalization of foreign exchange rules, theBangko Sentral has become more aggressive inpropagating information on, and compliance with,its reporting requirements. It takes a proactiveapproach in this regard by directly communicatingwith borrowers (particularly new ones with sub-stantial funding requirements); providing adviceon the Bank’s reporting requirements; explainingthe need for, and uses of, data requested; andexerting moral suasion to obtain the borrower’scooperation. Even with the more relaxed regula-tory environment, the Bangko Sentral continues towield substantial influence and enjoys high credi-bility in the country, allowing it to successfullysolicit the cooperation of data providers.

• Major foreign creditors: Creditors’ reports allowvalidation of data provided by the borrowers ontheir stock (and flows in some instances) of exter-nal debt, and also supplement data obtained fromother sources.

• Local banks (including branches/subsidiaries offoreign banks operating in the Philippines): Bankreports provide data on individual cross-bordertransactions involving purchases and sales offoreign exchange that are external-debt-related,particularly those that no longer require priorapproval and/or registration. Monetary penaltiesand other sanctions help ensure compliance withreporting requirements.

• Major institutional investors in the country (suchas nonbank financial institutions): In order to pro-duce a more accurate measure of external debt,information on investments by these institutions inPhilippine debt instruments floated offshore is

used to adjust the external debt stock since thesetransactions are between residents.

14.167 In general, data are required in absolutevalues in original currencies, although the U.S. dol-lar equivalent is required for bank reports to facili-tate comparison and cross-checking with data thatare submitted in aggregate pesos and U.S. dollarequivalent to other Bangko Sentral departments/units.

14.168 Reported data on private sector accounts arestrictly confidential to the Bangko Sentral; thus, fig-ures are released only in aggregates. Disclosure ofdata on individual accounts or transactions requiresclearance at the highest level (the Monetary Board),and the concerned party’s consent to the release ofdata or waiver of right to confidentiality is normallysought.

The external debt database

14.169 The external debt database was designed toallow monitoring of information on individual for-eign loan accounts through the entire loan cyclefrom approval through disbursement, registration,and repayment.

14.170 A master record for each account is createdand updated for any changes in basic loan informa-tion during the life of the loan. Details of eachaccount maintained in the database include the con-tracting parties (debtor, creditor, and guarantor/s)and credit terms (maturity, repayment terms, interestrate, and commitment fee).

14.171 Loan transactions (drawings, principal, andinterest payments) are entered into the system afterreports received have been verified for consistencyand accuracy. These transaction data are reflected inthe reports on external debt and on the balance ofpayments.

14.172 Data are maintained in original currenciesbut can be easily converted into U.S. dollars or othercurrencies. The system makes use of severallibraries—foreign exchange rates of major curren-cies, country, and institution libraries (debtor, credi-tor, and guarantor).

Output reports

14.173 The system can produce consolidated ordetailed reports such as basic loan information and

162


transactions; different profiles of debt stock (such asby maturity—original or remaining basis, bor-rower’s sector, currency, and creditor’s country,based either on residency or head office/citizenship);transaction summaries and projected debt-serviceburden. An example of a debt table generated fromthe system is shown in Table 14.7. The database

structure allows generation of summaries of any dataelement—for example, outstanding balances, loandisbursements, and principal payments.

Review of debt statistics

14.174 Statistics on the debt stock produced fromthe system are compared with those contained in

163

Table 14.7. Total Philippine External Debt1

(Millions of U.S. dollars, end-period)

March June1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2000

By borrower 29,955 31,392 32,089 35,535 38,723 39,367 41,875 45,433 47,817 52,210 52,415 52,164 _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______Public sector 24,458 25,552 25,666 29,718 30,883 30,116 27,385 26,958 30,310 34,800 35,441 34,932 _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______

Banks 6,202 5,937 3,261 2,777 3,163 3,452 3,252 4,686 5,805 5,746 5,602 5,654 Nonbanks 18,256 19,614 22,406 26,941 27,721 26,664 24,132 22,271 24,506 29,054 29,839 29,278

Private sector2 5,497 5,840 6,423 5,817 7,839 9,251 14,490 18,475 17,507 17,410 16,973 17,232 _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______Banks 1,711 1,802 1,448 521 980 2,000 5,379 5,978 5,410 4,159 3,897 3,680

Branches of foreign banks 996 1,055 603 422 376 259 348 609 494 423 383 394 Domestic banks 715 747 845 99 604 1,741 5,031 5,369 4,916 3,735 3,514 3,286

Nonbanks 3,786 4,038 4,975 5,296 6,859 7,251 9,112 12,497 12,096 13,251 13,076 13,552

By maturity 29,955 31,392 32,089 35,535 38,723 39,367 41,875 45,433 47,817 52,210 52,415 52,164 _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______Short-term 4,376 4,827 5,256 5,035 5,197 5,279 7,207 8,439 7,185 5,745 6,009 5,932 Medium- and long-term 25,579 26,565 26,833 30,500 33,526 34,088 34,668 36,994 40,632 46,465 46,406 46,232

By creditor type 29,955 31,392 32,089 35,535 38,723 39,367 41,875 45,433 47,817 52,210 52,415 52,164 _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______Multilateral 7,411 7,935 8,323 9,202 9,859 9,617 8,634 8,638 10,058 10,245 9,934 9,864 Bilateral 8,547 9,572 11,328 13,369 15,033 14,393 13,439 13,307 14,926 16,429 16,116 15,983 Banks and other financial

institutions 10,815 10,227 5,692 5,177 5,530 6,345 8,373 10,176 9,672 10,340 10,206 10,284 Bondholders/noteholders 865 851 3,754 4,567 4,727 6,206 8,725 10,633 11,209 12,951 13,865 13,396 Suppliers/exporters 2,312 2,802 2,963 3,213 3,549 2,587 2,588 2,359 1,562 1,690 1,697 1,882 Others 5 5 29 7 25 219 116 320 390 555 598 755

By country 29,955 31,392 32,089 35,535 38,723 39,367 41,875 45,433 47,817 52,210 52,415 52,164 _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______Japan 8,627 9,546 9,210 11,112 12,682 12,169 11,109 10,293 11,887 14,205 14,184 14,031 United States 5,808 5,552 7,156 7,064 3,812 3,771 4,190 4,569 4,566 5,314 4,704 4,993 United Kingdom 1,141 1,108 641 1,297 363 611 511 445 399 438 537 481 France 1,447 1,085 850 725 712 961 1,579 1,899 1,743 1,621 1,433 1,287 Germany 620 693 700 742 885 967 1,298 1,635 2,122 2,435 2,620 3,109 Others 4,036 4,622 1,455 826 5,682 5,065 5,829 7,321 5,832 5,001 5,138 5,003 Multilateral agencies 7,411 7,935 8,323 9,202 9,859 9,617 8,634 8,638 10,058 10,245 9,934 9,864 Bondholders/noteholders 865 851 3,754 4,567 4,727 6,206 8,725 10,633 11,209 12,951 13,865 13,396

By currency 29,955 31,392 32,089 35,535 38,723 39,367 41,875 45,433 47,817 52,210 52,415 52,164 _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______U.S. dollar 13,016 12,931 13,471 14,247 14,953 16,573 21,660 25,946 25,600 27,381 28,206 28,069 Multicurrency loans 5,888 6,164 6,264 6,931 7,529 7,543 6,718 5,965 6,333 5,939 5,647 5,547 Japanese yen 7,193 8,273 8,530 10,605 12,263 11,635 10,600 10,260 11,878 14,480 14,392 14,340 Special drawing rights 1,258 1,554 1,683 1,910 1,824 1,576 1,192 1,680 2,425 2,700 2,654 2,644 Others 2,600 2,470 2,141 1,843 2,154 2,039 1,706 1,582 1,581 1,710 1,515 1,563

1Covers BSP approved/registered debt owed to nonresidents, with classification by borrower based on primary obligor per covering loan/rescheduling agreement/document.2Excludes the following monitored private sector accounts:

March June1994 1995 1996 1997 1998 1999 2000 2000

(1) Intercompany accounts (gross “Due to head office/branches”) of Philippine branches of foreign banks 519 861 2,694 3,074 3,060 2,906 2,473 2,369

(2) Private sector loans without BSP approval/registration 100 455 562 925 1,404 1,331 1,337 1,316 (3) Private sector obligations under capital lease agreements 396 1,296 1,228 1,597 1,586 1,574


other publications such as the BIS’s QuarterlyReview, as well as the World Bank’s Global Devel-opment Finance.

Prospects

14.175 The country’s external-debt-monitoring sys-tem remains robust, enabling the Bangko Sentral tomeet vital data user requirements. However, potentialreporting gaps could emerge in the liberalized for-eign exchange regulatory environment. Thus, the sys-tem is continuously reviewed and refined, andadditional possible sources of information and mech-anisms for data capture are being explored. Theobjective is to further strengthen the Bangko Sen-tral’s capability to produce comprehensive, reliable,and timely debt statistics necessary for the exercise ofits regulatory mandate, for policy formulation, andfor meeting the requirements of other data users.

Turkey

Measurement of Short-Term External Debt27

14.176 In Turkey, external debt statistics are com-piled in two different institutions: the Undersecre-tariat of Treasury, and the Central Bank (CBRT).The treasury is responsible for medium- and long-term debt, which mainly consists of project and pro-gram finance, international money markets credits,bond securities, as well as other private sector cred-its, whereas the CBRT is responsible for short-termdebt, including that of the central bank, banks, aswell as other nonbank private and public institutions(other sectors). The CBRT disseminates monthlydata on short-term debt, identifying short-term debtof the central bank, banks, and other sectors; tradecredit is separately identified for the other sectors.

Legal framework

14.177 Turkish legislation currently in force allowsresidents to borrow freely abroad. Banks can act asintermediaries to such credits by guaranteeing or notguaranteeing them. For short-term foreign borrow-ings, banks are responsible for reporting to the cen-tral bank on a credit information form the details oftheir own activity, and for collecting and reportingthe details of the transactions of their clients.

Definition of institutional sectors

14.178 The institutional sector classification usedby the CBRT in compiling short-term external debtdata is consistent with BPM5.

Coverage

14.179 The short-term external debt of the centralbank consists of (1) foreign currency depositaccounts, (2) overdrafts, and (3) nonguaranteed tradearrears (NGTAs). The foreign currency accountscorrespond to approximately 99 percent of the entireCBRT short-term external debt stock as of the end of1999. These accounts are opened by Turkish citi-zens, over 18 years of age, who have residence orworking permits abroad, and possess valid Turkishpassports. Individuals in public agencies authorizedto work abroad for a long term, and those employedat the representative offices and bureaus abroad ofpublic and private sector organizations are also enti-tled to open such accounts.

14.180 The short-term borrowing of the banksincludes (1) foreign exchange credits obtainedabroad; (2) foreign exchange deposit accounts ofnonresidents; and (3) foreign exchange depositaccounts of nonresident banks.

14.181 The short-term debt of private and publicnonbank entities (other sectors) is divided betweentrade credits and other credits. Trade credit includesimport-related short-term debt, and prefinancing ofexports. It accounted for approximately 80 percentof the other sector’s short-term external debt at end-1999. Import-related debt, which has the largestshare, consists of acceptance credits; letters ofcredit (reflecting import payments to be made,rather than actual liabilities themselves); anddeferred payments for imports—essentially suppli-ers’ credit. Other credits include foreign exchangecredits extended by nonresident banks or corpora-tions abroad.

Methods of data collection

14.182 Balance of payments data are compiled bythe CBRT within the framework of the concepts andrecording principles of BPM5. The data for short-term external debt mainly rely on banks’ foreignexchange records. An exception is data on short-term debt arising from imports, which are derivedfrom the import figures of the State Institute of Sta-

164

27Prepared by the Central Bank of Turkey.


tistics (SIS) for the creation of the debt, and an esti-mation method for repayments.

14.183 The bank reporting system provides data onshort-term foreign exchange credits obtained fromnonresidents by banks and other sectors, as well asforeign exchange accounts opened with domesticbanks by nonresidents and nonresident banks. Also,banks report trade financing credits in the form ofacceptances and prefinancing credits for exports.

14.184 For data on credit arising from deferred pay-ments for imports, in 1997 the central bank beganusing data from the SIS for the extension of credit,and data from banking records for the repayment ofthis credit, with the change in the stock of debt esti-mated as the difference between the two. Thismethod of measuring short-term debt gave rise tosharp annual increases in the estimated stock oftrade credit, which became especially noticeable in1999, when a sharp increase occurred despite a sig-nificant decline in imports. From a survey of banks,it was discovered that these kinds of transactionshave short maturity. Also, it was discovered that thedata from the banks did not accurately capture allrepayments, and so the stock of trade credits wasoverestimated. Consequently, the central bank devel-oped a new methodology for measuring repayments,on the assumption that this form of trade credit isessentially repaid within a three-month period. Datawere revised for the period 1996–99. The conse-quence was a significant downward revision to thestock of short-term external debt.

14.185 Data on short-term loans are provided bythe banks on a transaction basis when they arereceived by the banks and the maturity exceeds 180days, and, without a maturity exemption, receivedby other sectors for which the domestic banks act asintermediaries or as guarantors. The details reportedinclude the creditor, the country from which thecredit is received, the borrowing sector (public/private), the repayment schedule, the date of agree-ment, the date of last payment, the interest rate, theamount of the loan, and the currency. The outstand-ing value of these short-term loans is computed byaccumulating the monthly flow data in U.S. dollarequivalent by applying cross-rates prevailing on thedate of the transaction, and adding these cumulatedtransactions to the previous month’s end-of-periodstock data, valued at exchange rates at the end of themonth.

Uganda

Data Requirements for the HIPC Initiative28

14.186 In 1998, Uganda became the first country toreceive relief under the IMF’s first Heavily IndebtedPoor Countries (HIPC) Initiative, and again in 2000,it was the first country to receive assistance underthe Enhanced HIPC Initiative. For Uganda, theintention of the HIPC Initiative is to reduce theexternal debt burden to a sustainable level, so thatthe savings can be used for social development. Oneach occasion it sought relief, Uganda was requiredto provide accurate external debt statistics. This casestudy sets out how Uganda was able to produce thesedata, and the external data required.

14.187 Even before the HIPC Initiative, Ugandahad already taken steps to reduce its external debtburden and hence had begun the work to developgood external debt data.• Negotiations for debt rescheduling with Paris Club

creditors. Debt rescheduling was effected underToronto (1989), enhanced Toronto (1992), andNaples terms (1995), where Uganda had reachedan exit to any Paris Club rescheduling. Butreschedulings were applied to pre-cutoff loans—which was about 4 percent of the total stock ofdebt, given that Uganda’s cutoff date was June1981.

• In 1991, the government implemented the firstdebt strategy. Among other things, this placedstrict limits on borrowings—loans were only to becontracted for priority projects. Also, Ugandabought back a big portion of its commercial debtusing a grant from the International DevelopmentAssociation (IDA) and other bilateral donors,totaling $153 million.

• An enhanced debt strategy was implementedfollowing a 1995 study undertaken by a consul-tant, in consultation with Ugandan officials. Thefinding that the biggest burden was multilateraldebt, and that it would continue to increasefrom 1998 onward as long-term obligationsmatured, resulted in the formation of the Multi-lateral Debt Fund. A total of $135 million wascontributed to this fund—by the Netherlands,Sweden, Switzerland, Denmark, Norway, andAustria—to meet debt obligations from the four

165

28Prepared by the Bank of Uganda.


major multilateral creditors—IDA, the AfricanDevelopment Bank, the African DevelopmentFund, and the IMF.

• Uganda continued not to pay its non–Paris Clubcreditors until they accepted Paris Club compara-ble terms. This is in line with the debt strategy of1991, and the enhanced debt strategy of 1995, butexcludes those creditors from whom new disburse-ments are received for new projects.

• Uganda continued to adhere to borrowing onhighly concessional terms (IDA terms) and requestsfor grants where applicable.

14.188 Notwithstanding all of the above endeavors,Uganda found that its debt was still unsustainableand so sought relief under the HIPC Initiative, whichrequired good external debt statistics.

Institutional arrangements

14.189 By act of parliament (the Loans and Guaran-tee Act), public external debt borrowing is vested inthe Ministry of Finance. The minister signs all pub-lic debt loan agreements or gives powers of attorneyto other senior officials to sign on his/her behalf. Theministry, therefore, performs the functions of negoti-ating, loan contracting, disbursement authorizationand monitoring, repayment authorization, andrecording of the external debt position. It also han-dles other aspects of the financial flows to the coun-try, including grants and aid from nongovernmentalorganizations.

14.190 In the early 1980s, the ministry delegatedpart of the function of data recording, monitoring,and effecting payments to the Bank of Uganda (cen-tral bank) because records on loan documents in theministry had been destroyed during the 1979 war.Once it acquired the responsibility, the central bankcreated the External Debt Management Office(EDMO), which was subsequently combined withthe then Exchange Control Department to form theTrade and External Debt Department (TEDD) withinthe research function.

14.191 At that time of the handover of responsibil-ity, debt data records were not accurate because allcreditors were not known, and so what Uganda owedcould not be verified easily. Therefore, the tendencywas to rely on creditor billing statements, which attimes were inflated. Later, in 1991, to establishUganda’s stock of debt and streamline the debt

records, a consultant—S.G. Warburg—was employedto carry out a comprehensive audit report of theexternal debt data. Letters were written by the minis-ter of finance to all known creditors to avail informa-tion on their claims, and the information receivedwas cross-checked by the consultants with recordsfrom other international institutions, and withUganda’s own data.

14.192 As part of the process the consultant,together with the central bank staff, created a newsystem for recording all loans, which continues to thepresent. UNCTAD’s Debt Management and Finan-cial Analysis System (DMFAS) was introduced,29

with each loan given a unique DMFAS number, andloan details captured in a computerized database. Thedata captured are similar to those shown in Table11.1, in Chapter 11, and cover, for each instrument,details of its type, disbursements, borrowing terms,debt-service payments, exchange and interest rates,and, if necessary, any debt-restructuring activity.Also, new filing cabinets were put in place, so thatfor each loan Uganda has a manual file with the loanagreement and all correspondence.

14.193 When the ministry contracts debt and signsan agreement, it sends a copy of the loan agreement tothe central bank, where the loan terms are entered inthe database. As the loan is disbursed, various typesof disbursement information are received from thecreditor, posted in the computer, and filed in the man-ual file. To process payments, bimonthly meetings areheld between the central bank and the ministry toconsider debt-service projections, which are producedfrom the DMFAS system. These projections arecross-checked with the billing statements receivedfrom the creditors and, according to the debt strategy,a decision is made on which creditors are to be paid.

14.194 Uganda is now using DMFAS version 5.1.1,which has the World Bank’s Debt SustainabilityModule Plus (DSM Plus) for calculating the (net)present value of debt, a requirement for the HIPCInitiative.

Uganda’s stock of debt

14.195 Table 14.8 presents Uganda’s stock of debtas at June 30, 2000. It totaled $3.57 billion. This debt

166

29The DMFAS system is described in detail in Chapter 18.


is broken down into three major categories: multilat-eral debt, bilateral debt, and commercial debt.

Data requirements of the HIPC Initiative

14.196 The HIPC Initiative required Uganda toundertake a debt-reconciliation exercise with allcreditors as at end-June 1997 for the first HIPC, andend-June 1999 for the Enhanced HIPC.

Exposure to the HIPC Initiative

14.197 During the preparation for the first HIPCInitiative it was necessary to train TEDD and min-istry staff on its requirements. Consequently, apre-HIPC debt-sustainability analysis workshopwas organized by External Finance for Africa(now Debt Relief International), the Macro-economic and Financial Management Institute forEastern and Southern Africa (MEFMI), the WorldBank, and UNCTAD, and sponsored jointly by theSwedish International Development Agency, theBank of Uganda, and the Ministry of Finance tohelp build capacity in producing the external debtdata required for the HIPC Initiative.

14.198 Following attainment of the first HIPC Ini-tiative, a workshop on post-HIPC debt-sustainabilityanalysis, sponsored by MEFMI, Debt Relief Interna-tional, UNCTAD, the Bank of Uganda, and the Min-istry of Finance was held in Uganda in January1999. From this workshop it was discovered thatUganda’s debt was not sustainable, and so morerelief was needed. In addition to the above work-

shops, regional workshops were organized by thesame groups to enlighten Uganda’s awareness onHIPC issues. Indeed, Uganda will always remainindebted to these agencies for the good work done,so allowing Ugandan officials to participate fully inthe tripartite negotiations with the IMF, World Bank,and other bilateral donors.

Debt data coverage

14.199 External debt that is covered under the HIPCInitiative is limited in all cases to that owed or guar-anteed by the public sector. For Uganda, thisincludes all medium- and long-term borrowings ofthe central government, the central bank, and para-statals from multilateral institutions (including theIMF), bilateral governments (Paris Club and non-OECD), and commercial credits from banks, exportguarantee agencies, and suppliers’ credits whether ornot a government guarantees them. Therefore, all thecreditors presented in Table 14.8 are covered.

Data validation

14.200 Uganda had to reconcile the debt data withall creditors, since it is normally expected under theHIPC Initiative that 95 percent of the value of exter-nal debt be fully reconciled with creditors at thedecision point, with some allowance for delay in rec-onciling disputed debts or failure of some creditorsto reply. To carry out this exercise effectively, theministry wrote letters to all the relevant creditorsrequesting data on external debt outstanding and dis-bursed as at end-June 1997 for the first HIPC, andlater for end-June 1999 for the Enhanced HIPC. Thefinance minister signed all the letters. They weresent to the latest-known address, but where the latestaddresses could not be traced, the letters were sent tothe embassies of the creditors in Uganda or Nairobifor onward transmission.

14.201 The detailed information requested was asfollows:• Creditor’s name;• Amount of the loan;• Date of signature;• Availability date;• Amount disbursed;• Undisbursed amount;• Amount of principal paid;• Amount of interest paid;• Amount of principal arrears;• Amount of interest arrears; and• Amount canceled.

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Table 14.8. Uganda’s External Debt Obligation byCreditor as at June 30, 2000(Millions of U.S. dollars)

Percent of Creditor Total Debt Total

Multilateral 2,927.9 81.9

Bilateral 592.4 16.6Paris Club 259.0 7.2

PC pre-cutoff 110.1 3.1PC post-cutoff 148.9 4.2

Non-OECD (Non–Paris Club) 333.5 9.3

Commercial/Other 53.8 1.5

Total 3,574.0 100

Source: Trade and External Debt Department, Bank of Uganda.


14.202 In the ministry and the central bank, a mas-ter file was opened up to store all the replies, with acopy of each reply placed in the individual files ofcreditors. The next step was to compare the loanposition kept on the DMFAS system with thatreported by the creditors. Where applicable, differ-ences were identified for each loan, and there wascorrespondence with the creditors to sort out the dif-ferences. In some cases it was realized that there hadbeen some disbursements that were not captured onDMFAS, or payments had been made that wereapplied differently on the maturities by the creditor(that is, payments for current maturities had beenapplied to arrears by the creditor), or differentexchange rates had been used. Other creditors, likeEgypt, said that they did not have any outstandingclaims on Uganda, so their loans were removed fromthe database. Once the differences were resolved,where necessary, loan data were corrected.

14.203 However, complicated and controversialissues arose on the following:• The acknowledgement of disputed debts, such as

military debts arising from past wars. This wastrue for a Tanzanian loan for which a verificationexercise is still required, although the amountindebted was accepted in principle by Uganda.

• The exchange rate used for converting debts to thecurrency of repayment. For instance, some debtsdenominated in, say, Burundi francs in which thesupplies were originally quoted.

• The “ownership” of debts that had been tradeddirectly or on the secondary market. For instance,the loan that was supposed to be a claim ofCOFACE (France) had been sold to CentenaryRural Development Bank.

• The level of arrears on “old” loans (for example,for Libya and commercial debts), particularly iflate interest charges had been accruing.

14.204 Also, although the response was good forcreditors that were being paid on schedule—such asmultilateral and the bilateral Paris Club creditors—and for the Paris Club creditors that had just signed

the bilateral agreements, some bilateral non-OECDcreditors were reluctant to reply. Various remindershad to be sent. On the other hand, some of themreplied quickly, hoping to be repaid. The majority ofcommercial creditors never replied.

14.205 For those creditors who responded, the rec-onciled data were sent to the IMF and the WorldBank as requested, for further cross-checking withdata received from the creditors. For all the multilat-eral creditors, where the reconciliation exercise indi-cated that arrears had accumulated, these had to bepaid off before Uganda could qualify for the HIPCInitiative. For those creditors where no informationwas received, IMF and World Bank figures weretaken and reconciled with the information includedin the database, which had been agreed upon in theS.G. Warburg audit report.

Data needs for measuring debt-burden indicators and debt relief

14.206 In Uganda’s experience, a country must makerealistic assumptions when projecting data for newdisbursements, macroeconomic indicators, balance ofpayments transactions, and budget revenue andexpenditures because accuracy in these projectionswill affect the realization of sustainability ratios. Forexample, the impact of El Niño rains on export pro-jections was a factor in Uganda’s external debt beingunsustainable even after relief under the first HIPCInitiative was received. Also, even after making real-istic assumptions and calculating the relevant balanceof payments and budget projections, consideration isrequired about how financing gaps, either in the bal-ance of payments or budget, will be filled.

14.207 Sensitivity analysis is important to test alter-native macroeconomic scenarios and to provide gov-ernment with a picture of what would happen if thecentral assumptions changed. Uganda uses modelsdeveloped in both the World Bank’s DSM Plus andin the private sector (Debt Pro) for calculating debtsustainability for the HIPC Initiative.

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PART III

Use of External Debt Statistics

Introduction1

15.1 The creation of debt is a natural consequenceof economic activity. At any time, some economicentities have income in excess of their current con-sumption and investment requirements, while otherentities are deficient in this regard. Through the cre-ation of debt, both sets of entities are better able torealize their consumption and output preferences,thus encouraging economic growth.

15.2 The creation of debt is premised on the as-sumption that the debtor will meet the requirementsof the debt contract. But if the income of the debtoris insufficient or there is a lack of sufficient assets tocall upon in the event of income proving insuf-ficient, debt problems ensue; the stock of debt willbe such that the debtor cannot meet its obligations.In such circumstances, or in the expectation of suchcircumstances, the benefits arising from inter-national financial flows—for both creditors anddebtors—may not be fully realized. Hence, the needat the country level for good risk-management pro-cedures and the maintenance of external debt at sus-tainable levels.

15.3 This chapter considers tools for sustainabilityanalysis such as medium-term scenarios and therole of debt indicators in identifying solvency andliquidity problems. This is preceded by a short dis-cussion of the solvency and liquidity aspects ofsustainability.

Solvency

15.4 From a national perspective, solvency can bedefined as the country’s ability to discharge its ex-

ternal obligations on a continuing basis. It is rela-tively easy, but not very helpful, to define a coun-try’s theoretical ability to pay. In theory, assumingdebt can be rolled over (renewed) at maturity, coun-tries are solvent if the present value of net interestpayments does not exceed the present value of othercurrent account inflows (primarily export receipts)net of imports.2 In practice, countries stop servicingtheir debt long before this constraint is reached, atthe point where servicing the debt is perceived tobe too costly in terms of the country’s economicand social objectives. Thus, the relevant constraintis generally the willingness to pay, rather than thetheoretical macroeconomic ability to pay. To estab-lish that a country is solvent and willing to pay isnot easy. Solvency is “very much like honesty: itcan never be fully certified, and proofs are slow tomaterialize.”3

15.5 In analyzing solvency problems, it is neces-sary to take into account the different implicationsof public and private sector debt. If there is a riskthat the public sector will cease to discharge its ex-ternal obligations, this in itself is likely to sharplycurtail financial inflows to all economic sectorsbecause governments can issue moratoria on debtrepayment and impose exchange restrictions. Siz-able public external indebtedness may underminethe government’s commitment to allowing privatesector debt repayment. Also, if private defaults takeplace on a significant scale, this too is likely to leadto a sharp reduction in financial inflows, and gov-ernment intervention may follow—in the form ofexchange restrictions, a general debt moratorium, orbailouts. But problems of individual private sectorborrowers may be contained to the concernedlenders.

15. Debt Sustainability: Medium-TermScenarios and Debt Ratios

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1This chapter draws on IMF (2000b), Debt- and Reserve-Related Indicators of External Vulnerability (Washington: March23, 2000), available on the Internet at http://www.imf.org/external/np/pdr/debtres/index.htm, as well as work at the World Bank.

2In considering imports, it is worth noting that these are endoge-nous and subject to potentially severe compression (reduction).

3Calvo (1996), p. 208.


Liquidity

15.6 Liquidity problems—that is, when a shortageof liquid assets affects the ability of an economy todischarge its immediate external obligations—almost always emerge in circumstances that give riseto insolvency or unwillingness to pay. But it is alsopossible for a liquidity problem to arise indepen-dently of a solvency problem, following a self-fulfilling “run” on a country’s liquidity as creditorslose confidence and undertake transactions that leadto pressures on the international reserves of theeconomy.4 Liquidity problems can be triggered, forexample, by a sharp drop in export earnings, or anincrease in interest rates (foreign and/or domestic),5

or prices for imports. The currency and interest ratecomposition of debt, the maturity structure of debt,and the availability of assets to pay debts are allimportant determinants of the vulnerability of aneconomy to external liquidity crises; these are allconsidered in the next chapter. Mechanisms—suchas creditor “councils”—by which creditors’ actionscan be coordinated can be useful in preventing orlimiting the impact of liquidity crises by sharing in-formation and coordinating responses.

Medium-Term Debt Scenarios

15.7 External-debt-sustainability analysis is gener-ally conducted in the context of medium-term sce-narios. These scenarios are numerical evaluationsthat take account of expectations of the behavior ofeconomic variables and other factors to determinethe conditions under which debt and other indicatorswould stabilize at reasonable levels, the major risksto the economy, and the need and scope for policyadjustment. Macroeconomic uncertainties, such asthe outlook for the current account, and policyuncertainties, such as for fiscal policy, tend to domi-nate the medium-term outlook and feature promi-nently in the scenarios prepared by the IMF in thecontext of Article IV consultations and the design ofIMF-supported adjustment programs.

15.8 The current account balance is important be-cause, if deficits persist, the country’s external posi-tion may eventually become unsustainable (as re-

flected by a rising ratio of external debt to GDP). Inother words, financing of continually large currentaccount deficits by the issuance of debt instrumentswill lead to an increasing debt burden, perhaps un-dermining solvency and leading to external vulnera-bility from a liquidity perspective, owing to the needto repay large amounts of debt.

15.9 One advantage of medium-term scenarios isthat borrowing is viewed within the overall macro-economic framework. However, such an approachcan be very sensitive to projections for variablessuch as economic growth, interest and exchangerates, and, in particular, to the continuation of finan-cial flows, which are potentially subject to suddenreversal.6 Consequently, a range of various alterna-tive scenarios may be prepared. Also, stress tests—“what if” scenarios that assume a major change inone or more variable—can be helpful in analyzingmajor risks stemming from fluctuations of thesevariables or from changes in other assumptionsincluding, for example, changes in prices of importsor exports of oil. Stress tests are useful for liquidityanalysis and provide the basis for developing strate-gies to mitigate the identified risks, such as enhanc-ing the liquidity buffer by increasing internationalreserves, by establishing contingent credit lines withforeign lenders, or both.

Debt Ratios

15.10 Debt ratios have been developed mostly tohelp indicate potential debt-related risks, and thus tosupport sound debt management. Debt indicators inmedium-term scenarios can usefully sum up impor-tant trends. They are used in the context of medium-term debt scenarios, as described above, preferablyfrom a dynamic perspective, rather than as “snap-shot” measures. Debt ratios should be consideredin conjunction with key economic and financialvariables, in particular expected growth and inter-est rates, which determine their trend in medium-term scenarios.7 Another key factor to consider isthe extent to which there is adequate contract

172

4For a discussion of self-fulfilling crises, see Krugman (1996)and Obstfeld (1994).

5Such as when domestic rates rise because of an economy’s per-ceived deterioration in creditworthiness.

6An analysis of key indicators, such as the current account ofthe balance of payments, budget deficits, etc., can be particularlyuseful in identifying the possibility of reversals in financial flows.

7If barter trade is significant, and debt payments are in productsthat are not easily marketable, this could affect the interpretationof debt ratios, since the opportunity cost of this form of paymentis different from a purely financial obligation.

15 • Debt Sustainability: Medium-Term Scenarios and Debt Ratios

enforcement—that is, creditor rights, bankruptcyprocedures, etc.—that will help to ensure that privatedebt is contracted on a sound basis. More generally,the incentive structure within which the private sec-tor operates could affect the soundness of borrowingand lending decisions; for example, whether thereare incentives that favor short-term or foreign cur-rency financing.

15.11 As a result, there are conceptual problems indefining on a general level what are the appropriatebenchmarks for debt ratios; in other words, the scopefor identifying critical ranges for debt indicators israther limited. While an analysis over time, in rela-tion to other macroeconomic variables, might help todevelop a system of early warning signals for a pos-sible debt crisis or debt-service difficulties, compar-ing the absolute value of overall debt ratios acrossheterogeneous countries is not very useful. For in-stance, a high or low debt-to-exports ratio in a par-ticular year may have limited use as an indicator ofexternal vulnerability; rather, it is the movement ofthe debt-to-exports ratio over time that reflects thedebt-related risks.

15.12 For more homogeneous country groupingsand for debt of the public sector, there is more poten-tial to identify ranges for debt-related indicators thatsuggest that debt or debt-service ratios are approach-ing levels that in other countries have resulted in sus-pension or renegotiations of debt-service payments,or have caused official creditors to consider whetherthe debt burden may have reached levels that are toocostly to support. For example, assistance under theHIPC Initiative is determined on the basis of a targetfor the ratio of public debt to exports (150 percent),or the ratio of debt to fiscal revenue (250 percent). Inthese ratios, the present value of debt is used, andonly a subset of external debt is taken into consider-ation, namely medium- and long-term public andpublicly guaranteed debt.8

15.13 Several widely used debt ratios are discussedin somewhat greater detail later. Table 15.1 providesa more comprehensive list. Broadly speaking, thereare two sets of debt indicators: those based on flowvariables (for example, related to exports or GDP)—

these are called flow indicators because the numera-tor or denominator or both are flow variables; andthose based on stock variables—that is, both numer-ator and denominator are stock variables.

Ratio of Debt to Exports and Ratio of Present Value of Debt to Exports

15.14 The debt-to-exports ratio is defined as theratio of total outstanding debt at the end of the yearto the economy’s exports of goods and services forany one year. This ratio can be used as a measure ofsustainability because an increasing debt-to-exportsratio over time, for a given interest rate, implies thattotal debt is growing faster than the economy’s basicsource of external income, indicating that the coun-try may have problems meeting its debt obligationsin the future.

15.15 Indicators that use the stock of debt have sev-eral shortcomings in common. First, countries thatuse external borrowing for productive investmentwith long gestation periods are more likely to exhibithigh debt-to-exports ratios. But as the investmentsbegin to produce goods that can be exported, thecountry’s debt-to-exports ratio may start to decline.So for these countries, the debt-to-exports ratio maynot be too high from an intertemporal perspectiveeven if in any given year it may be perceived aslarge. Therefore, arguably this indicator can bebased on exports after the average gestation lag—that is, using projected exports one or several timeperiods ahead as a denominator.9 More generally,this also highlights the need to monitor debt indica-tors in medium-term scenarios to overcome the limi-tations of a “snapshot.”

15.16 Second, some countries may benefit fromhighly concessional debt terms, while others payhigh interest rates. For such countries, to better cap-ture the implied debt burden—in terms of the oppor-tunity cost of capital—it is useful to report and ana-lyze the average interest rate on debt or to calculatethe present value of debt by discounting the pro-jected stream of future amortization payments in-cluding interest, with a risk-neutral commercial ref-erence rate. As noted above, in analyzing debt

173

8See Andrews and others (1999); available on the Internet athttp://www.imf.org/external/pubs/cat/longres.cfm?sk=3448.0.Appendix V discusses the HIPC approach and includes informa-tion on the debt ratios monitored.

9To average out idiosyncratic or irregular swings in export per-formance, multiyear period averages are frequently used, such asthe three-year averages used in the debt-sustainability analysis forHIPCs.


sustainability for HIPCs, the IMF and World Bankuse such a present value of debt measure—notablypresent value of debt to exports, and to fiscal rev-enue (see below). A high and rising present value ofthe debt-to-exports ratio is considered to be a signthat the country is on an unsustainable debt path.

Ratio of Debt to GDP and Ratio of Present Value of Debt to GDP

15.17 The debt-to-GDP ratio is defined as the ratioof the total outstanding external debt at the end ofthe year to annual GDP. By using GDP as a denomi-

174

Table 15.1. Overview of Debt Indicators

Indicator Evaluation/Use

SolvencyInterest service ratio Ratio of average interest payments to export earnings indicates terms of external

indebtedness and thus the debt burdenExternal debt to exports Useful as trend indicator closely related to the repayment capacity of a countryExternal debt over GDP Useful because relates debt to resource base (for the potential of shifting production

to exports so as to enhance repayment capacity)Present value of debt over exports Key sustainability indicator used, for example, in HIPC Initiative assessments

comparing debt burden with repayment capacityPresent value of debt over fiscal revenue Key sustainability indicator used, for example, in HIPC Initiative assessments

comparing debt burden with public resources for repaymentDebt service over exports Hybrid indicator of solvency and liquidity concerns

LiquidityInternational reserves to short-term debt Single most important indicator of reserve adequacy in countries with significant but

uncertain access to capital markets; ratio can be predicted forward to assess future vulnerability to liquidity crises

Ratio of short-term debt to total Indicates relative reliance on short-term financing; together with indicators ofoutstanding debt maturity structure allows monitoring of future repayment risk

Public sector indicatorsPublic sector debt service over exports Useful indicator of willingness to pay and transfer riskPublic debt over GDP or tax revenues Solvency indicator of public sector; can be defined for total debt or for external debtAverage maturity of nonconcessional debt Measure of maturity that is not biased by long repayment terms for concessional

debtForeign currency debt over total debt Foreign currency debt including foreign currency indexed debt; indicator of the

impact of a change in the exchange rate on debt

Financial sector indicatorsOpen foreign exchange position Foreign currency assets minus liabilities plus net long positions in foreign currency

stemming from off-balance-sheet items; indicator for foreign exchange risk, but normally small because of banking regulations

Foreign currency maturity mismatch Foreign currency liabilities minus foreign currency assets as percent of these foreign currency assets at given maturities; indicator for pressure on central bank reservesin case of a cutoff of financial sector from foreign currency funding

Gross foreign currency liabilities Useful to the extent that assets are not usable to offset withdrawals in liquidity

Corporate sector indicatorsLeverage Nominal (book) value of debt over equity (assets minus debt and derivatives

liabilities); key indicator of sound financial structure; high leverage aggravates vulnerability to other risks (for example, low profitability, high ratio of short-termdebt/total debt)

Interest over cash flow Total prospective interest payments over operational cash flow (before interest and taxes); key cash flow indicator for general financial soundness

Short-term debt over total term debt In combination with leverage, indicator of vulnerability to temporary cutoff from (both total and for foreign currency only) financing

Return on assets (before tax and interest) Profit before tax and interest payments over total assets; indicator of general profitability

Net foreign currency cash flow over total Net foreign currency cash flow is defined as prospective cash inflows in foreign cash flow currency minus prospective cash outflows in foreign currency; key indicator for

unhedged foreign currency exposureNet foreign currency debt over equity Net foreign currency debt is defined as the difference between foreign currency debt

liabilities and assets; equity is assets minus debt and net derivatives liabilities;indicator for balance sheet effect of exchange rate changes

15 • Debt Sustainability: Medium-Term Scenarios and Debt Ratios

nator, the ratio may provide some indication of thepotential to service external debt by switching re-sources from production of domestic goods to theproduction of exports. Indeed, a country might havea large debt-to-exports ratio but a low debt-to-GDPratio if exportables comprise a very small proportionof GDP.

15.18 While the debt-to-GDP ratio is immune fromexport-related criticisms that mainly focus on thediffering degree of value added in exports and pricevolatility of exports, it may be less reliable in thepresence of over- or undervaluations of the real ex-change rate, which could significantly distort theGDP denominator. Also, as with the debt-to-exportsratio, it is important to take account of the country’sstage of development and the mix of concessionaland nonconcessional debt.

15.19 In the context of debt ratios, the numerator inthe present value of debt-to-GDP ratio is again esti-mated using future projections of debt-service pay-ments discounted by market-based interest rates(that is, a risk-neutral commercial reference rate).

Ratio of Present Value of Debt to Fiscal Revenue

15.20 The ratio of the present value of debt to fiscalrevenue is defined as the ratio of future projecteddebt-service payments discounted by market-basedinterest rates (a risk-neutral commercial referencerate) to annual fiscal revenue. This ratio can be usedas a measure of sustainability in those countries witha relatively open economy facing a heavy fiscal bur-den of external debt. In such circumstances, the gov-ernment’s ability to mobilize domestic revenue isrelevant and will not be measured by the debt-to-exports or debt-to-GDP ratios. An increase in thisindicator over time indicates that the country mayhave budgetary problems in servicing its debt.

Ratio of Debt Service to Exports10

15.21 This ratio is defined as the ratio of externaldebt-service payments of principal and interest onlong-term and short-term debt to exports of goods

and services for any one year. The debt-service-to-exports ratio is a possible indicator of debt sustain-ability because it indicates how much of a country’sexport revenue will be used up in servicing its debtand thus, also, how vulnerable the payment of debt-service obligations is to an unexpected fall in exportproceeds. This ratio tends to highlight countries withsignificant short-term external debt. A sustainablelevel is determined by the debt-to-exports ratio andinterest rates, as well as by the term structure of debtobligations. The latter may affect creditworthinessbecause the higher the share of short-term credit is inoverall debt, the larger and more vulnerable is theannual flow of debt-service obligations.

15.22 By focusing on payments, the debt-service-to-exports ratio takes into account the mix of conces-sional and nonconcessional debt, while its evolutionover time, especially in medium-term scenarios, canprovide useful information on lumpy repaymentstructures. Moreover, a narrow version of the debt-service ratio, focused on government and govern-ment-guaranteed debt service, can be a useful indi-cator of government debt sustainability and transferrisk (the risk that exchange rate restrictions are im-posed that prevent the repayment of obligations) be-cause it may provide some insight into the politicalcost of servicing debt.11

15.23 The debt-service-to-exports ratio has somelimitations as a measure of external vulnerability, inaddition to the possible variability of debt-servicepayments and export revenues from year to year.First, amortization payments on short-term debt aretypically excluded from debt service,12 and the cov-erage of private sector data can often be limited, ei-ther because the indicator is intentionally focused onthe public sector or because data on private debt ser-vice are not available.

15.24 Second, many economies have liberalizedtheir trade regimes and are now exporting a largerproportion of their output to the rest of the world.But at the same time they are importing more, and

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10This ratio, in addition to the total debt-to-exports and the totaldebt-to-GNP (national output) ratios, is provided for individualcountries in the World Bank’s annual Global DevelopmentFinance publication.

11A version of this indicator that focuses on official debt is used,for instance, in the HIPC Initiative.

12This is the approach taken in the World Bank’s World Devel-opment Report and Global Development Finance, and the IMF’sWorld Economic Outlook. Lack of data, as well as the assumptionthat short-term debt mainly constituted trade credit that was easyto roll over, contributed to this practice. As experience shows, thisassumption is in some cases questionable.


the import content of exports is rising. Thus, a debt-service-to-exports ratio not corrected for the importintensity of exports is biased downward for econo-mies with a higher propensity to export;13 this argu-ment applies similarly to the debt-to-exports ratio.

15.25 Finally, the concept summarizes both liquid-ity and solvency issues, which may make it analyti-cally less tractable than measures that track only sol-vency (such as the ratio of interest payments toexports) or liquidity (the ratio of reserves to short-term debt).

Ratio of International Reserves to Short-Term Debt

15.26 This ratio is a pure liquidity indicator that isdefined as the ratio of the stock of international re-serves available to the monetary authorities to theshort-term debt stock on a remaining-maturity basis.This could be a particularly useful indicator of re-serve adequacy, especially for countries with signifi-cant, but not fully certain, access to internationalcapital markets.14

15.27 The ratio indicates whether international re-serves exceed scheduled amortization of short-,medium-, and long-term external debt during the fol-lowing year; that is, the extent to which the economyhas the ability to meet all its scheduled amortizationsto nonresidents for the coming year using its own in-ternational reserves. It provides a measure of howquickly a country would be forced to adjust if it werecut off from external borrowing—for example,because of adverse developments in internationalcapital markets. All scheduled debt amortizationpayments on both private and public debt to nonresi-dents over the coming year are covered in such aratio under short-term debt, regardless of the instru-ment or currency denomination. A similar ratio can

be calculated focusing on the foreign currency debtof the government (and banking sector) only. Thismay be especially relevant for economies with veryopen capital markets, and significant public sectorforeign currency debt.

15.28 Interestingly, in most theoretical models thematurity structure of public debt is irrelevant be-cause it is assumed that markets are complete.15 Butmarkets are rarely complete, even in developedcountries. And, as several currency crises in develop-ing and emerging market countries in the mid-to-late1990s have shown, the risk associated with an exces-sive buildup of the stock of short-term debt relativeto international reserves can be quite severe, even incountries that were generally regarded as solvent.One conclusion drawn has been that countries withexcessively large short-term debt in relation to inter-national reserves are more susceptible to liquiditycrisis.16

15.29 However, various factors need to be takeninto account when interpreting the ratio of interna-tional reserves to short-term debt. First, a large stockof short-term debt relative to international reservesdoes not necessarily lead to a crisis. Many advancedeconomies have higher ratios of short-term debt toreserves than many emerging economies, whichhave shown vulnerability to financial crisis. Factorssuch as an incentive structure that is conducive tosound risk management, and a proven track recordof contract enforcement, can help develop credibil-ity, and help to explain this difference. Moreover,macroeconomic fundamentals, in particular the cur-rent account deficit and the real exchange rate, playan important role. Consideration should also begiven to the exchange rate regime. For example, aflexible regime can reduce the likelihood and costsof a crisis. Finally, the ratio assumes that measuredinternational reserves are indeed available and canbe used to meet external obligations; this has not al-ways been true historically.

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13See Kiguel (1999) for more reasons why the ratio of debt ser-vice to exports may not be a highly reliable indicator of the exter-nal vulnerability of a country under special circumstances.

14The potential importance of other residents’ external assets inrelation to debt is highlighted in the table for the net external debtposition presented in Chapter 7 (Table 7.11).

15See Lucas and Stokey (1983) and Calvo and Guidotti (1992).16See Berg and others (1999); Bussière and Mulder (1999); and

Furman and Stiglitz (1998).

Introduction

16.1 The type of debt ratios discussed in the pre-vious chapter focus primarily on overall externaldebt and external debt service and the potential tomeet debt obligations falling due on an economy-wide basis. However, in assessing the vulnerabilityof the economy to solvency and liquidity risk aris-ing from the external debt position, a more detailedexamination of the composition of the external debtposition and related activity may be required. In thischapter, the relevance of additional data on the com-position of external debt, external income, externalassets, financial derivatives, and on the economy’screditors is explored, drawing particularly on dataseries described in Part I of the Guide. The discus-sion in this chapter, however, is not intended to beexhaustive.

Composition of External Debt

16.2 The relevance for debt analysis of the differentdata series presented in the Guide is set out below. Inparticular this section focuses on the followingissues:• Who is borrowing?• What is the composition of debt by functional

category?• What type of instrument is being used to borrow?• What is the maturity of debt?• What is the currency composition of the debt?• Is there industrial concentration of debt?• What is the profile of debt servicing?

16.3 Traditionally in debt analysis, the focus hasbeen on official sector borrowing, not least in theform of loans from banks or official sources. But the1990s saw a tremendous expansion in capital marketborrowing by the private sector. This has had signifi-cant implications for debt analysis, including the

need to gather and analyze external debt data by theborrowing sector.

16.4 If there is a risk that the public sector willcease to discharge its external obligations, this islikely in itself to lead to a sharp curtailment of finan-cial inflows to the economy as a whole, in part be-cause it also casts severe doubt on the government’scommitment to an economic environment that al-lows private sector debt repayment. Thus, informa-tion on public sector total, and short-term, externaldebt is important. Especially in the absence of capi-tal controls or captive markets, information on short-term domestic debt of the government is important,since capital flight and pressure on international re-serves can result from a perceived weak financialposition of the public sector.

16.5 Also, beyond its own borrowing policies, thegovernment has a special role to play in ensuringthat it creates or maintains conditions for sound riskmanagement in other sectors; for instance, avoidingpolicies that create a bias toward short-term foreigncurrency borrowing.

16.6 Most of the financial sector, notably banks, isby nature highly leveraged—that is, most assetsare financed by debt liabilities. Banks may take onliabilities to nonresidents by taking depositsand short-term interbank loans. These positionscan build up quickly and, depending also on thenature of the deposits and depositors, be run downquickly. How well banks intermediate these fundshas implications for the ability to withstand large-scale withdrawals. More generally, informationon the composition of assets and liabilities is impor-tant for banks (and nonbank financial cor-porations)—notably information on the maturitystructure and maturity mismatch (including inforeign currency)—because it provides insightabout their vulnerability to such withdrawals and

16. External Debt Analysis: FurtherConsiderations

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their sensitivity to changing exchange and interestrates.1

16.7 As mentioned in Chapter 15, large-scale defaultsby nonfinancial corporations that borrow fromabroad, depending on their importance to the econ-omy, could result in financially expensive governmentintervention, an impact on the credit risk of the finan-cial sector, and an undermining of asset prices in theeconomy. In any case, the debt-service needs of cor-porations will affect the economy’s liquidity situation.As with banks, the regulatory regime and incentivestructure within which the corporate sector operates isimportant. For instance, overborrowing in foreigncurrency, particularly short-term, in relation to for-eign currency assets or hedges (be they natural hedgesin the form of foreign currency cash flow or throughderivatives products such as forwards), exposes thecorporate sector to cash-flow (liquidity) problems incase of large exchange rate movements. Overborrow-ing in foreign currency in relation to foreign currencyassets could potentially expose corporations to sol-vency problems in the event of a depreciation of thedomestic exchange rate. Ensuing corporate failures,in the event of sharp exchange rate depreciation, canreduce external financing flows and depress domesticactivity, especially if contract enforcement is poor orthe procedures are overwhelmed.

16.8 The provision of guarantees can influence eco-nomic behavior. Invariably, the government providesimplicit and explicit guarantees, such as deposit insur-ance, and sometimes also guarantees on private sectorexternal borrowing (classified as publicly guaranteedprivate sector debt in the Guide). Also, domestic cor-porations may use offshore enterprises to borrow, andprovide guarantees to them, or have debt paymentsguaranteed by domestic banks. Similarly foreign cor-porations may guarantee part of domestic debt. Wherepossible, direct and explicit guarantees should bemonitored because they affect risk assessment.

16.9 The functional classification of debt instru-ments is a balance of payments concept, grouping

instruments into four categories: direct investment,portfolio investment, financial derivatives, and otherinvestment. Direct investment takes place betweenan investor in one country and its affiliate in anothercountry and is generally based on a long-term rela-tionship. Recent crises have tended to support theview that this category of investment is less likely tobe affected in a crisis than other functional types.2

Portfolio investment, by definition, includes tradabledebt instruments; other investment, by definition, in-cludes all other debt instruments. The relevance offinancial derivatives instruments for external debtanalysis is discussed below.

16.10 The type of instrument that a debtor willissue depends on what creditors are willing to pur-chase as well as the debtor’s preferences. Borrowingin the form of loans concentrates debt issuance in thehands of banks, whereas securities are more likely tobe owned by a wider range of investors. Trade creditis typically of a short-term maturity. Although equityissues are not regarded as debt instruments, declareddividends on equity are included in debt servicing,and so it remains necessary to monitor activity inthese instruments. At the least, sudden sales of eq-uity by nonresidents or residents can have importantramifications for an economy and its ability to raiseand service debt.3

16.11 The maturity composition of debt is impor-tant because it can have a profound impact on liquid-ity. Concentration of high levels of short-term exter-nal debt is seen to make an economy particularlyvulnerable to unexpected downturns in financialfortune.4 For instance, an economy with high levelsof short-term external debt may be vulnerable to asudden change in investor sentiment. Interbank linesare particularly sensitive to changes in risk per-ception, and early warning signals of changes ininvestor sentiment towards the economy might be

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1Banks are subject to moral hazard risk through explicit or im-plicit deposit insurance and limited liability. The potential moralhazard risk arising from deposit insurance schemes is that by “pro-tecting” from loss an element of their deposit base, banks might beprovided with an incentive to hold portfolios incorporating morerisk, but potentially higher returns, than they otherwise would.Monitoring the risks taken by banks is a central element of bankingsupervision, a subject beyond the scope of the Guide.

2However, direct investment enterprises may place additionalpressure on the exchange rate in a crisis situation through thehedging of domestic currency assets. Moreover, foreign investorscan repatriate rather than reinvest profits, thereby effectively in-creasing the domestically (debt) funded part of their investments.

3In analyzing the securities transactions, both debt and equity,changes in prices (rather than in quantities) may equilibrate themarket.

4The compilation of average maturity data might disguiseimportant differences in the sectoral composition of debt and in thedispersion of maturities. However, data on average maturity bysector and by debt instrument might alert policymakers and marketparticipants to maturity structures that are potentially problematic.

16 • External Debt Analysis: Further Considerations

detected through the monitoring of the refinancing(“rollover”) rate.5

16.12 Debt analysis needs to make a distinctionbetween short-term debt on an original maturitybasis—that is, debt issued with a maturity of oneyear or less—and on a remaining-maturity basis—that is, debt obligations that fall due in one year orless. Data on an original maturity basis providesinformation on the typical terms of debt and the debtstructure, and monitoring changes in these termsprovides useful information on the preferences ofcreditors and the sectoral distribution of debtors.Data on a remaining (residual) maturity basis pro-vides the analyst and policymaker with informationon the repayment obligations (that is, the liquiditystructure). For the policymaker, to ensure sufficientliquidity, such as indicated by an appropriate ratio ofinternational reserves to short-term debt, requiresavoiding a bunching of debt payments.

16.13 The debtor will be interested in the nominalvalue of its debt because at any moment in time it isthe amount that the debtor owes to the creditor at thatmoment. Also, the debtor is well advised to monitorthe market value of its debt. The market value andthe spreads over interest rates on “risk-free” instru-ments provide an indication to the borrower of themarket view on its ability to meet debt obligations aswell as current market sentiment toward it.6 This isimportant information because it might influence fu-ture borrowing plans: whether it is advantageous toborrow again while terms seem good, or whetherthere are early warning signs of possible increasedcosts of borrowing, or even refinancing difficulties.However, for those countries with debt that has a verylow valuation or is traded in markets with low liquid-ity (or both), a sudden swing in sentiment might causea very sharp change in the market value of externaldebt, which might also be reversed suddenly. Becauseit would be unaffected by such swings, informationon the nominal value of external debt would be ofparticular analytical value in such circumstances.

16.14 The currency composition of external debt isalso important. There is a significant difference be-tween having external debt payable in domestic cur-

rency and having external debt payable in foreigncurrency. In the event of a sudden depreciation of thedomestic currency, foreign currency external debt(including foreign-currency-linked debt) has poten-tially important wealth and cash-flow effects for theeconomy. For instance, when public debt is payablein foreign currency, a devaluation of the domesticcurrency could aggravate the financial position of thepublic sector, so creating an incentive for the govern-ment to avoid a necessary exchange rate adjustment.Information on the currency composition of debt atthe sectoral level, including resident and nonresidentclaims in foreign currency, is particularly importantbecause the wealth effects also depend on foreigncurrency relations between residents.

16.15 But any analysis of the foreign currency com-position of external debt needs to take account of thesize and composition of foreign currency assets, andincome, together with foreign-currency-linked finan-cial derivatives positions. The latter instruments canbe used to change the exposure from foreign to do-mestic currency or to a different foreign currency.

16.16 The interest rate composition of externaldebt, both short- and long-term, may also have signifi-cant implications. Sharp increases in short-term inter-est rates, such as those experienced in the early 1980s,can have profound implications for the real cost ofdebt, especially if a significant share of debt paysinterest that is linked to a floating rate such as LIBOR.As with the foreign currency position, it is necessaryto take account of financial derivatives positions, sincethese may significantly change the effective interestcomposition of debt. For instance, interest-rate-basedfinancial derivatives can be used to swap variable-rateobligations into fixed-rate liabilities, and vice versa.The relevance of financial derivatives in analyzing ex-ternal debt is considered in more detail below.

16.17 The industrial concentration of debt shouldalso be monitored. If debt is concentrated in a partic-ular industry or industries, economic shocks such asa downturn in worldwide demand for certain prod-ucts could increase the risk of a disruption in debt-service payments by that economy.7

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5This type of monitoring is discussed in more detail in Chapter7, Box 7.1.

6Increasingly, information from credit derivatives, such as de-fault swaps and spread options, also provides market informationon an entity’s credit standing.

7While the Guide does not explicitly include guidance for themeasurement of the industrial composition of external debt, thesedata can be compiled using the concepts set out in the Guide to-gether with the International Standard Industrial Classification(1993 SNA, pp. 594–96) as the “sector” classification.


16.18 To monitor debt service, the amounts to bepaid are important, rather than the market value ofthe debt. Debt servicing involves both the ongoingmeeting of obligations—that is, payments of interestand principal—and the final payment of principal atmaturity. However, it is most unlikely that the debt-service schedule will be known with certainty at anygiven time. Estimates of the amounts to be paid canvary over time because of variable interest and for-eign currency rates, and the repayment dates for debtcontaining embedded put (right to sell) or call (rightto buy) options that can be triggered under certainconditions add further uncertainty. So, in presentingdata on the debt-service payment schedule, it is im-portant that the assumptions used to estimate futurepayments on external debt liabilities be presented ina transparent manner along with the data.

16.19 One indication of an economy that is begin-ning to have difficulty servicing its external debt iswhen the level of arrears is on a rising trend both inrelation to the external debt position and to theamount of debt service falling due. In such circum-stances, detailed data by institutional sector and bytype of instrument might help to identify the sourcesof the difficulty.

The Role of Income

16.20 In analyzing debt, the future trend of incomeis clearly relevant because it affects the ability of thedebtor to service debt. Traditionally, the focus hasbeen on earnings from exports of goods and ser-vices. To what extent is debt, or are debt-servicepayments, “covered” by earnings from the export ofgoods and services? Diversification of products andmarkets is positive because it limits exposure toshocks, in turn limiting the possibility that the pri-vate sector as a whole will get into difficulties, andthat the public sector will lose revenues, thus affect-ing the willingness to pay. The currency compositionof export earnings may also be of relevance.

16.21 While the willingness to pay is an importantfactor in determining whether debt-service paymentsare made, the use of external borrowing will affectthe future income from which those payments aremade.8 If debt is used to fund unproductive activity,

future income is more likely to fall short of thatrequired to service the debt. The question to addressis not so much the specific use of the borrowedcapital but rather the efficiency of total investment inthe economy, considered in the context of indicatorsfor the economy as a whole, such as the growth ratesof output and exports, and total factor productivity—all data series potentially derivable from nationalaccounts data. From another perspective, if an econ-omy is unwilling to service its debts, and defaults,production losses might ensue as the economyceases to be integrated with international capitalmarkets.

The Role of Assets

16.22 As indicated above, the external debt positionneeds to be considered in the context of external as-sets because these help to meet debt-servicing re-quirements—assets generate income and can be soldto meet liquidity demands. In the IIP, the differencebetween external assets and external liabilities is thenet asset (or liability) position of an economy.

16.23 For all economies, international reserveassets are, by definition, composed of externalassets that are readily available to and controlled bythe monetary authorities for direct financing of pay-ments imbalances, for indirectly regulating themagnitude of such imbalances through interventionin exchange markets to affect the currency exchangerate, and for other purposes. Because of this role, inMarch 1999, the IMF’s Executive Board, drawingon the work of the IMF and the Committee onGlobal Financial Systems of the G-10 central banks,strengthened the Special Data Dissemination Stan-dard requirements for the dissemination of data oninternational reserves, and foreign currency liquid-ity. A data template on international reserves andforeign currency liquidity was introduced that pro-vides a considerably greater degree of transparencyin international reserves data than was hithertoavailable.9

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8Dragoslav Avramovic and others (1964, p. 67) noted that whilethe debt-service ratio “does serve as a convenient yardstick for

passing short-term creditworthiness judgments, that is to say,judgments of the risk that default may be provoked by liquiditycrises,” in fact “the only important factor, from the long-run pointof view, is the rate of growth of production.” Indeed, “it is only inthe interest of the borrowers as well as of the lenders that outputand savings be maximized, since they are the only real sourcefrom which debt service is paid.”

9See Kester (2001).


16.24 But as private entities in an economy becomeincreasingly active in international markets, theyare likely to acquire external assets as well as lia-bilities. The diverse nature of private sector externalassets suggests that they are of a different naturethan reserve assets. For instance, private sectorexternal assets may not be distributed among sec-tors and individual enterprises in such a way thatthey can be used to absorb private sector liquidityneeds. But the presence of such assets needs to betaken into account in individual country analysis ofthe external debt position. One approach is to pre-sent the net external debt position for each institu-tional sector, thus comparing the institutional attri-bution and concentration of external assets in theform of debt instruments with external debt (seeChapter 7).

16.25 But in comparing assets with debt, it is neces-sary to also consider the liquidity and quality of as-sets, their riskiness, and the functional and instru-ment composition of assets.

16.26 Most important, assets should be capable ofgenerating income or be liquid so that they could besold if need be, or both. The functional compo-sition of assets provides important informationin this regard. For instance, direct investment assetsmay generate income but are often less liquid,especially if they take the form of fully owned non-traded investments in companies or subsidiaries.Typically, direct investment assets are either illiquidin the short term (such as plant and equipment) or,if they are potentially marketable, the direct in-vestor needs to take into account the implicationson direct investment enterprises of withdrawingassets. The latter will be a countervailing factor toany selling pressures. Nonetheless, some directinvestment assets may be closer to portfolio invest-ments and relatively tradable—such as nonmajorityshares in companies in countries with deep equitymarkets.

16.27 Portfolio investment is by definition tradable.Investments—such as loans and trade credit—whilegenerating income can be less liquid than portfolioinvestment, but the maturity of these investmentsmay be important because the value of short-termassets can be realized early. Increasingly, loans canbe packaged into a single debt instrument andtraded. Trade credit may be difficult to withdrawwithout harming export earnings, a very impor-

tant source of income during situations of externalstress.

16.28 In assessing assets in the context of debtanalysis, the quality of assets is a key factor. In prin-ciple the quality of the assets is reflected in the priceof the assets. Some knowledge of the issuer and thecountry of residence may provide a further idea ofthe quality of the asset and its availability in times ofa crisis; availability is often correlated with locationor type of country. Knowledge of the geographicspread of assets can help one to understand the vul-nerability of the domestic economy to financial diffi-culties in other economies.

16.29 The currency composition of assets, to-gether with that of debt instruments, provides anidea of the impact on the economy of changes in thevarious exchange rates; notably, it provides informa-tion on the wealth effect of cross exchange ratemovements (such as changes in the dollar-yenexchange rate for euro-area countries). The BISInternational Banking Statistics (see next chapter),and the IMF’s Coordinated Portfolio InvestmentSurvey (see Chapter 13), at the least, encourage thecollection of data on the country of residence of thenonresident debtor, and the currency composition ofassets.

Relevance of Financial Derivatives andRepurchase Agreements (Repos)

16.30 The growth in financial derivatives marketshas implications for debt management and analysis.They are used for a number of purposes includingrisk management, hedging, arbitrage between mar-kets, and speculation.

16.31 From the viewpoint of managing the risksarising from debt instruments, derivatives can beboth cheaper and more efficient than other tools.This is because they can be used to directly tradeaway the specific risk to be managed. For instance, aforeign currency borrowing can be hedged through aforeign-currency-linked derivative and so eliminatepart or all of the foreign currency risk. Thus, aggre-gate information on the notional position in foreigncurrency derivatives is important in determining thewealth and cash-flow effects of changing exchangerates. Similarly, the cash-flow uncertainties involvedin borrowing in variable interest rates can be reduced

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by swapping into “fixed-rate” payments with an in-terest rate swap.10 In both instances the derivativescontract will involve the borrower in additionalcounterparty credit risk, but it facilitates good risk-management practices.

16.32 Derivatives are also used as speculative andarbitrage instruments.11 They are a tool for undertak-ing leveraged transactions, in that for relatively littlecapital advanced up front, significant exposures torisk can be achieved, and differences in the implicitprice of risk across instruments issued by the sameissuer, or very similar issuers, can be arbitraged.12

However, if used inappropriately, financial deriva-tives can cause significant losses and so enhance thevulnerability of an economy. Derivatives can also beused to circumvent regulations, and so place unex-pected pressure on markets. For instance, a ban onholding securities can be circumvented by foreigninstitutions through a total-return swap.13

16.33 Derivatives positions can become very valu-able or costly depending on the underlying pricemovements. The value of the positions is measuredby the market value of the positions. For all theabove reasons, there is interest in market values,gross assets and liabilities, and notional (or nominal)values of financial derivatives positions.14

16.34 Risk-enhancing or -mitigating features thatare similar to financial derivatives may also be em-bedded in other instruments such as bonds and notes.Structured bonds are an example of such enhancedinstruments. These instruments could, for example,

be issued in dollars, with the repayment value de-pendent on a multiple of the Mexican peso–U.S. dol-lar exchange rate. Borrowers may also include aput—right to sell—option in the bond contract thatmight lower the coupon rate but increase the likeli-hood of an early redemption of the bond, not leastwhen the borrower runs into problems. Also, forexample, credit-linked bonds may be issued thatinclude a credit derivative, which links payments ofinterest and principal to the credit standing of an-other borrower. The inclusion of these derivativescan improve the terms that the borrower would oth-erwise have received, but at the cost of taking onadditional risk. Uncertainty over the repaymentterms or the repayment schedule is a consequence,so there is analytical interest in information on thesestructured bond issues.

16.35 Repurchase agreements (repos) also facili-tate improved risk management and arbitrage. Arepo allows an investor to purchase a financial in-strument, and then largely finance this purchase byon-selling the security under a repo agreement. Byselling the security under a repo, the investor retainsexposure to the price movements of the security,while requiring only modest cash outlays. In this ex-ample, the investor is taking a “long” or positive po-sition. On the other hand, through a security loan, aspeculator or arbitrageur can take a “short” or nega-tive position in an instrument by selling a securitythey do not own and then meeting their settlementneeds by borrowing the security (security loan) fromanother investor.

16.36 While in normal times all these activities addliquidity to markets and allow the efficient taking ofpositions, when sentiment changes volatility may in-crease as leveraged positions may need to be un-wound, such as the need to meet margin require-ments. Position data on securities issued by residentsand involved in repurchase and security lendingtransactions between residents and nonresidents helpin understanding and anticipating market pressures.These data can also help in understanding the debt-service schedule data. For example, if a nonresidentsold a security under a repo transaction to a residentwho then sold it outright to another nonresident, thedebt-service schedule would record two sets of pay-ments to nonresidents by the issuer for the same se-curity, although there would be one set of paymentsfor the one security. In volatile times, when large po-sitions develop in one direction, this might result in

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10The risk might not be completely eliminated if at the reset ofthe floating rate the credit risk premium of the borrower changes.The interest rate swap will eliminate the risk of changes in themarket rate of interest.

11Speculation and arbitrage activity can help add liquidity tomarkets and facilitate hedging. Also, when used for arbitrage pur-poses, derivatives may reduce any inefficient pricing differentialsbetween markets and/or instruments.

12Leverage, as a financial term, describes having the full bene-fits arising from holding a position in a financial asset withouthaving had to fund the purchase with own funds. Financial deriva-tives are instruments that can be used by international investors toleverage investments, as are repos.

13A total-return swap is a credit derivative that swaps the totalreturn on a financial instrument for a guaranteed interest rate, suchas an interbank rate, plus a margin.

14While the Guide explicitly presents data only on the notional(or nominal) value for foreign-currency- and interest-rate-linkedfinancial derivatives, information on the notional value of finan-cial derivatives, for all types of risk category, by type and in aggre-gate, can be of analytical value.


apparent very significant debt-service payments onsecurities; the position data on resident securities in-volved in cross-border reverse transactions could in-dicate that reverse transactions are a factor.

Information on the Creditor

16.37 In any debt analysis an understanding of thecreditor is relevant because different creditors havedifferent motivations and influences upon them.

16.38 The sector and country of lender are impor-tant factors in debt analysis. Debt analysis has tradi-tionally focused on sectors—in particular, on the splitbetween the official sector, banking, and other,mostly private, sectors. The importance of this sec-toral breakdown lies in the different degrees of diffi-culty for reaching an orderly workout in the event ofpayment difficulties. For instance, negotiations ofdebt relief will differ, depending on the status of thecreditor. The official sector and the banks constitute arelatively small and self-contained group of creditorsthat can meet and negotiate with the debtor through

such forums as the Paris Club (official sector), andLondon Club (banks). By contrast, other private cred-itors are typically more numerous and diverse.

16.39 Also, the public sector may be a guarantorof debts owed to the foreign private sector. Often thisis the case with export credit, under which the creditagency pays the foreign private sector participant inthe event of nonpayment by the debtor, and so takeson the role of creditor. These arrangements are in-tended to stimulate trade activity, and premiums arepaid by the private sector. In case of default, the ulti-mate creditor is the public sector, if the credit agencyis indeed in the public sector. The country of credi-tor is important for debt analysis because overcon-centration of the geographic spread of creditors hasthe potential for contagion of adverse financial activ-ity. For instance, if one or two countries are maincreditors, then a problem in their own economies orwith their own external debt position could causethem to withdraw finance from the debtor country.Indeed, concentration by country and sector, such asbanks, could make an economy highly dependent onconditions in that sector and economy.

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PART IV

Work of International Agencies

Introduction

17.1 External debt and related statistics are dissemi-nated by four international agencies:• The BIS, from its locational and consolidated

International Banking Statistics (creditor report-ing) and International Securities Statistics (basedon market information), in the BIS QuarterlyReview;

• The IMF, according to balance of payments andIIP (BPM5) framework, in International FinancialStatistics and the Balance of Payments StatisticsYearbook;

• The OECD, through its Creditor Reporting Sys-tem for the external debt of developing and transi-tion countries, in External Debt Statistics; and

• The World Bank, through its Debtor ReportingSystem for the external debt of low- and middle-income countries, in Global Development Finance.

17.2 These collections have developed for differentreasons and for different purposes. This chapter out-lines the BIS, IMF, OECD, and World Bank report-ing systems, as at the end of 2000, and compares thedata disseminated by the BIS, OECD, and WorldBank with that from the IIP of the IMF. Also, thischapter provides some explanations for the differ-ences between the OECD and World Bank data, anddescribes the quarterly release, Joint BIS-IMF-OECD-World Bank Statistics on External Debt.


17.3 The BIS produces two main sets of data: theInternational Banking Statistics (IBS) and the Inter-national Securities Statistics. These data are avail-able at http://www.bis.org/statistics/index.htm,and published quarterly in the BIS publication,Quarterly Review, and in the Joint BIS-IMF-OECD-World Bank Statistics on External Debt (seebelow).

International Banking Statistics

17.4 Table 17.1 shows the coverage of the BISInternational Banking Statistics. The IBS system hastwo main sets of data.1 The first, which was devel-oped in the late 1970s as a by-product of the need formonitoring overall market developments, is based onthe country of location, or residence, of creditorbanks (termed locational statistics). The second,which was introduced in the wake of the LatinAmerican debt crisis in the early 1980s and wastherefore explicitly designed to measure credit risk,is based on the country of origin, or nationality, ofcreditor banks. Its underlying principle is the world-wide consolidation of the outstanding exposures ofreporting banking institutions. While the locationalstatistics have been available on a quarterly basissince the inception of the system, the reporting fre-quency of the consolidated data increased fromsemiannual to quarterly in 2000.

17.5 Although in both sets of statistics debtor coun-terparties are identified according to their countryof residence, regardless of the location of the ulti-mate guarantor of the borrowed funds, only thelocational banking statistics are consistent with theIIP framework. First, creditors are also identifiedaccording to their country of location and, there-fore, reported by the host lending country (as op-posed to the home country of the head office in thecase of the nationality/consolidated statistics). Thisapproach permits a statistical reconciliation on acountry-by-country bilateral basis. Second, the

17. External Debt Statistics fromInternational Agencies

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1See BIS (2000a). Although the BIS also collects data on syndi-cated loan facilities, this information cannot be used for measur-ing external debt. First, facilities may be used as a backup forother types of fund-raising and may therefore remain undrawn oronly partially used. Second, in some instances the funds are usedto replace past banking debt, without therefore entailing anyincrease in borrowers’ debt. Third, syndicated loans are but one ofthe various forms of international bank lending. Thus, whereassyndicated loan data may help to assess current market conditions,they cannot be used to measure external debt.


breakdown by instrument—namely, between loansand debt securities holdings—comes close to the IIPdistinction between portfolio and other investmentpositions. Third, the currency breakdown makes itpossible to derive flows from stock data, which canbe used as a proxy for measuring balance of pay-ments transactions.2 Also, there is a sectoral break-down between banks and nonbanks. Keeping inmind that domestic debt compilers face difficultiesreporting comprehensively on domestic nonbank fi-nancial transactions, this breakdown is particularlyuseful to national debt compilers for comparative orestimation purposes.3

17.6 In contrast, the nationality/consolidated statis-tics are not consistent with the IIP framework. Theirmain objective is to measure the credit risk facedby reporting institutions, with the reporting on aworldwide-consolidated basis being the main un-derlying principle. Consolidation implies that thecountry exposure of individual reporting institutionscovers that of their affiliates in all countries, includ-ing in the debtor country itself. Also as part of theprocess of consolidation, positions between therelated offices of the same banking groups (intra-bank positions) are netted out, which eliminates anumber of cross-border positions. Finally, countryexposure under this reporting system includes localclaims denominated in foreign currencies, whichclearly fall outside the scope of balance of paymentsstatistics.

17.7 At the same time, the BIS nationality/consoli-dated statistics provide an insight into some impor-tant categories of countries’ external debt not avail-able elsewhere. Prime among these is short-term

debt (with a remaining maturity of up to one year),which had not been the original focus of debtor re-porting systems. Another important piece of infor-mation is the sectoral breakdown (banks, the publicsector, and private nonbanks). Moreover, as fromend-June 1999, the reporting system includes a real-location of claims according to the country of domi-cile of the guarantor, either the head office of theborrowing entity itself (for branches) or of borrowedfunds with explicit (legally binding) guarantees—so-called “ultimate risk” data. Also included, in princi-ple, under guarantees is collateral that is liquid andavailable in a country other than that of the bor-rower; that is, if the collateral provided is issued by aresident of the United States, then the ultimate riskdata reallocates the claim to the United States fromthe country of residence of the provider of the collat-eral. This reclassification from immediate to ulti-mate counterparties will therefore exclude claimswith implicit guarantees, or those perceived as such,as is the case of independent banking or corporatesubsidiaries (unless explicitly covered by the headoffice).

17.8 As part of the BIS consolidated statistics, in-formation is available on certain potential claimsthat do not appear on the balance sheet (“undis-bursed credit commitments”). Such off-balance-sheet exposures include legally binding commit-ments to provide funds, such as the drawdown ofloans according to a predefined calendar and theundrawn part of credit lines. Unfortunately, theheterogeneous nature of items covered by the defini-tion (which may, for instance, include certain guar-antees) might limit the use of this category for debt-measurement purposes.

17.9 The introduction of data on exposures to ulti-mate counterparties does not aim to replace those onexposures to immediate counterparties, but to pro-vide a useful complement for the purpose of evaluat-

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Table 17.1. Coverage of BIS International Banking Statistics

Basis for Defining Creditor Basis for Defining Debtor Available Breakdown

Residence/location Residence Sector, currency, instrumentNationality/consolidated Residence Sector, maturityNationality/consolidated Nationality None

2Changes adjusted to exclude the impact of currency movementson stock data using average exchange rates for the period underconsideration can only serve to approximate actual transactions.

3See also IMF (1992), pp. 54–62.

17 • External Debt Statistics from International Agencies

ing country risk. Indeed, in view of the difficulty ofmeasuring where the final risk lies and of the signifi-cance of borderline cases, the Basel Committee onBanking Supervision has explicitly recommendedthat banks calculate their country exposure on bothbases (dual exposure measurement).4 The ultimaterisk exposure tends to provide a better measure ofthe ability of creditors to recoup their claims.

International Securities Statistics

17.10 Table 17.2 shows the coverage of the BISInternational Securities Statistics, which are derivedfrom a database containing detailed informationabout all issues of international securities,5 whichare obtained from various commercial marketsources. Each individual issuer of securities is as-signed two country fields. One is location, deter-mined by the residence of the issuer. The secondfield is nationality, corresponding to the country ofresidence of the head office or owner of the issuingentity. Thus, debt data are available on both a resi-dence and a nationality basis. However, since hold-ers of debt securities are difficult to identify (notleast because international bonds are generallybearer securities), there is no equivalent classifica-tion for creditors. As a result, no allowance is madefor international securities purchased by residents ofthe debtor country. At the same time, the fact thatonly international securities are reported means thatdomestic securities purchased by nonresidents arenot covered by the reporting system.

17.11 The statistics comprise four types of basicinformation, pertaining to individual quarters: an-nouncements of new issues, completions of newissues, net new issues (corresponding to the differ-ence between completed issues and redemptions),and end-quarter stocks. The nationality and residenceof issuers are readily available for these four types ofbasic information, as are the maturity breakdown (re-maining maturity) and the sectoral breakdown. In ad-dition, computer programs have been developed toread and aggregate individual issues to produce datasuch as original maturity and type of issues.

17.12 When aggregating the international bankingand securities statistics for the purpose of measuringexternal debt, the breakdown of the locational (butnot the consolidated) banking statistics into bankloans and securities holdings should in principle en-able double counting in debt securities to be elimi-nated. However, the banking data include holdingsof an unknown volume of securities issued on localmarkets (as opposed to international issues), whichcan be significant and/or volatile in some instances.As a result, the actual size of the overlap between theinternational banking and securities data cannot befully ascertained.


17.13 In the field of external debt statistics, the IMFcollects and publishes annual and quarterly data onthe IIP. These data are published in the monthly In-ternational Financial Statistics (IFS) publication,and in the annual Balance of Payments StatisticsYearbook (BOPSY). Data on the IIP were first pub-lished in BOPSY in 1984. The recommended con-cepts for the measurement of the IIP are outlined inBPM5. The concepts are consistent with the 1993SNA, and hence with the concepts introduced in thisGuide. At the time of writing, data were available for63 countries.

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Table 17.2. Coverage of BIS International Security Statistics

Basis for Defining Creditor Basis for Defining Debtor Available Breakdown

Residence n.a. Maturity, currency, instrument, sectorNationality n.a. Maturity, currency, instrument, sector

4See Basel Committee on Banking Supervision (1982). Also, inthis context and as mentioned in Chapter 12, the collection ofsemiannual statistics on open positions in the global over-the-counter (OTC) derivatives market was introduced by the BIS inJune 1998. However, these data are not available with a country-by-country breakdown of counterparties.

5International securities issues are defined as those raised out-side the debtor country itself, whether in the international bond(formerly Eurobond) market or in foreign markets, such as theYankee bond market.


17.14 The IIP is a measure of the stock of a coun-try’s external financial assets and liabilities at onemoment in time, such as year-end.6 In other words,the IIP is a statistical statement of the value andcomposition of the stock of an economy’s externalfinancial assets (that is, the economy’s financialclaims on the rest of the world) and the value andcomposition of the stock of an economy’s liabilitiesto the rest of the world. The financial items thatcomprise the position consist of claims on nonresi-dents, liabilities to nonresidents, monetary gold, andSDRs. In relation to the balance sheet (as delineatedin the 1993 SNA) of an economy, the net IIP (thestock of external financial assets minus the stock ofexternal liabilities) combined with an economy’sstock of nonfinancial assets comprises the net worthof that economy.

17.15 The position at the end of a specific period re-flects financial transactions, valuation changes, andother adjustments that occurred during the periodand affect the level of assets and/or liabilities.7 Be-cause of the consistency of conceptual approach, thefinancial transactions are those recorded in the bal-ance of payments. The valuation changes in the IIPare holding gains and losses arising from marketprice changes of such instruments as equities anddebt securities, as well as from exchange ratechanges. In nominal value terms, changes in themarket price of a debt instrument do not affectthe nominal amount outstanding. The other adjust-ments item, which is equivalent to “other changesin volume” in the 1993 SNA, are changes that arenot transactions or valuation changes, but items thataffect the levels of assets and liabilities, such asreclassifications.

17.16 Thus, the IIP provides a framework that al-lows transactions in external debt, such as disburse-ments and repayments of loans, the accrual of inter-est costs, etc., that are recorded in the balance ofpayments to be related to changes in outstanding po-sitions in external debt liabilities, as recorded in thechange in the IIP between reporting periods. Be-cause stock levels are sometimes utilized in thedetermination of investment income receipts and

payments in balance of payments accounts, consis-tent classification and valuation throughout the in-come category of the current account, the financialaccount, and the position components allows formeaningful analysis of yields and rates of return onexternal investments. In addition, the reconciliationbetween the IIP and the rest-of-the-world balancesheet in the national accounts provides a frameworkfor analyzing developments in the IIP in the contextof the financial behavior of all institutional sectors ofthe economy.8 These various reconciliations supportdebt analysis work.

Organisation for EconomicCo-operation and Development

17.17 The OECD collects two sets of data that in-clude information on external indebtedness:• Aggregate information on official and officially

supported (that is, guaranteed or insured by the of-ficial sector) export credits, and individual transac-tions data on all other official loans from the Cred-itor Reporting System (CRS)—these data arepublished in the OECD publication, External DebtStatistics, and the Joint BIS-IMF-OECD-WorldBank Statistics on External Debt (see below); and

• Aggregate data on flows of aid loans and grants,other official flows, private market transactions,and assistance from nongovernmental organiza-tions to each recipient country and recipient coun-tries combined, from the Development AssistanceCommittee (DAC) annual questionnaire—thesedata are published in Geographical Distribution ofFinancial Flows to Developing Countries and inthe Development Co-operation Report.

17.18 The main external debt publication of theOECD is the annual publication External Debt Statis-tics, which provides data on debt for developing andtransition economies. These data are based largely oncreditor sources, with the CRS data on loans (includ-ing export credits), the BIS international banking andsecurity statistics, and the World Bank’s data on mul-tilateral lending providing the core data series. Someadditional debtor data are obtained from the World

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6For a full description of the IIP, see Chapter XXIII of BPM5.7While the financial transactions are shown in IFS and BOPSY

as part of the balance of payments statement, the valuationchanges and other adjustments are not collected or published bythe IMF.

8There are differences in classification between the rest-of-the-world account and the IIP that reflect, inter alia, differences in an-alytical requirements. For instance, the national accounts focus oninstruments, while the IIP focuses on functional categories. Thedetailed reconciliation is provided in Appendix IV.


Bank for debt owed to non-OECD official creditorsand from various sources for nonresident nonbankdeposits in banks. The data are presented by maturity,creditor sector, and/or instrument. The classificationsare not the same as in the IIP and, while in theorythey should be similar, the external debt data totals inthe two presentations will differ because of differ-ences in concepts and methodology used, and incompleteness of reporting.

OECD Reporting Systems

17.19 The CRS was established in 1967 with theaim of supplying “participants with a regular flow ofdata on indebtedness and capital flows.” Conse-quently, over the years it has become a major sourceof information not only on official lending but alsoon the terms and conditions of external lending, aswell as the sectoral and geographic distribution offlows to developing economies.

17.20 The CRS comprises separate report forms forcommitments and loans. Three report forms covercommitments: grants (Form 1A); aid and other offi-cial loans excluding export credits (Form 1B); andguaranteed and direct export credits extended for aperiod of five years or more (Form 1C). Four formscover loans: the status of individual aid and otherofficial loans, excluding export credits (Form 2); thestatus of aggregated medium- and long-term guaran-teed export credits (Form 3); the status of aggregatedmedium- and long-term direct export credits (Form3A); and the outstanding amounts of short-term ex-port credits on an original maturity basis (Form 3B).Form 2 provides individual transaction data, andForms 3, 3A, and 3B provide aggregate data on out-standing amounts at the end of the period and trans-actions during the period. Forms 3, 3A, and 3B alsoprovide expected payments.

17.21 Reporting frequency for the CRS differsamong forms. Whereas respondents report officialloan commitments continuously, and export creditdebt semiannually, data on the status of individualaid and other official loans are reported annually.Because these loans are not closely affected by fi-nancial market developments, this frequency is con-sidered adequate.

17.22 The annual DAC questionnaires provide ag-gregated flow data that are based largely on balanceof payments principles, with the exceptions noted

below.9 Thus, there is a broad correspondence be-tween balance of payments and DAC flows data.Where CRS reporting is incomplete, debt flow datamay be obtained from the DAC reporting system,and debt stock data may be estimated on the basis ofprevious stocks and DAC flows.

Comparison of OECD Data with Balance of Payments/IIP Data

Presentation of data

17.23 Unlike the presentation in the IIP, OECD cat-egories show different types of debt, based partly onthe creditor and partly on the instrument. They in-clude official bilateral lending (excluding exportcredits), official development assistance (ODA)/offi-cial aid, officially supported export credits, officialmultilateral lending, bank lending, debt securities,other claims, and short-term debt.

17.24 Historically, the collection of data on ODAand other official loans has reflected analytical inter-est in recording development finances, especiallyaid. ODA is defined as those flows to countries onPart I of the DAC List of Aid Recipients that are (1)provided by official agencies, including state andlocal governments, or by their executive agencies;and (2) each transaction is administered with thepromotion of the economic development and welfareof developing countries as its main objective, and isconcessional in character and conveys a grant ele-ment of at least 25 percent (calculated at a rate ofdiscount of 10 percent). Flows to countries on Part IIof the DAC List (transition countries) that meet theabove criteria are classified as official aid.10 Al-though it is rare, such loans may also be made to theprivate sector in the borrowing country.

17.25 The collection of export credit data arosefrom the needs of the OECD Trade Committee tofollow the activities of export credit agencies. Alsoof interest to creditors and debtors is the scale ofmultilateral lending from the World Bank and re-lated organizations, as are loans made by other non-OECD creditors, although these data are compiledfrom the Debtor Reporting System (DRS).

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9Further information on the DAC reporting system is availableon the Internet at the following website: http://www1.oecd.org/dac/htm/crs.htm.

10The DAC list essentially includes all non-OECD membersand some OECD members.


17.26 The presentation of the data allows creditorsto consider country risk. Debtors and creditors canidentify amounts that may be renegotiated in suchfora as the Paris Club, the London Club, or may bethe object of bilateral debt relief, and examine suchquestions as burden sharing by creditors, or the rela-tive importance of different categories of creditors ina debtor country’s borrowing.

Concepts

17.27 In both the OECD’s reporting systems, thebalance of payments criteria of residence is gener-ally required. Creditors identify their debtor counter-parts according to their country of residence, al-though in cases such as offshore centers, flag ofconvenience countries, or aircraft leases, the ulti-mate borrower may be in a third country. In theOECD reporting systems, all debt stocks and flowsare valued at face value, unlike market value in thebalance of payments and IIP. Although this mayseem like a major divergence, there is in practice lit-tle difference because nontraded instruments are in-variably valued at nominal value in the IIP.

17.28 A significant difference between the OECDand IIP data is that, unlike the IIP, OECD data arenot reported on a full accrual basis. Both the OECDand IIP data record disbursements at the time theyoccur, whereas repayments are reported in OECDdata when they take place, not when they are due (asin the IIP). OECD debt stock is calculated as theamount of disbursed principal outstanding plus inter-est in arrears, whereas the IIP debt stocks are theamounts outstanding including all interest costs thathave accrued and have not yet been paid.

17.29 The IIP and OECD data define long-term andshort-term debt identically. Thus in the OECD data,short-term debt includes all debt contracted for a pe-riod of one year or less plus, wherever possible, arrearsof both principal and interest on all debt. In the OECDdata, the maturity breakdown is available for only twocategories: banks and export credits. For other cate-gories, all debt is classified as long-term. Using datain External Debt Statistics, debt with a remainingmaturity of one year or less can be estimated by com-bining short-term debt with the amount of principalpayments due in the next year on long-term debt.

17.30 The nonresident creditor sector is publishedin the OECD data, whereas the IIP publishes the res-

ident debtor sector. Also, the sector classification inthe OECD data does not correspond with the IIP, orthe 1993 SNA. In the OECD data, there is the officialsector and the private sector, of which banks are sep-arately identified. Although not published, theOECD does have some data on the resident debtorsector. The classification of borrowers is not re-ported for official lending other than export credits,but it can be assumed that the vast majority of bor-rowers of these funds belong to the general govern-ment sector. In the case of export credits, reportersdistinguish between public and private borrowers,although a further distinction between bank andother private sector is not available. Rescheduled ex-port credits are assumed to be claims on public bor-rowers; the rescheduled debt notified to the OECD isgenerally debt rescheduled by the public sector ofthe debtor and the official sector of the creditor.

Specific items

Trade credits

17.31 The concept of “trade credits” is wider in theOECD data than in the IIP, which “only” includesclaims and liabilities arising from the direct exten-sion of credit by suppliers and buyers for transac-tions in goods and services, and for work in progress(or to be undertaken). The OECD data cover threetypes of export credits—officially supported suppli-ers credits, officially supported bank credits, and of-ficial direct credits. They do not cover private sectorcredits that do not have official support in the formof insurance or guarantee.

Arrears

17.32 The recording treatment of arrears of princi-pal and interest is the same in the IIP and OECDdebt data; arrears arise when payments are past due,and are classified as short-term debt. However, in theOECD data, late interest (interest on arrears) is re-ported and included in the debt stock only when theinterest is capitalized under a rescheduling, whereasin the IIP interest costs accrue on arrears (althoughBPM5 is not very clear on this issue).

Write-offs

17.33 A write-off is a unilateral creditor action thatis an accounting procedure that removes a debt froma creditor’s books. As such, it should be reflected inthe notification of creditors’ debt stocks to theOECD, thus affecting the level of claims. The IIP is

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silent on the treatment by the debtor, so a discrep-ancy could arise between the debtor and creditordata. While write-offs are rare for official and offi-cially supported debt, they are a more common pro-cedure for banks.

Debt forgiveness

17.34 In the DAC statistics debt forgiveness is asimilar but different concept from that used inBPM5. Unlike BPM5, only relief implemented forthe purpose of promoting the development or wel-fare of the recipient qualifies as debt forgiveness inthe DAC data. However, if this condition is fulfilled,like BPM5, a voluntary cancellation of debt withinthe framework of a bilateral agreement is classifiedin the DAC statistics as debt forgiveness, and is re-ported as an ODA grant (capital transfer in BPM5).Unlike BPM5, the DAC system’s concept of debtforgiveness also includes a reduction in the presentvalue of debt achieved by concessional reschedulingor refinancing, and the discount in a debt conversionoccurring within the framework of a bilateral agree-ment between governments (although in certain cir-cumstances BPM5 also records such discounts asdebt forgiveness; see Chapter 8 of the Guide, para-graph 8.33).

17.35 Most OECD reporters follow balance of pay-ments principles in reporting forgiveness when debtis canceled—the amount forgiven is valued as theamount of debt stock canceled and is reported in alump sum at the time the creditor enters the forgive-ness on its books. However, a few reporters only re-port the forgiveness of the debt annually when debt-service payments would have fallen due. Thisapproach results in differences in timing (forgive-ness spread out over many years) and amounts (in-terest not yet due at the time of forgiveness includedin addition to principal and interest arrears) betweenthe DAC forgiveness grants and the balance of pay-ments capital transfers. Because some already for-given amounts may remain included in the outstand-ing debt stock until the period in which theirpayments would have fallen due, this approach mayalso have the consequence of overstating the OECDmeasured debt stock in the intervening period afterthe forgiveness agreement.

Debt rescheduling

17.36 Debt rescheduling is reflected in both thedebt stock and flow data collected by the OECD.The rescheduling flows are recorded at the time of

actual implementation of the rescheduling, whichshould correspond to the time they are entered intothe books (of both the creditor and the debtor), thesame approach as the IIP. The rescheduling of anyfuture maturities is therefore recorded at the time ofthe actual implementation of their rescheduling,rather than when the rescheduling as a whole isagreed. When short-term debt, including arrears, isrescheduled into long-term maturities, this is re-flected in the OECD data, as in the IIP. Also as inthe IIP, if the rescheduling involves a shift in credi-tor or debtor sectors—for example, a Paris Clubrescheduling of debt lent by the private sector(under a creditor government guarantee) to the pri-vate sector (under a borrower government guaran-tee) could become government to government—theOECD data record the legal change of ownership.11

However, when the rescheduling is within the offi-cial sector, only the capitalization of interest is re-ported as a flow (in order to avoid two offsetting en-tries for the principal rescheduled). Whilerescheduled export credit debt owed to public credi-tors can be identified as such in the OECD database,in External Debt Statistics it is classified under non-bank export credits.

17.37 Although there is much similarity in the prin-ciples, in practice the complexity of restructuringmakes full and correct reporting difficult to imple-ment for both creditors and debtors and can give riseto discrepancies between OECD data and the IIP.Genuine differences in the timing of book entries be-tween creditors and debtors, and practical difficultiesin tracing restructuring that can lead to problemssuch as misclassification of arrears and rescheduleddebts, and omission of capitalized interest, some-times produce different figures in creditors’ reportsand the debtor’s IIP.

Debt conversions

17.38 In OECD data, when official debt is ex-changed for equity or counterpart funds to be usedfor development purposes, this should be reported asan ODA grant for debt conversion, with debt for-giveness recorded only if there is a discount on theexchange. Also when, in the framework of a bilateral

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11The counterentry to the governments’ assumption of externaldebt might well be a claim on their private sector or capital trans-fer. Because of guarantees or insurance provided by the govern-ment’s export credit agency, the creditor government may acquirethe claim from their private sector.


agreement for development purposes, the officialsector sells debt at a discount to a private sector en-tity that is then exchanged for equity or counterpartfunds to be used for the benefit of the private sectorentity for development purposes, the official sector’sloss should be reported as debt forgiveness. In bothcases, and as in the IIP, the debt stock is reduced bythe value of the debt converted.

World Bank

17.39 The World Bank collects data on external in-debtedness from debtor countries through the DebtorReporting System (DRS). These reported data formthe core of the detailed country-level debt stock andflow data that are published annually in the GlobalDevelopment Finance (GDF) publication (formerlyWorld Debt Tables). Selected debt data are alsoavailable in the annual World Development Indica-tors publication, and in the Joint BIS-IMF-OECD-World Bank Statistics on External Debt (see further,below).

17.40 The World Bank’s interest in debt statistics isboth analytical and operational. At the analyticallevel, the Bank is a leading international source ofinformation and analysis on the economic situationof developing countries. Bank staff make extensiveuse of debt statistics in analyzing the economicprospects, financing needs, creditworthiness, anddebt sustainability of developing economies. At theoperational level, the lending and borrowing activi-ties of the Bank demand a close monitoring of theoverall financial situation of each borrower, such asdebt-servicing capacity. To this end, the Bank’s Gen-eral Conditions (of borrowing) require a borrowingor guaranteeing member country to report externaldebt information to the Bank. As a condition of pre-sentation of loans and credits to the World Bank’sExecutive Board, each borrowing or guaranteeingcountry must submit a complete report (or an accept-able plan of action for such reporting) on its externaldebt.

Debtor Reporting System

17.41 The DRS was established in 1951 and is theWorld Bank’s principal means of monitoring externaldebt. Through the DRS, countries—typically low-and middle-income—that borrow from the Bank re-port data on long-term external indebtedness.

17.42 The number of countries covered and the datato be reported have expanded over time. At the timeof writing, 136 countries submitted two kinds of re-ports: loan-by-loan data on long-term debt of the pub-lic sector and debts guaranteed by the public sector;and summary reports on long-term debt of the privatesector that is not publicly guaranteed. The data aresupplied on special reporting forms. For public andpublicly guaranteed debt, individual new loan com-mitments are reported (quarterly) on Forms 1 and 1A,and the status of each loan at the end of the recordingperiod and the transactions recorded during therecording period are reported on Form 2. For privatenonguaranteed debt, aggregate figures on the stock ofdebt, transactions during the recording period, and fu-ture debt services are reported on Form 4. Short-termdebt data are either obtained from the country or esti-mated separately using creditor and other sources, themost important source being remaining-maturity datafrom the BIS consolidated International Banking Sta-tistics, which are adjusted to come into line with theoriginal-maturity concept.12

17.43 Form 1 is used for reporting the terms and con-ditions of each external public and publicly guaran-teed debt obligation incurred during a calendar quar-ter with an original maturity of more than one year.This report allows a wide range of information to becaptured and disseminated for statistical and analyti-cal purposes within and outside the World Bank.

17.44 Information is collected on creditor name,type, and residence and is used in classifying exter-nal debt owed to official and private creditors, as-sessing creditor exposure, analyzing net resourceflows from official and private creditor sources, andidentifying Paris Club debt eligibility.

17.45 On the debtor side, borrower name and type,guarantor name, economic sector of borrower, andwhether funds for debt servicing are to come fromthe budget of the central government are also re-ported on Form 1. This information is used in severalways, including measuring public and private sectorborrowings, identifying uses of funds, and assessingthe central government’s debt burden.

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12Described in detail in the notes and definitions to theGlobal Development Finance report; on the Internet, seehttp://www.worldbank.org/prospects/gdf2002/vol1.htm. The GDFdatabase is also available on-line, by subscription, at http://publications.worldbank.org/ecommerce/catalog/product?item_id=1023868.


17.46 Form 1 allows compilation of detailed infor-mation on loan terms, including interest rates andspreads, grace period, maturity, debt-service pattern,and currencies in which the loan amounts are de-nominated and repaid. This information is used incalculating the grant element component, projecteddebt service, present value of debt, and other debtand economic indicators.

17.47 Form 1A captures future payments due whenthe terms of repayments cannot be adequately de-scribed in Form 1, and amounts rescheduled in mul-tiyear rescheduling agreements that will become ef-fective on future specified dates.

17.48 Form 2 is used for reporting the annual statusof each external debt liability with an original matu-rity of more than one year. This annual summary re-port presents stock and flow information for eachpublic or publicly guaranteed debt extant at the endof the reporting period or repaid or canceled duringthe period. For each debt, the amount of debt com-mitted, undisbursed, and outstanding and disbursedis presented along with the transactions that havetaken place during the year. Also presented is infor-mation on any accumulation of arrears and debtreschedulings. All amounts are reported in the cur-rency in which the debt is payable. Based on theForm 2 report, a wide range of stock and flow ac-counts as well as economic indicators are derivedand disseminated in the GDF. The report is duewithin three months after the end of the reportingperiod.

17.49 Form 4 is used for submitting annual infor-mation on the status of private sector external debtthat has an original maturity of more than one yearand that does not have a public sector guarantee. Theinformation is aggregated by type of debtor institu-tion—commercial banks, direct investment enter-prises, and other—and a separate form is submittedfor each type of institution. The creditor informationfor each type of debtor institution is provided for thefollowing types of creditors: private banks and otherfinancial institutions, foreign parents and affiliates,exporters and other private, and official (govern-ments and international organizations).

17.50 Form 4 contains both stock and flow accountsand, for each type of debtor institution, estimated fu-ture payments of principal and interest for the firstten years following the end of the reporting period.

Comparison of World Bank and Balance of Payments/IIP data

Presentation of data

17.51 The presentation of debtor data, as shown inthe GDF, responds to a different set of analytical re-quirements from that of the IIP. The aim is to providea detailed view of a country’s borrowing activities,accessibility to external funds, and borrowing costs,as well as to facilitate a comprehensive analysis ofthe debt burden, debt-servicing capacity, financingneeds, and creditworthiness of the country. To thispurpose, both stock and flow data are provided at dif-ferent levels of breakdown. The first breakdown isthat between long- and short-term debt, and the sec-ond between public (and publicly guaranteed) andprivate borrowing. Special attention is paid to identi-fying private borrowing with direct government guar-antees. Also, projected repayment profiles are viewedas critical to analysis and management of obligations,and these are included in the presentation of data.

17.52 The creditor breakdown goes beyond a break-down by instrument. For instance, for official credi-tors, multilateral and bilateral, the more detailedbreakdown identifies concessional lending by thissector. These data are particularly useful in debtwork. Official credits with an original grant elementof 25 percent or more using a 10 percent rate of dis-count are characterized as concessional (as definedby the DAC). The exception are credits from majorregional development banks—African DevelopmentBank, Asian Development Bank, European Bank forReconstruction and Development, and the Inter-American Development Bank—and from the IMFand World Bank, where concessionality is deter-mined on the basis of each institution’s own classifi-cation of concesssional lending.

17.53 The disaggregation of private lending is amixture—by institution, such as banks, and by in-strument, such as bonds. Trade-related borrowing,such as export credits and supplier credits, is in-cluded within “other private,” and so not separatelyidentified. The presentation of the data distinguishesbetween private-sourced debt that is owed by publicentities or owed by private entities but with explicitgovernment guarantees, and that which is owed bythe private sector.

17.54 Projected debt-service payments and debt-disbursement profile are based on current debt trans-

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actions and loan terms. Projected debt-service pay-ments are projections of payments due on existingdebt outstanding, including undisbursed amounts ofexisting external debt, taking account of imple-mented multiple-year restructuring agreements. Fu-ture disbursements and debt-service payments referonly to existing debt and do not reflect any assump-tions about future borrowing.

Concepts

17.55 The principal concepts used by the DRS incompiling debt stocks are consistent with the con-ceptual framework of the Grey Book (BIS and oth-ers, 1988) and there is consistency with several ele-ments of the IIP as well. The level of detail of theinformation required from reporting countries andthe presentation of debt data are influenced by theanalytical and operational application of the data(see paragraph 17.40). The DRS includes all debtwith an original maturity of more than one yearowed to nonresidents and short-term debt. Total ex-ternal debt is derived as the aggregate of long-termand short-term debt (and use of IMF credit).

17.56 Like the IIP, external debt statistics in theDRS are compiled on a residence basis (as opposedto a nationality basis)—external debt is that owed byentities physically located in the reporting country toentities located outside the reporting area, irrespec-tive of nationality. So, branches of foreign banks areresident to the reporting country, whereas foreign of-fices of domestic banks are not. Also, bank depositsheld in domestic banks by nationals living abroadare included in external debt data.

17.57 In a few cases the DRS deviates from the res-idence criteria, and hence the IIP framework, for an-alytical and operational reasons. For instance, theDRS excludes from a country’s external debt the in-debtedness of banks located in a resident offshorebanking center; this indebtedness can often be verylarge in relation to the host economy.13

17.58 Debts payable in both foreign and domesticcurrency to nonresidents are required information tobe reported under the DRS. In practice, the DRS’sfocus is on foreign currency debt; domestic currency

debt owed to nonresidents has not been included.This is a departure from the IIP framework. Also,currency—notes and coins—held by nonresidentsare not captured by the DRS.

17.59 A point of departure from the IIP is thevaluation of stocks. The DRS measures all stocksat nominal value rather than at traded or currentmarket value. For nontraded or nontransferable debtinstruments such as loans and deposits, there isin practice little difference because nontradedinstruments are invariably valued at nominal valuein the IIP. However, this is not true for traded debtinstruments.

17.60 Short-term and long-term debt are similarly de-fined in the DRS and the IIP: short-term debt includesall debt with an original maturity of one year or less,and long-term debt includes all debt with an originalmaturity greater than one year; interest arrears areincluded under short-term debt. There is a difference inthe treatment of principal arrears; the DRS classifiesthese arrears by the original type of the debt, whereasthe IIP classifies them as short-term debt.

17.61 The DRS sectoral classification of externallong-term debt has two categories: debt of the publicsector and private debt with a public sector guaran-tee; and all other private, nonguaranteed debt. Thisclassification is not equivalent to the IIP breakdown,although with the available information it is possibleto relate the DRS’s debtor classifications—the ninetypes are central government, local government,central bank, private bank, direct investment, publiccorporation, mixed enterprise, official developmentbank, and private—to those of the IIP. Within thedebtor category the DRS provides a further break-down by creditor sector. The IIP does not provide acreditor sector breakdown.

17.62 The DRS measures debt stocks and flows ona cash transaction basis as opposed to the accrualmethod recommended in the IIP. Thus, reportedflows are the result of a cash (or in-kind) transaction,such as an actual loan disbursement or repayment,and debt outstanding is the amount disbursed lessamount repaid (and any interest arrears). Projectionsare on a debt-due basis. In the IIP framework, dis-bursements are recorded when they occur, but repay-ments are reported when due. Debt stocks in the IIPinclude interest costs that have accrued and have notyet been paid.

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13The same can be true for countries that sponsor “flag of con-venience” companies.


Comparison of World Bank Data with OECD Data

17.63 There are notable differences for data users,both in presentation and in the recording of cate-gories of debt between the debt statistics of thedebtor and creditor data. This is because the break-downs chosen by the different reporting systems re-flect the analytical requirements of users. This sec-tion discusses and explains the reasons for some ofthe differences.

17.64 One classification that is consistent in bothsystems is the concept of short- and long-term basedon original maturity. Both systems also provide dataon long-term debt due within the year, as well asshort-term debt data on an original-maturity basis,thus allowing for a measure of remaining maturity tobe estimated.

17.65 The compilers of the DRS and CRS do com-pare the two sets of data series to see why there aredifferences in reported debt figures. From theirwork, certain reporting differences have emerged.

17.66 First, certain borrowing countries apply thedefinition of short- and long-term debt differentlyfrom creditors. For instance, certain creditors mayclassify short-term loans that are rolled over as long-term loans. Second, the DRS does not classify ar-rears of principal as short-term debt but, as notedabove, by the original type of debt. However, thisdoes not pose a problem for reconciling debtor andcreditor data because principal arrears are separatelyidentified in the debtor data so to allow comparabil-ity with creditor information.

17.67 Second, bilateral ODA in the CRS and bilat-eral concessional debt in the DRS are not entirelycomparable. The difference emerges because ofthe coverage of loans. In the debtor data, bilateral di-rect export credits may be included under bilateralconcessional loans if the grant element on the loansis 25 percent or more, whereas they are classified asexport credits and not ODA in the creditor data.When export credits are subsidized by ODA loans—mixed credits—the subsidies for such credits wouldappear as ODA loans in the creditor data.

17.68 Third, loan-by-loan comparisons between theDRS and CRS have sometimes shown a different per-ception of the timing of disbursements and repayments

between debtor and creditor, resulting in a differencein the reported outstanding debt at any given time.

17.69 Fourth, differences arise due to restructuring.In the case of forgiveness, the DRS may, for analyti-cal purposes, anticipate the timing of cancellation,whereas the creditor usually waits for the signing ofthe bilateral agreement, which may entail delayedparliamentary approval. In the case of reschedulingof guaranteed export credits, the rescheduled loanmay remain classified as an export credit rather thana new official loan on the creditor side, whereas thedebtor records it as a bilateral official loan.

Joint BIS-IMF-OECD-World BankStatistics on External Debt

17.70 The Joint BIS-IMF-OECD-World Bank Sta-tistics on External Debt were first released on March15, 1999 on the website of the OECD14 with hyper-links available from the websites of the BIS, theIMF, and the World Bank.15 This release is an initia-tive of the Inter-Agency Task Force on Finance Sta-tistics (TFFS); it is updated quarterly. The purposeof the site is to facilitate timely and frequent accessby a broad range of users to one dataset that bringstogether external debt data that are currently com-piled and published by the contributing internationalagencies (BIS, IMF, OECD, and World Bank).

17.71 The types of debt primarily covered in theJoint Statistics comprise loans from banks, debt se-curities issued abroad, Brady bonds, officially sup-ported nonbank trade credits (that is, export creditsextended by nonbank institutions of the exportingcountry), multilateral claims,16 and official bilateralloans (loans provided mainly for development pur-poses excluding export credits). Data on total liabili-ties to banks and on officially supported bank andnonbank trade credits are available as the memoran-dum items. The BIS, IMF, OECD, and World Bankprovide the data. The statistics are mostly from cred-itor and market sources but also include data pro-

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14See http://www1.oecd.org/dac/Debt/index.htm.15Respectively, at http://www.bis.org/statistics/index.htm,

http://www.imf.org/external/np/sta/ed/joint.htm, and http://www.worldbank.org/data/databytopic/debt.html.

16At the time of writing, the multilateral claims covered by thedata in the Joint Table were loans from the African DevelopmentBank, Asian Development Bank, and Inter-American Develop-ment Bank, use of IMF credit, and IBRD loans and IDA creditsfrom the World Bank.


vided by debtor countries. At the time of writing,data were available for more than 175 countries.Data are also shown on external financial assets inthe form of claims on banks and holdings of interna-

tional reserve assets, which are prepared by the BISand the IMF, respectively. A detailed description ofthe data in the Joint Statistics as at mid-2001 is pro-vided in Box 17.1.

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The sources, definitions and coverage of individual series areexplained in detail in this box. See also Table 17.3 andhttp://www1.oecd.org/dac/Debt/index.htm.

The columns of the table cover stocks—the amounts outstand-ing at the end of each period—and flows—disbursements netof repayments during the period. Flows are available for debtsecurities, Brady bonds, multilateral claims, and bilateral loans(lines B, C, E, and F of the table). For the banking and tradecredit figures (lines A, D, J, L, and M of the table), the change instocks, adjusted for changes in exchange rates to the U.S. dollarduring the period, is given. For other series, flow data are notavailable.

Line A: Bank loans

Line J: Total liabilities to banks (locational)

Line M: Total claims on banks (locational)

Data above are derived from the BIS locational bankingstatistics.

Line B: Debt securities issued abroad

Line H: Debt securities issued abroad (due within a year)

Data are derived from quarterly BIS statistics on internationalsecurities.

Line C: Brady bonds

Brady bonds comprise commercial bank debt restructuredunder the Brady Plan, introduced in early 1989. Data on Bradybonds are provided from the World Bank’s Debtor ReportingSystem (DRS). Annual data on stocks and flows (issues less re-payments) are as reported by the debtor country and includebuybacks. Quarterly data on stocks and flows are estimatesbased on repayment terms of the bonds and reflect adjustmentsfor buybacks during the quarter. In the World Bank’s Global De-velopment Finance (GDF), data are included (but not shown sepa-rately) under public and publicly guaranteed debt.

Line D: Nonbank trade credits

Data are derived from the semiannual reports to the OECDmade by OECD member countries’ export credit guaranteeagencies. Nonbank trade-related credits comprise official ex-port credits, which are long-term, and officially guaranteed orinsured suppliers’ credits, which are credits extended by ex-porters to importers abroad.They also include arrears and offi-cially rescheduled amounts on officially guaranteed or insuredfinancial credits, since these are taken over by export creditagencies from the original bank creditors. Guaranteed financialcredits made by banking institutions that do not report to theBIS are also included here.These data only cover trade creditsthat have been guaranteed or insured by the official sector inthe creditor country.They include credits extended to both thepublic and private sector in the borrowing country.

Line E: Multilateral claims

Multilateral claims cover data for African Development Bank(AfDB),Asian Development Bank (ADB), Inter-American Devel-opment Bank (IADB), IMF, and World Bank claims. Stocks are thetotal of loans from AfDB,ADB, and IADB, use of IMF credit, andIBRD loans and IDA credits from the World Bank. Flows are thesum of disbursements less principal repayments on loans andIDA credits, and IMF purchases less IMF repurchases.

Line F: Official bilateral loans (DAC creditors)

This line shows the outstanding debt from the OECD’s CreditReporting System (CRS) on loans, other than direct exportcredits, extended by governments that are members of theOECD’s Development Assistance Committee (DAC). Direct ex-port credits extended by the official sector are included in non-bank trade credits (lines D and I). In addition to straightforwardloans, official bilateral loans include loans payable in kind, and eli-gible loans in Associated Financing packages.

Line G: Liabilities to banks (due within a year)

Line K: Total liabilities to banks (consolidated)

Data are derived from the BIS consolidated banking statistics.

Line I: Nonbank trade credits (due within a year)

These data are derived from the OECD’s CRS. They compriseofficial and officially guaranteed or insured suppliers’ credits ex-tended by exporters to importers abroad that have a remainingmaturity of one year or less.They include (1) export credits withan original maturity of one year or less and (2) the amounts ofprincipal due in the next year on credits with an original matu-rity of over one year. These data only cover trade credits thathave been guaranteed or insured by the official sector in thecreditor country.They include credits extended to both the pub-lic and private sector in the borrowing country.

Line L : Total trade credits

These data are derived from the OECD’s CRS.This line coversall official and officially supported trade credits; that is, tradecredits that have been guaranteed or insured by the official sec-tor in an OECD reporting country.The credits include those ex-tended to both the public and private sector in the borrowingcountry. In addition to the nonbank trade credits shown in lineD, this line includes financial or buyer credits extended by banksthat are guaranteed or insured by an official export credit guar-antee agency.These guaranteed bank credits are also included inthe amounts shown in line A (Bank loans), line G (Liabilities tobanks), line J (Total liabilities to banks—locational), and line K(Total liabilities to banks—consolidated).

Line N: International reserve assets (excluding gold)

Data are those published in the IMF’s International Financial Statis-tics (IFS).

Box 17.1. Joint BIS-IMF-OECD-World Bank Statistics on External Debt


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Table 17.3. Example of Joint BIS-IMF-OECD-World Bank Statistics on External Debt (1)

Stocks (end of period)Flows (2)

_______________________________________________________________________

2001_______________2000 2001 2002 2000 2001 Third Fourth______________________________

(In millions of U.S. dollars) December March June September December March Year Year Quarter Quarter

COUNTRY AExternal debt—all maturities

A Bank loans (3)B Debt securities issued abroadC Brady bondsD Nonbank trade credits (4)E Multilateral claimsF Official bilateral loans (DAC creditors)

Debt due within a yearG Liabilities to banks (5)H Debt securities issued abroad (6)I Nonbank trade credits (4)

Memorandum itemsJ Total liabilities to banks (7) (locational)K Total liabilities to banks (6) (consolidated)L Total trade creditsM Total claims on banks (8)N International reserve assets (excluding gold)

COUNTRY BExternal debt—all maturities




COUNTRY CExternal debt—all maturities




Source: OECD, on the Internet at http://www1.oecd.org/dac/debt.(1) From creditor and market sources, except for data on Brady bonds which are from debtor sources, all currencies included.(2) Flow data for items B, C, E, F and L; exchange rate adjusted changes for items A, J, and M; no data available for items D, G, H, I, K and N.(3) From BIS locational banking statistics, which are based on the country of residence of reporting banks.(4) Official and officially guaranteed. Break in series at end-1998 due to reallocation of rescheduled export credits from line F to line D.(5) From BIS consolidated banking statistics,which are based on the country of head office of reporting banks and which include banks’ holdings of securities.(6) Including debt securities held by foreign banks, which are also included in line G.(7) From BIS locational banking statistics, which are based on the country of residence of reporting banks and which include banks’ holdings of securities.


17.72 Table 17.3 (on preceding page) shows a sam-ple table from the Joint Statistics: the stock of debt,with a minimum two-month lag, for the past fivequarters and the previous December; and flow figuresfor the latest complete two years and two recent quar-ters. Whenever available, data on short-term debt,based on the remaining-maturity concept, are alsoprovided. Free access to an on-line database, whichprovides longer time series and permits manipulationof the figures, is also available. Some of the data areonly available semiannually, and no attempt is madeto provide quarterly inter- or extrapolations of thesedata. The data are published 22 weeks after the end ofthe quarter.17

17.73 With a view to making users aware of the datalimitations and promoting best practice in using thedata, a set of metadata has been prepared, along withthe data, indicating how the data relate to internation-ally agreed concepts. These data are mostly fromcreditor and market sources but also include informa-tion provided by the debtor countries themselves.These data do not provide a completely comprehen-sive and consistent measure of total external debt.

For example, these data do not cover (1) nonofficiallyguaranteed suppliers credit not channeled throughbanks; (2) direct investment: intercompany lending;(3) private placements of debt securities; (4) domesti-cally issued debt securities held by nonresidents; (5)deposits of nonresidents in domestic institutions; and(6) amounts owed to non-DAC governments. Never-theless, the Joint Statistics do bring together the bestinternational comparative data currently available onexternal debt that are compiled and published sepa-rately by the contributing institutions.

17.74 The user needs to be careful in comparing dataseries. For instance, there are overlaps between datasources such as the international securities data andthe nationality/consolidated banking statistics, whichindistinguishably include securities. Thus, for debtdue within a year, the data relating to debt securitiesissued abroad include securities held by foreign banksthat are also included under the data relating to liabil-ities to banks. Also, there can be inconsistencies. Forexample, the data on loans from banks and on total li-abilities to banks due within a year are drawn fromdifferent data sources—the BIS locational and con-solidated international banking statistics, respectively.Thus, creditor and market-based statistics are not asubstitute for setting up appropriate reporting systemsby the debtor countries themselves.

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17The lag refers to the BIS International Banking Statistics,which are the core series in the Joint Statistics.

Introduction

18.1 This chapter describes the debt recording sys-tems of the Commonwealth Secretariat and the UNConference on Trade and Development (UNCTAD)as at end-2000. Both systems are widely used andare designed to assist countries in capturing and stor-ing instrument-by-instrument information in a com-puterized system. Both include features that can ana-lyze the stored information.

Commonwealth Secretariat’s DebtRecording and Management System(CS-DRMS)

18.2 The CS-DRMS, first released in 1985, assistscountries to record and manage debt by providing acomprehensive repository for external and domesticdebt data, both public and private, on an instrument-by-instrument basis, as well as tools to analyze andmanage the loan portfolios. It is regularly enhancedto reflect changes in instruments, creditor practices,debt reporting standards, and technology in order torepresent best practice in debt-management. Themain functions of the CS-DRMS are set out inTable 18.1.

18.3 The CS-DRMS system is used in some 50Commonwealth and non-Commonwealth countries,across 70 sites in ministries of finance and planningand central banks. It is provided as part of the Com-monwealth Secretariat’s advisory services in debtand development resources management, whichcover the following areas:• Strengthening the legal and institutional arrange-

ments for contracting and managing debt;• Advice to governments in areas such as debt pol-

icy and strategy, debt restructuring, loan evalua-tion, and assistance in negotiations with creditors;

• Assistance in debt data compilation and in thereview of the quality of databases;

• Capacity building through training courses andworkshops in various areas of debt management aswell as in the use of CS-DRMS; and

• Development and maintenance of CS-DRMS,including user support.

Functionality

18.4 The CS-DRMS is an integrated system thatrecords various types of flows—external and domes-tic debt, grants and government lending—for day-to-day administration and management. It has a com-prehensive External debt module that allows for therecording of a wide range of official and commercialinstruments, including short-term and private sectordebt; and a comprehensive Domestic debt modulethat allows for the recording of the full issuancecycle of domestic debt instruments such as treasurybills, bonds, and notes, and for the planning ofissues, auctions, and analysis of bids. Both actualand forecasted transactions data as well as that onarrears are captured in a manner that meets the inter-national external debt data guidelines. Also, thereare comprehensive facilities within CS-DRMS tohandle debt restructuring, including refinancing andParis Club rescheduling.

18.5 The special Management tools module assistsdebt managers in debt strategy formulation andanalysis, such as portfolio analysis, sensitivity test-ing for risk management, monitoring debt sustain-ability indicators, and other early warning signals.Also, there are extensive querying and reportingfacilities, including over 60 standard reports, as wellas a custom-built report generator that allows usersto write their own reports quickly.

18.6 There are multilayer security features to meetindividual country requirements, including the abil-ity to configure access screens and reports to dif-ferentiate among front, middle, and back officefunctions.

18. External Debt Monitoring Systems

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Technological Characteristics

18.7 The CS-DRMS has a number of technical fea-tures to assist debt managers and compilers. Forinstance, the Loans Explorer facility (similar toWindows Explorer) allows quick display, interroga-tion, and report of data stored in the database. Moregenerally, the CS-DRMS is designed to cater to bothsmall and larger databases and can be run on varioustypes of relational databases including INFORMIX,ORACLE, and SQL-Server. CS-DRMS is based onopen, industry-standard technology and can exportinformation to the DSM Plus, World Bank DRS, aswell as other packages, such as MS Excel, account-ing, and other management information systems.The CS-DRMS functions in both English and

French and has language-independent design tofacilitate translation into other languages.

18.8 CS-DRMS has a Help facility, both on-lineand on hard copy, that is to be augmented by Inter-net support from the CS-DRMS website. For fur-ther information, see the CS-DRMS website at:www.csdrms.org or contact:

DirectorEconomic and Legal Advisory Services DivisionCommonwealth SecretariatMarlborough HousePall Mall, London SW1Y 5HX, United KingdomTel: 44-(0) 20–7747 6430Fax: 44-(0) 20–7799 1507E-mail: [email protected].

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• Maintain an inventory of allexternal and domestic debtinstruments including:— public debt and grants;— short-term and private

sector debt;— restructuring

agreements including rescheduling

• Record basic details andterms on an instrument

• Record other relevantdebt-related informationsuch as exchange rates,interest rates, andmacroeconomic data

• Forecast debt-servicepayments, both byinstrument and in aggregateterms, with and withoutfuture disbursements

• Record actual transactionsof debt service anddisbursements on atransaction-by-transactionbasis

• Identify loans in arrears andcalculate penalty payments

• Monitor loan and grantutilization anddisbursements

• Monitor government lendingincluding on-lending

• Provide information andreports on any group orclass of instruments

• Produce standard reportsfor various datarequirements includinggovernment finance,balance of payments, and IIP

• Provide easy generation ofcustom reports using apurpose-built reportgenerator

• Respond to specific userenquiries into the database

• Perform sensitivity analysison interest and exchangerate variations undervarious scenarios

• Test the implications of newborrowings, based ondifferent assumptions ofcurrencies, interest, andrepayment terms

• Undertake debtsustainability analysis inconjunction with otherpackages such as the WorldBank’s DSM Plus

• Evaluate different loan offers

• Evaluate different proposalsfor refinancing andrescheduling of loans andcompute debt relief

• Combine CS-DRMS debtdata with exogenouseconomic data to projectcritical debt indicators,both on nominal and apresent value basis

• Evaluate exposure toexchange and interest raterisk

• Transfer debt dataelectronically to the WorldBank’s DRS, as well as tospreadsheets and otherpackages such as asset andliability management andgovernment accountingsystems

• Browse CS-DRMS datausing Debt Manager—aWindows-based add-onproduct developed for debtmanagers

• Use validation utilities toensure database integrityand accuracy

• Integrate front, middle, andback office functions via thedatabase and securitymanagement options

• Perform housekeepingfunctions such as backupand restore and setting upmodem access

Future Developments:

• Web-enabled for on-linerecording and reporting

• Full accrual and marketvaluation computation

• Contingent Liability Module

Table 18.1. Major Functions of the Commonwealth Secretariat Debt Recording andManagement System (CS-DRMS)

Debt Recording Debt Reporting Debt Analysis Other Functions

18 • External Debt Monitoring Systems

UNCTAD’s Debt Management andFinancial Analysis System (DMFAS)

18.9 The DMFAS is a computer system designedfor use by ministries of finance and/or central banksfor the management of public debt. It is regularlyenhanced so that it remains current with, and helpsestablish, best practice in debt management.

18.10 The DMFAS allows the user to monitor pub-lic short-, medium-, and long-term debt, external anddomestic, as well as on-lending operations. Privatedebt and grants may also be registered within thesystem. DMFAS is designed to satisfy three distinctdebt-management needs: the day-to-day operationalneeds of the debt manager (see UNCTAD, 1993), theaggregate statistical requirements of the debt office,and the analytical needs of the policymaker. In con-nection with public expenditure, the DMFAS is eas-ily linked to the budget execution system, whenthere is one in use at the ministry of finance.

18.11 DMFAS version 5.2 is a Windows-basedapplication1 that uses all the advantages of thisstandard graphical user-interface. It also usesORACLE’s Relational Database Management Sys-tem (RDBMS)2 and ORACLE Development Tools.3

The Standard DMFAS version 5.2 exists in four dif-ferent languages—English, French, Spanish, andRussian—and can be used both in a single-user andin a networked environment.

Operational Management

18.12 Operational debt management is the day-to-day management of debt in accordance with execu-tive direction and organization, and involves therecording, analytical, controlling, and operatingfunctions. The operational features of DMFAS 5.2put the main emphasis on the recording and analyti-cal functions, including compilation of aggregateddebt figures and analysis of key indicators. Thisinformation, in turn, serves as a basis for control ofpublic borrowing.

DMFAS 5.2 Recording Function

18.13 The DMFAS main menu follows the typicaloperational life cycle of a loan agreement. Loandetails are registered in the Administration sectionand, based on the contract information, amortizationtables are calculated and initial drawing estimatesmade. The Administration section also contains aReference files menu where the user enters informa-tion on daily exchange rates, variable interest rates,commercial interest reference rates, budget lineidentification numbers, as well as creditors/debtorsand other participants to the agreements. As dis-bursements take place, these will be registered intothe loan Mobilization section of the system. Thissection may also, upon the user’s request, be pro-grammed to print drawing requests automatically.Thereafter, all transactions related to the servicing ofloans, including operations on arrears, penalty (late)interest, rescheduling, swaps, etc., are recorded inthe Servicing section of the system. The servicingsection contains links to budget allocations. Theautomatic registry of arrears function enables theuser to create blocks of arrears for a given subset ofloans.

Types of agreements that can be registered in the DMFAS

18.14 The DMFAS version 5.2 has facilities to reg-ister and establish the required links between the fol-lowing types of agreements:• Loans. The system can record all loan-type con-

tracts, including bonds, in their original currency.The system can store quantitative information(such as financial terms) and qualitative informa-tion (such as notes for specific comments or mem-orandum items, like the type of legal clauses in thecontract). Furthermore, the loans “module” hasfacilities for:— recording of secondary market shares and

share movements for syndicated loans in orderto report the exposure of each member of thesyndicate at a given point in time;

— maintaining records of amendments to loanagreements;

— maintaining records of the loan statusthroughout the lifetime of the loan (when theloan was agreed but disbursement had notoccurred), the period when the loan was inexistence, and when it was fully repaid;

— recording currency pool loans (World Bankand regional development bank loans);

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1Windows is licensed software from Microsoft Corporation.2A relational database is a collection of “relations,” whereby a

relation is a two-dimensional table in which the entries in the tableare single-valued; each column has a distinct name; all the valuesin the same column are values of the same attribute; the order ofthe columns is immaterial; each row is distinct; and the order ofthe rows is immaterial.

3ORACLE is a registered trademark of Oracle Corporation.


— linking loans and grants information to spe-cific projects, agreed minutes, on-lendingagreements, and budget allocations.

• Grants. The “module” for registration of grantscontains the same facilities as the loans module,except for repayment conditions.

• On-lending agreements. The system can recordOn-lending of loans and the relation between theon-lent loans and the original loan.

• Composite agreements. The facility for recordingComposite agreements permits the user to regis-ter the global information on agreements incorpo-rating several individual credits (and/or grants)and to link this global agreement to the individualloans or grants stemming from it.

• Projects. The Project information facilities of thesystem permit easy identification of individualprojects and their relationship to loans and grantsfinancing them, as well as the individual disburse-ments related to them.

• Debt reorganization agreements. The Debt reor-ganization facility links the reorganized bilateralloans to the relevant “Agreed Minutes” and isdesigned to provide supporting data for reor-ganization negotiations, to facilitate recordingof the reorganized terms received, and to facili-tate identification and reporting of reorganizedtransactions.

How is this information registered into DMFAS 5.2?

18.15 The DMFAS captures financial terms of indi-vidual credits as specified in each loan contract; thecharacteristics to be entered include, among others,the principal terms, interest terms, as well as interestand exchange rates. On the basis of this information,the system automatically calculates estimated dis-bursements and amortization tables. Loan informa-tion is entered on two levels, General informationand Tranches; these are subsets of administration.Each loan has one general information section and atleast one tranche section.

Administration

18.16 The section Administration registers all thebasic data related to specific loan or grant agree-ments, projects financed through loans and/or grants,general agreements (for example, composite agree-ments, Paris Club Agreed Minutes, etc.), andrescheduling agreements. The following Referenceinformation is stored within this section:

• The Participants (debtors, creditors, etc.) in thedifferent agreements. The system requires the avail-ability of a set of information on each one of theparticipants (for example, institution type, countryof residence, telecommunications data, etc.).

• The Common variable interest rates for projec-tion purposes.

• The Commercial interest reference rates(CIRR) for a present-value calculation, which isespecially useful within the framework of theHIPC Initiative. The OECD publishes these inter-est rates.

• The system can record Daily exchange rates.These rates are entered into the common exchangerate file for the entire loan portfolio in the system.

• The Budgetary lines are loaded here for use in thedisbursement and debt-servicing processes, asrequired. In other words, the budget lines refer tothe budget account numbers that are used to ser-vice the different loans.

• The Interest rate groups and Maturity groupsallow the user to customize the range of these loanattributes for selection and sorting needs.

General information

18.17 All the information that is general to the loanagreement and a grant is entered under this heading.The links to the loan participants or clients (borrow-ers, lenders, guarantors, beneficiaries, etc.) are alsoentered in this section, although there are facilitiesfor entering loan participant links at the tranche levelif the agreement has participants who only relate to aspecific tranche. Some of the important featuresinclude:• The system uses flexible Loan identification so

that the user can use his or her own codificationstandards and is not limited to predefined numericloan numbers.

• The role of the Participants to the different agree-ments (loan, grant, etc.) is defined here with refer-ence to the participants file.

• The Amendments to the different agreements(loan, grant, etc.) are registered and monitoredhere.

• The Creditor’s participation shares in a syndi-cated loan are registered and monitored here withreference to the participants’ file.

• The record of the Loan status throughout the life-time of the loan is registered and monitored here.

• The recording of the Currency pool loans (WorldBank and regional development bank loans) ismade here.

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• User-defined fields allow the debt officers to caterto country-specific loan details that can then beused as selection and sorting criteria when gener-ating reports.

Tranche information

18.18 Information on interest payment and principalrepayment terms is registered on a detailed level inso-called Tranches, and allows more accuraterecording of loans in several currencies and withseveral interest rates. Multilateral borrowing, forinstance, often has several currency tranches underthe same credit. These different tranches may or maynot have the same rate of interest. Each currency willtherefore be registered as a separate tranche with itsown amortization schedule. The system capturesspecific floating interest rates for the tranches. Theserates are either entered into the common exchangerate file for the entire loan portfolio in the system orthey are entered as characteristics of a loan tranche.This will depend on the level of accuracy of calcula-tions that are required by the user. It was conceivedin this way because different creditors will be usingdifferent interest rates for the same currency on thesame date.

18.19 The DMFAS system provides three differentoptions for manual and/or automatic management oftranches: one tranche only, known multiple numbersof tranches, and unknown number of tranches:• One tranche only. There will be only one tranche;

all disbursements will belong to this tranche. Thetransactions of this tranche will always be in thebase currency of this tranche, which must be thesame as the loan currency.

• Multiple known tranches. The user creates eachtranche, defining the disbursement profile andamount of each tranche (the system will auto-matically manage the distribution of the undis-bursed amount of each tranche as theoretical dis-bursements).

• Unknown number of tranches until the loan isfully disbursed. The DMFAS system assists inthis case in the creation of a tranche by automati-cally generating the so-called 0 (zero) tranchecontaining the estimated disbursements based onthe remaining undisbursed amount of the loan.Each time a disbursement is registered, it willgenerate an actual amortization table starting inthe number 1 tranche. Disbursements may alsobe entered into existing tranches, in which casethe estimated disbursements in the existing

0 tranche will be recalculated, but no new trancheis created.

DMFAS 5.2 Operating and ControllingFunctions

Operating function

18.20 The DMFAS records all types of individualtransactions: disbursements (registered in Mobiliza-tion) and repayments of principal, payment of inter-est and commissions, etc. (registered in Servicing).

Mobilization

18.21 The section Mobilization is for registeringDisbursements. The system can handle disburse-ments in the same (or different) currency as that ofthe tranche and registers the equivalent value in theloan currency, in the tranche currency, and in thelocal currency. For validation all the figures arechecked for consistency against the exchange ratesregistered in the corresponding files. The disburse-ment can also be related to a project or a programallocation.

18.22 The system has a facility for identifying esti-mated disbursements in the past and automaticallyredistributing these into the future—the Roll for-ward estimated disbursements—which is alsoactivated from this option. When a large number ofestimated disbursements have not taken place, theuser can update the future undisbursed amounts inbatch mode from this option starting at a given date.The system will thus automatically update the amor-tization tables as a result of projecting future dis-bursements.

Servicing

18.23 The Debt-service operations are handled inthis section. There is an option dealing with princi-pal and interest and two other options for commis-sions and penalty (late) interest. All debt-serviceoperations can be entered and/or followed in six cur-rencies: local, tranche, effective, euro, U.S. dollar,and SDR. The user will have access to the followingfunctionalities:• The debt-service operations will be ordered by

scheduled date, and the field status will inform theuser of the current stage in the servicing processfor the maturity concerned (scheduled, waiting,paid, written-off, rescheduled, payment orderedbut no feedback received from the payer, etc.).

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• The generation of the list of Debt-service maturi-ties is based on the amortization tables. The usermust verify these lists and that the maturities in thewaiting list (those whose scheduled date arebefore today’s date) are registered as paid,rescheduled, written-off, swapped, or confirmed asarrears. The system might confirm the overduematurities as arrears automatically if the user haschosen this option.

• The accumulation of arrears will eventually alsolead to accumulation of a stock of Penalty (late)interest due to different creditors. The DMFASsystem estimates this penalty interest based oneach individual confirmed arrears transaction inthe database. The penalty interest “module” allowsthe user to record payments, rescheduled, andwritten-off operations on penalty interest.

• This section is also where the Budgetary alloca-tion amounts are registered. The system allowsentry of budget allocations for comparison withactual payments. The user defines the budget peri-ods (within the fiscal year) and loads the budgetline identifications and the allocation to each bud-get line. The allocation is then linked to tranchesand individual transactions, and in this way thesystem automatically monitors the allocationagainst the accumulated amount of actual transac-tions during the specified budget period. So, thebudgeting of payments may be monitored onloans, interest, principal, and commissions—oneline for each item as defined in the budget—andcan easily be adjusted to the needs of individualcountries. The system will issue a warning if thesum of actual transactions exceeds the allocation.

• The Adjustment factors used in some of the cur-rency pool loans from multilateral institutions areregistered here. These factors will be used forreporting, since the system will always keep thecurrency pool loan in book values, using the fac-tors to reevaluate the outstanding amount and debtservicing at a given date stated by the user.

• The Payment order, a country-specific facility,can also be either printed or electronically trans-mitted from this option. If there is a linkage with abudget system, the payment order can be processedthrough the corresponding budget allocations.

Historical data

18.24 A public debt system should be able to showand calculate the historical data. Loading the infor-mation about the individual transactions in order tofulfill this requirement can be very tedious and, in

some cases, an overwhelming task. The DMFAS, inorder to overcome this problem, permits the user toload balances on a loan-by-loan and tranche-by-tranche basis at a given date (the user-definedDMFAS cutoff date). The Historical amount bal-ances will include total principal repaid, total inter-est paid, etc., at the cutoff date. This will allow thesystem to calculate, at any date after the cutoff date,stocks and flows at any level of aggregation.

Controlling and monitoring functions

18.25 The first controlling function is on the dataaccuracy and data validation. Once the data areentered, they will be updated regularly or deleted, asthe case may be. To ensure consistency among datafor a particular loan, a certain number of controlshave been incorporated in the system. By means of anumber of error messages appearing on the user’scomputer screen, the user will correct and validatedata. The user may also produce different reports tocheck the data for correctness.

18.26 The system can also produce a large numberof reports for the purpose of control and monitoringthe debt-management operations.4 Examples includereports of payments falling due in the next month, inorder to pay them on time, and the selection facilitythat permits the user to select loans by economicsector, type of creditor, type of financing, etc., thatcan be used for controlling ceilings on outstandingdebt or debt servicing.

DMFAS 5.2 Analytical Function

Reporting facilities

18.27 This function provides a flexible and compre-hensive set of reports that, when generated in aggre-gate, can be produced in local currency, in U.S.dollars, in euros, or in SDRs. The DMFAS 5.2 canproduce a large number of reports of four types, asdescribed below.

Predefined reports without parameters

18.28 The user cannot modify this type of format.The report concerns a very specific topic and willpresent all available information on the selected

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4The system cannot perform these functions properly withoutthe proper institutional environment; that is, the administrativeand institutional arrangements of the debt office, as well as itsrelationships and information flows with other institutions.


“block” of loans. No parameters are thereforerequired. The Amortization table is one example ofthis type of report.

Predefined reports with parameters

18.29 The user also cannot modify this type of for-mat. The report, however, potentially covers largeamounts of data, and the user therefore can definethe reporting period covered. DMFAS version 5.2produces Form 1 and Form 2 of the World Bank’sDRS, which are examples of this type of report,5 asis the loan account statement that is extensively usedby debt officers.

User-defined reports

18.30 Customized reports permit users to create theirown self-designed reports. In addition to a differentset of parameters that the user can choose—such asthe currency, the level of aggregation, the period,etc.—it is possible for the user to select the contentsof the columns from among a list of available debttotals from the stored information and/or projections.For certain formats, the report can contain up to12 columns as well as include percentages as debttotals. The report format, once the user has created it,is stored by DMFAS 5.2, so that the user can retrieveit in order to print it out with the original or new data,as well as to modify its format if needed.

18.31 To create reports in DMFAS the user starts bydefining a subset of loans to work with, then sortsthis subset and finally defines the report parameters,such as the currency, the periodicity, the level ofdetail, etc., as well as the hierarchical order in whichthe selected criteria appear in the report and howtheir subtotals are calculated. DMFAS version 5.2uses a customized Oracle Browser to create subsetsof loans and to sort the subsets. These subsets may,if the user wishes, be given a name and saved forlater use.

18.32 When creating a user-defined report, the userhas to select the report’s format:• Format 1: Aggregates in columns, and each aggre-

gate for a specific period;• Format 2: Aggregates in columns, and time peri-

ods in rows;• Format 3: Aggregates in rows, and time periods in

columns.

18.33 The user names each new report in order to beable to retrieve the report for later use. When retriev-ing previously saved reports, however, the user stillhas the option of changing the corresponding subsetor the report parameters. The report parametersinclude, among others:• Period base. The user may produce reports based

on the fiscal year, the calendar year, or accordingto an exact period defined by him. The budgetaryyear is defined separately as one of the systemparameters of DMFAS version 5.2.

• Adjusted amount. For loans that have been regis-tered as currency pool loans, the system allows theuser to adjust the amounts of the report by the reg-istered currency pool adjustment factors.

• Selection of the individual columns. The user canselect from a list of columns, defined by the DMFASstaff, and put them together according to the user’sown needs. This enables, for instance, the combina-tion of stock and flows columns in the same report,either for previous transactions or for projections.

• Specification of the columns. The user not onlyhas access to the existing variables or aggregatesfor the columns but also can create his or her ownaggregates and include them on the list of prede-fined columns. The users can, in this way, freethemselves from waiting for the DMFAS staff toinclude new aggregates in the system’s reports.

Specific reports

18.34 Through direct access to the database. Withthe help of Oracle Browser and Oracle Reports andother tools like Microsoft Access and MicrosoftQuery, the user can create reports by accessingdirectly the different DMFAS 5.2 database tables. Inaddition, any program supporting ODBC (OpenDataBase Connectivity) may connect to the DMFASversion 5.2 database, giving the user with the appro-priate access authorization the possibility to use thecalculating, sorting, formatting, and graphics capabil-ities of the user’s software on the DMFAS version 5.2database. Most popular spreadsheets and databaseprograms such as Excel, Lotus 1–2–3, and Accesssupport ODBC. The links can be based on queries sothat the result will change when new entries into thedatabase are made. The contents of an Excel spread-sheet with a query selecting the outstanding amountsof all loans with U.S. dollars as loan currency willtherefore automatically change without the Exceluser’s intervention as the outstanding nominalamounts of these loans in the database changes, andthe same applies to graphs based on the same data.

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5The World Bank Forms 1 and 2 can also be “printed” andreported electronically. See Chapter 17, paragraph 17.39 ff.


18.35 The DMFAS 5.2 therefore has no limit to thenumber of report formats the user may create.

18.36 By exporting the generated results into Excel.The DMFAS system allows the easy export of thegenerated results into Excel for further manipulationof the data. However, contrary to the above ODBCoption, the data in Excel or other similar spread-sheets is not automatically updated when modifica-tions are made in the DMFAS database.

Analytical facilities

18.37 The analysis module has been specificallydesigned to calculate projections based on the out-standing nominal amount, and the present-valueamount using CIRR interest rates as the rate of dis-count, of a debt portfolio. The use of present valueinstead of nominal value allows the user to take intoaccount the terms and concessionality of a debt port-folio and to eliminate the effects of the concessional-ity. The module on projections based on the out-standing nominal amount is used, among otherthings, to calculate debt-service payments effec-tively owed, excluding future and hypotheticaldisbursements.

18.38 This module enables the user to choosebetween different parameters and calculation meth-ods (the pro-rata and the truncation methods) of par-ticular interest to produce and compare differentscenarios for the debt-sustainability analysis ofHIPC.

18.39 An interface has been created between theDMFAS system and DSM Plus of the World Bank,which is a tool designed to help officials analyze theexternal financing requirements of a country and toquantify the effects of debt-relief operations or newborrowing. This interface provides the DMFAS userwith the means to export data from the DMFAS sys-tem for subsequent import into the DSM Plus sys-tem. The interface enables the DMFAS user tobenefit directly from the data in the DMFAS data-base, avoiding the need to reenter that data in DSMPlus.

18.40 The DMFAS system also provides analyticalsupport for debt managers by, for example:• Facilitating easy Registration of potential new

debt and analyzing the effect of these new debtson the future debt-service pattern;

• Permitting easy Simulations to determine theeffect of interest rate fluctuations and exchangerate variations over a period of time;

• Calculating and giving information on Detailedpenalty (late) interest from the scheduled date of amaturity registered as an arrear to a given date; and

• Calculating Accrued interest costs, which allowsdebt officers to generate automatically suchinformation for, and at the end of, the previousmonth for use by other departments, including theaccounting unit.

Executive Management

18.41 Executive debt-management features of theDMFAS, in combination with the World Bank’sDSM Plus, include specialized reports to:• Provide debt managers and planners with easy-to-

use tools to assist in policy decision making, eval-uation of alternative strategies, and developmentof negotiation strategies. These analytical anddecision-support tools integrate debt data withother economic variables (for example, balance ofpayments components), allowing simulations ofdebt reorganizations and taking into account hypo-thetical new loans and financing.

• Provide debt managers with decision-support sys-tems and analytical tools to assist in portfoliomanagement and optimization of composition,maturities, and interest and exchange rate expo-sure. Such tools allow for sensitivity analysisthrough simulations that take into account, forexample, exchange rate variations or fluctuationsin floating interest rates.

Technical Characteristics

Overview

18.42 The DMFAS system has to be portable andeasy to use because it has to work in an environmentwhere its users may not be computer specialists.Therefore, significant effort has been devoted tomaking the system as user-friendly and as flexible aspossible so that the user, to the largest extent feasi-ble, can operate it independently of the technicalstaff of UNCTAD. In this light, the following fea-tures have been made standard:6

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6For further information on hardware and software require-ments, please refer to UNCTAD (2000). This document is regu-larly updated to include the most recent developments in softwareand hardware technology.


• Windows-based Graphical user interface thatincludes field-to-field navigation, color screens,Windows standards with “Shortcut Keys” andmouse support, easy selection of menu optionsfrom selection lists, etc.

• The Code file of the system is divided into stan-dard and user-defined codes. This allows country-specific customization of codes, such as Location,Economic Sector codes, etc.

• Language independence permits the language-dependent parts of the system—for example,menus—to be separated from the system itself. Inaddition, the DMFAS is delivered with four stan-dard languages included, and the user may easilyswitch from one language to another. This featureis particularly important for countries operatingthe system in languages (such as Russian) thatthey cannot use for reporting to the World Bankand other international organizations or creditors.In this way, they will have the option of producingthe reports in English.

• Access to system codes allows the user to add,delete, or modify user-updatable system codes,provided he or she has sufficient “privileges” (seebelow).

• The user also fixes Tolerance limits for data vali-dation in the system.

Security

18.43 The Security features in DMFAS 5.2 includepreventing unauthorized personnel from viewing orediting data by assigning different access rights todifferent users—for instance, to ensure that only thedatabase administrator has access to administrativefunctions of the system. If required, this Access con-trol can be refined to permit the definition andenforcement per individual end-user of groups ofdata with which that user may work—particularcreditors, for example—and, for each group of data,the operations that the user may perform. A facilityof Double control allows managers to enforce vali-dation of initial registry or modification of data bynominated people other than the user who first regis-tered or modified the data. Among other advantages,the system, if calibrated that way, would not allowthe entered or modified data to be used before thedata were validated (for reporting purposes, forexample).

18.44 ORACLE provides the possibility to keep andconsult logs detailing the types of operations per-formed by each user and keeping track of what thedata looked like before an operation in case of amodification.

18.45 ORACLE also provides backup and restoreprocedures as well as automatic recovery functionsin case of power failure. This considerably dimin-ishes the risk of corrupted data files.

Conversion software

18.46 For users of DMFAS versions 4.1 Plus or 5.0who want to upgrade their installation to DMFASversion 5.2, UNCTAD has developed an interfacefor automatic conversion of data to version 5.2 for-mat with minimum manual intervention by the user.

Support to other information systems

18.47 DMFAS 5.2 can be linked with other com-puter systems. The system may therefore providedebt data for other information systems, such asthose dealing with balance of payments, budget, pub-lic and/or central bank accounting, government rev-enue and expenditure, currency management, etc.

Compatibility with network operating systems

18.48 As mentioned, DMFAS 5.2 is built onORACLE’s RDBMS relational client/server archi-tecture. Consequently, DMFAS 5.2 can be run onany network operating system that supports theORACLE 7.1 RDBMS server and can have Win-dows workstations as clients. This includes Novell,Windows NT, and UNIX.

Documentation and Training

18.49 A comprehensive set of documentation isavailable for DMFAS version 5.2. This includes:• A comprehensive User’s Guide;• A DMFAS Glossary (see UNCTAD, 1998);• A Database Administrator’s Manual; and• Technical documentation of interfaces when

appropriate.

Training available from UNCTAD is described inthe next chapter.

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Introduction

19.1 This chapter provides an introduction to thetechnical assistance in external debt statistics, andrelated macroeconomic statistics, provided by theinternational agencies involved in the production ofthe Guide. This chapter is not comprehensive of allthe technical assistance provided in external debtstatistics and is accurate as of the time of writing.


19.2 In addition to supporting the CS-DRMS1 debtsystem in user countries, the Commonwealth Secre-tariat provides technical assistance to ministries offinance and central banks in various aspects of debtmanagement related to data compilation, loan opera-tions and analysis, capacity building, and policyadvice. In the field of debt statistics, targeted assis-tance is available for:• Compiling debt data extracted from various

sources: Local staff are exposed to the techniquesof making an inventory of loans through the inter-pretation of loan documents (loan agreements,creditor statements, general conditions and othercreditor practices, etc.) so that all relevant debtinformation can be compiled/retrieved.

• Recording loan instruments using appropriatemethodologies: Training is provided on the CS-DRMS system, which has taken into account dif-ferent creditor practices and the agreed norms oncompilation of debt statistics. The system allowsuser countries to record debt information (details,terms, and transactions) on a loan-by-loan basis.Subsequent developments, such as debt restructur-ing resulting from Paris Club agreements, can alsobe captured in the system.

• Validating and reconciling stocks, flows, and otherdetails on a loan-by-loan basis, including withcreditor records: Once a database is created, localstaff are trained to validate the data and reconciledebt stock and debt-service levels with othersources (creditors or other agencies, including theWorld Bank). Any inconsistencies in classifyingthe data are addressed during this exercise.

• Disseminating debt data in the various formatsrequired by different users: In recent years, dis-semination of external debt data to various users,and in the format the information is required, hasbeen a focal point of assistance. Users of CS-DRMS are trained in the various facilities that canprovide data to users, both within and outside thecountry. These facilities include the 100 reportsthat are available in CS-DRMS; the facility toexport information into spreadsheet for furthermanipulation; and the add-on facilities and built-inelectronic links with other systems.

19.3 Also, as part of its capacity-building efforts,the Commonwealth Secretariat has developed acomprehensive training program in debt manage-ment aimed at enhancing the skills and knowledge oflocal staff with different levels of responsibilities, sothat they are able to carry our their debt-manage-ment functions in an effective manner. These train-ing modules, which can be customized to meetspecific country needs, can be grouped under the fol-lowing broad categories:• Basic training programs such as the interpretation

of loan/credit agreements (external and domesticdebt); debt-restructuring operations, including forParis Club and London Club; and debt data valida-tion techniques;

• Basic and advanced courses in the use of CS-DRMS (and add-on software) for loan recordingand administration; for timely reporting of debtstatistics, including data extraction to other sys-tems; and for supporting debt analysis such asportfolio analysis or debt-sustainability analysis;

19. Provision of Technical Assistancein External Debt Statistics

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1The main features of the Commonwealth Secretariat’s DebtRecording and Monitoring System (CS-DRMS) are described inChapter 18.

19 • Provision of Technical Assistance in External Debt Statistics

• Specialized courses and workshops on debt-man-agement techniques and strategies, new debt ini-tiatives, and new practices and standards; these areaimed at different audiences ranging from seniorofficials in governments to those involved in actualdebt operations; and

• Seminars and consensus-building meetings on issueswith wider implication for debt management—forexample, the HIPC Initiative and debt sustainabilityin a liberalizing economic environment.

19.4 In delivering its advisory services to countries,the Commonwealth Secretariat has actively collabo-rated with various institutions—regional and inter-national—especially in undertaking joint activitiesin specific countries (for instance, data validation)and in regional training programs.

European Central Bank

19.5 The Eurosystem,2 under the coordination ofthe ECB, provides technical assistance to the centralbanks of the countries that are candidates to join theEuropean Union (EU), the so-called accession coun-tries,3 with a view to preparing for their future inte-gration into the European System of Central Banks(ESCB), and later into the Eurosystem. The ECB’stechnical assistance is primarily intended to helpthese countries implement data collection and com-pilation systems that will allow them in due courseto meet the ECB’s statistical requirements, and tocontribute to properly articulated (aggregated andconsolidated) statistics for the euro area. The assis-tance takes the form of seminars organized at theECB or in different countries, and country visitsconducted by ECB staff. The seminars may call onexperts in national central banks of the EU and aretargeted essentially at economists-statisticians and/or managerial staff of central banks and of nationalstatistical institutes, where relevant. In cooperationwith other institutions—notably, the European Com-

mission (Eurostat) and the IMF—the ECB seeks topromote the adoption of current international statis-tical standards, in particular 1993 SNA, ESA95, andBPM5.

19.6 The assistance provided by the ECB covers thevarious statistical areas of its competence within theEU: money and banking statistics, securities issues,interest rates, balance of payments and the IIP, andrelated issues—Special Data Dissemination Stan-dard (SDDS), international reserves, external debt,etc. Within the EU, the ECB is solely responsible formoney and banking and related statistics. Wherecompetence is shared—which is the case for balanceof payments statistics, with the European Commis-sion (Eurostat) having responsibility within the EUfor the current and capital accounts (and for compil-ing EU aggregates), and the ECB being responsiblefor the financial account (and for compiling euro-area aggregates)—the assistance is organized inclose cooperation between the two institutions; closecooperation is also sought with other internationalorganizations.

19.7 The ECB will also cooperate with the acces-sion countries in the field of financial accounts,including time series for the rest-of-the-worldaccount as specified in the 1993 SNA and ESA95;compilation of financial accounts helps to promoteconsistency across statistical areas. External debtdata are embedded in this framework on an instru-ment, rather than a functional, approach.

19.8 In addition to the assistance to accession coun-tries, the ECB participates in seminars and work-shops organized by regional institutions and forums(for example, Mercosur, West African Economic andMonetary Union, South African Customs Union) toshare the experience gained in compiling aggregatesfor a group of countries.


19.9 The IMF offers technical assistance for statis-tics including balance of payments, IIP and externaldebt, government finance, money and banking, andnational accounts and price statistics. This work isreinforced by training courses and seminars for mem-ber country officials on statistical methodologies andtheir applications, including external debt and inter-national reserves and related information. In addi-

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2The Eurosystem comprises the ECB plus the National CentralBanks (NCBs) of the 12 EU countries that had adopted the euro asof January 1, 2001. The ESCB comprises the Eurosystem and thecentral banks of the three other EU countries (Denmark, Sweden,and the United Kingdom).

3The term refers exclusively to countries that have started suchnegotiations with the EU, which at the time of writing the Guidewere: Bulgaria, Cyprus, the Czech Republic, Estonia, Hungary,Latvia, Lithuania, Malta, Poland, Romania, Slovenia, and the Slo-vak Republic. Turkey is also a candidate country, but negotiationshave not yet started.


tion, the IMF provides information on statistical top-ics via its public website, at http://www.imf.org/external/np/sta/index.htm.

19.10 In all areas, technical assistance is designed toimprove the collection, compilation, and dissemina-tion of official statistics. In addition to providingassessments with respect to accuracy, coverage, andtimeliness, technical assistance missions in each areaoften deliver on-the-job training, help design report-ing forms and spreadsheets to facilitate correct classi-fication, and lay out short- and medium-term actionplans for the improvement of statistical procedures.Missions may pay particular attention to assistingcountries in their efforts to comply with the require-ments of the SDDS or participate in the General DataDissemination System (GDDS). Technical assistancemissions generally discuss a draft report with countryauthorities while in the field, which is later finalizedwith the benefit of the authorities’ comments.

19.11 The main vehicle for the delivery of technicalassistance is short-term single-topic missions, whichare conducted by IMF staff and externally recruitedexperts. A Panel of Experts is established to rec-ognize those experts who have, by virtue of theirexperience and qualifications, demonstrated theircapacity to contribute to the technical assistance pro-gram of the Statistics Department in one or moreareas of macroeconomic statistics. The IMF alsoundertakes multisectoral statistical missions, whichprovide overall assessments and recommendationsfor strengthening institutional arrangements, method-ology, collection, and compilation practices in themajor areas of macroeconomic statistics. These mis-sions not only address the issues related to each sec-tor, but also consider the consistent treatment of dataand coordination arrangements across sectors, andprovide short- and medium-term action plans forimproving statistics, including follow-up missions inthe topical areas.

19.12 Technical assistance is provided only whenrequested by a country’s authorities. Since thedemand for such assistance normally exceeds theresources available from the IMF, a number of con-siderations are taken into account in prioritizingcountry requests for technical assistance, includingthe extent to which (1) the country’s authorities arestrongly supportive of obtaining the assistance andcommitted to ensuring its implementation; (2) thetechnical assistance addresses those weaknesses in a

country’s institutional capacity for macroeconomicpolicy implementation that have been identified inthe course of the IMF’s surveillance and other work;(3) the assistance contributes to strengthening acountry’s capacity to design and implement an IMF-supported program; and (4) the assistance supports acountry’s efforts to comply with internationallyagreed standards and codes of transparency. TheIMF recognizes that at times the systemic orregional importance of the requesting country and/orthe emergence of a need as a result of a post-crisissituation may influence a decision to provide techni-cal assistance.

19.13 The IMF also offers training courses in sta-tistical methodology at the IMF Institute inWashington, D.C., the Joint Vienna Institute, theIMF-Singapore Regional Training Institute, theJoint Africa Institute in Abidjan, the Regional Train-ing Program in the United Arab Emirates, and atseveral other regional sites. These seminars are upto six weeks in length and generally include a seriesof lectures, discussions, practical exercises, andcase studies. During the lectures, participants areafforded an opportunity to discuss problems thatthey have actually encountered in the course of theirwork in their respective countries.

19.14 For further information on the IMF’s techni-cal assistance and training courses, please contact:

DirectorStatistics DepartmentInternational Monetary FundWashington, D.C. 20431, U.S.A.

Organisation for EconomicCo-operation and Development

19.15 There is no formal program of technical assis-tance by the division responsible for the CreditorReporting System (CRS) of the OECD. However,Secretariat staff provide technical support to mem-ber country creditor reporters, both in Paris andthrough missions to capitals of reporting countries.In addition, non-OECD members occasionally visitParis to discuss reporting problems, and differencesbetween debtor and creditor reporting. For example,staff from the Indian Ministry of Finance and fromthe Federal Reserve Bank in Mumbai are regular vis-itors to the OECD.

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19.16 The OECD hosts PARIS21—the Partner-ships in Statistics for development in the 21st Cen-tury. Created in 1999, PARIS21 is a global consor-tium of statisticians, policymakers, and other usersof statistics that supports the development of statis-tics in developing and transition countries. Not anew agency, it works through existing global,regional, and national structures. Its members sharean interest in strengthening national statisticalcapacity as the foundation for effective policymak-ing. PARIS21 promotes dialogue between usersand producers of statistics, initially in subregionalworkshops. This dialogue leads to country actionplans—known as Strategic Statistical DevelopmentPlans—for the development of sustainable statisti-cal capacity for a wide range of data—economic(including external debt statistics), social, andenvironmental. The production of such plans, andtheir implementation, usually requires technicalassistance. By working with the DAC, which bringstogether the bilateral donors and the EuropeanCommission, the IMF, the United Nations Devel-opment Programme (UNDP), and the World Bank,PARIS21 emphasizes the importance of statisticsin attaining and monitoring development goals,and promotes closer coordination among donorprograms of statistical capacity building assis-tance. For more details see the PARIS21 website,http://www.paris21.org.


19.17 UNCTAD’s training program in debt man-agement consists of a number of individual prede-fined training modules that are organized accordingto orientations, “blocks,” and level of management.This module approach allows a great deal of flexibil-ity in the design of training programs and is used byUNCTAD to communicate with DMFAS4 users inorder to design programs customized for individualcountries, debt offices, and/or groups of users.

19.18 The UNCTAD training framework has threeorientations:• Internal capacity building within the national debt-

management framework;

• Software and computer (including DMFAS train-ing); and

• General debt management.

19.19 These orientations are organized within twodifferent categories of training blocks:• Block 1 is what may be described as the general

knowledge base, which is the minimum knowl-edge any participant should have on each one ofthe orientations. General knowledge base trainingcomprises all basic knowledge and is of generalapplicability for all those working in the field ofpublic debt.

• Block 2 is what may be described as the special-ized knowledge base, which is the targeted traininggiven to different officers so that they can exercisetheir specific mandated functions or tasks. Spe-cialized knowledge base training has specificapplicability for those working in the field of pub-lic debt.

19.20 Within each component and block, the train-ing activities are designed for three levels of man-agement: senior management, middle management,and operational staff. The delivery of the differenttraining modules will, in general, follow a progres-sive approach within each level and will evolve fromgeneral knowledge to specialized knowledge basetraining over time. In all cases, the training is alwaysbased on the latest version of DMFAS and the differ-ent information it can produce.

World Bank

19.21 The World Bank offers technical assistance instatistical capacity building to its client countries soas to facilitate the production and wide dissemina-tion of key economic, social, and environmental sta-tistics. Such data support economic management andpoverty-reduction strategies.

19.22 Technical assistance is provided throughinstitutional capacity-building projects, advisoryfunctions, training, and related activities. Whateverthe modality through which technical assistance isdelivered, these programs are essentially country-oriented, although regional programs are sponsoredwhen similar issues are encountered within regionalgroups and where a common approach can be effec-tive. In all areas, technical assistance draws on inter-national statistical standards and methodologies,

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4The DMFAS (Debt Management and Financial Analysis Sys-tem) is a computer system designed for use in the management ofpublic debt. It was described in detail in Chapter 18.


good practices in statistical capacity building, andrecent technological developments.

19.23 Technical assistance activities are usuallydemand driven and are in response to needs and pri-orities identified by member countries, in collabora-tion with Bank staff in the course of their countryeconomic and sectoral work, or other internationalorganizations. The goal of coordination among stake-holders—between donors and between entities in thenational statistical system—is, most importantly, toavoid duplication of effort and improve harmoniza-tion of procedures, thereby reducing transactioncosts. As a mechanism for donor and recipient coor-dination, the World Bank has supported the creationof a consortium, PARIS21, which provides a forumfor policymakers and statisticians from around theworld to discuss issues of statistical capacity buildingand to agree on modalities for delivering assistance tostrengthen statistical capacity.

19.24 The thrust of the Bank’s technical assistancework has increasingly been on promoting coordi-nated, demand-led, and knowledge-based technicalassistance for building sustainable statistical capac-ity and covering both comprehensive (or integrated)statistical capacity building as well as programsrelating to specific aspects of the national statisticalsystem.

19.25 A comprehensive approach to statisticalcapacity building covers all dimensions of thenational statistical system (see Figure 19.1). Theobjective here is to:• Strengthen statistical infrastructure by establish-

ing sound legal and institutional frameworks forthe collection, processing, and compilation ofstatistics;

• Enhance organizational arrangements throughimproved organizational structure and better coor-dination among statistical agencies and throughmanagerial reforms involving emphasis on strate-gic management and corporate planning;

• Improve staffing methods through better humanresource management and development;

• Upgrade technical and physical resources throughnewer data collection techniques, application ofnewer statistical methodologies, and moderninformation management systems (with appropri-ate customization on a country-specific basis); and

• Provide training in new data concepts and ininternational standards for reliable and consistent

data compilation, quality control, and widespreaddissemination.

19.26 By contrast, specific programs address gapsin segments of a country’s statistical system such asnational income accounts, environmental statistics,or debt data systems. But like comprehensive pro-grams, specific programs also address organizationaland functional issues.

19.27 Bank-sponsored technical assistance activi-ties are financed by grants or loans. Grant financingis through World Bank grants5 and grants fromBank-administered trust funds.6

19.28 Small and medium-sized technical assistanceprograms may be part of a large World Bank projectloan. For larger programs, stand-alone loans in theform of a Learning and Innovation Loan (LIL) or aSpecific Investment Loan (SIL), often with cofi-nancing through partnership arrangements withbilateral donors and other international agencies, arealso possible. The country technical assistance pro-gram preparation is normally financed throughgrants and the implementation and monitoringthrough a combination of grants, and loans withappropriate burden sharing by the client country(often in-kind). For some middle- and high-incomecountries, technical assistance participation isencouraged on a reimbursable basis.7

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5The World Bank’s Institutional Development Fund (IDF) wasestablished in FY1993 to provide technical assistance grants for“upstream” institutional development not directly linked to thelending operations of the Bank. The IDF is used for funding small,action-oriented schemes identified in the course of country eco-nomic and sectoral work and policy dialogue.

6Includes trust funds that finance advisory services and techni-cal assistance. These trust funds cover a wide range of activities,including project preparation and preinvestment studies, economicand sectoral work, institution building, pilot projects, training, andconferences. The advisory services may support recipient activi-ties directly or support Bank activities and may be providedthrough trust fund programs or through free-standing trust funds.In FY2000, bilateral donors established a new global technicalassistance facility to promote statistical capacity building. TheBank on behalf of donors manages the Trust Fund for StatisticalCapacity Building.

7Under “reimbursable arrangements,” Bank services are specifi-cally requested, and their costs are fully reimbursed. Sucharrangements are undertaken with member countries that are nolonger active Bank borrowers but still require technical assistance,and with partner development institutions that contract with theBank to provide assistance for loan preparation, appraisal, orsupervision services.


215

Figure 19.1. World Bank Technical Assistance (TA) in Institutional Capacity Building in Statistics

USERS AND SUPPLIERS OF STATISTICS

INTERNATIONAL ORGANIZATIONS

SELF-SUSTAINING STATISTICAL SYSTEM

GOVERNMENT(National Statistical System)

Government

CENTRALDATABASE

Reporting andFinancial

Applications

President or PrimeMinister's Office or

the Ministry

LegislativeBodies onStatistics

Respondents Users

NATIONALSTATISTICS

OFFICE

WORLD BANK

UN UNESCOIMF OECDILO EUROSTATWHO Regional Orgs.WTO National Orgs.

Human ResourceManagement

Sales and DeliveryApplications

Service Applications

Data Collection GuidelinesClassificationsData Processing MethodsSystems of Socioeconomic IndicatorsDissemination Standards

Improvement of Organization, Management and PlanningFostering KnowledgeStrengthening of Statistical InfrastructureModification of Data Collection System and MethodsInstallation of Information TechnologyImprovement of Statistical AwaremessImprovement of Human Resource ManagementSpecific Statistical Issues

Supervising Ministry & Management

Employees

Dissemination Production

MethodologicalApplications

Advisory or SteeringCommittee on Statistics

Regional and DistrictStatistical Offices

Statistical Unitsof the

MinistriesData Processing

Applications

Data Entry & ReviewApplications

General Public

Domestic Economy

USE

RS

OF

DAT

A

SUPPLIER

S OF D

ATA

InternationalOrganizations, NGOsSTATISTICS SUPPLY

MacroeconomicIndustrialServices

EnvironmentalPopulation and Households

Poverty StatisticsLabor

Education and HealthHousing

Other Social Statistics

FUNCTIONAL STRUCTURE

Concepts and Standards Investment and Technical Assistancein Statistical Capacity Building

ORGANIZATIONAL STRUCTURE

BusinessCommunity

Science & ResearchInstitutions

Need forStatistics

Providersof

Statistics

Providersof TA

Typesof TA

Outcome

Need for TA


19.29 Technical assistance in improving the cover-age and quality of debt statistics has been an essen-tial component of Bank technical assistanceprograms in public debt management in severalcountries—for example, as a component of a publicdebt-management LIL, a Technical Assistance Loan(TAL), or a Public Sector Reform Loan (PSRL).

Technical assistance activity in debt statistics islikely to cover a wide range of items, includingorganizational structure of the national debt office,data collection methods, database managementsystems, data needs for strategic debt management,dissemination practices, and training of debt officestaff.

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Appendices

The purpose of this appendix is to provide detailedinformation on specific instruments and transactionsand to set out their classification treatment in thegross external debt position. There are two sections.The first provides a description of specific financialinstruments and how they should be classified in thegross external debt position; the second sets out theclassification treatment of some specific transac-tions that, experience suggests, require particularclarification.

Part 1. Financial Instruments:Description and Classification in theGross External Debt Position1

A

American Depository Receipt (ADR)

An ADR is a negotiable certificate that representsownership of the securities of a non-U.S. residentcompany. Although the securities underlying ADRscan be debt or money market instruments, the largemajority are equities. An ADR allows a non-U.S.resident company to introduce its equity into theU.S. market in a form more readily acceptable toU.S. investors, such as in U.S. dollars, withoutneeding to disclose all the information normallyrequired by the U.S. Securities and Exchange Com-mission. A U.S. depository bank will purchase theunderlying foreign security and then issue receiptsin dollars for those securities to the U.S. investor.The receipts are registered. The investor canexchange the ADRs for the underlying security atany time. See also Bearer Depository Receipts andDepository Receipts.

Classification

These instruments are classified by the nature of theunderlying instrument backing the ADR. This isbecause the “issuing” intermediary does not take theunderlying security onto its balance sheet but sim-ply acts as a facilitator. So, the debtor is the issuerof the underlying security—that is, an ADR isregarded as a non-U.S. resident issue. If owned bynonresidents, these instruments are to be included inthe gross external debt position if the underly-ing security is a debt security. The security is classi-fied as long-term, bonds and notes (debt securities,portfolio investment in the IIP) or, depending onthe relationship between debtor and creditor, asdirect investment, intercompany lending (see thedescription of direct investment in Chapter 3). Ifthe underlying item is an equity investment itshould be classified in the memorandum item,equity liabilities.

Arrears

Amounts that are past due-for-payment and unpaid.These include amounts of scheduled debt-servicepayments that have fallen due but have not been paidto the creditor(s).

In the context of the Paris Club, arrears are theunpaid amounts that fall due before the consolida-tion period. See Paris Club, Creditor, and Consoli-dation Period in Appendix III.

Classification

Arrears of principal and/or interest are reported asnew short-term liabilities. If owned by nonresidents,these new instruments are to be included in the grossexternal debt position as arrears. Regarding theoriginal borrowing, the debt outstanding is to bereported as though the principal and interest werepaid on schedule.

Appendix I. Specific Financial Instrumentsand Transactions: Classifications

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1This appendix has drawn significantly upon the Bank of England(1998), Financial Terminology Database.

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Arrears


Asset-Backed Securities

Asset-backed securities are bonds whose incomepayments and principal repayments are dependent ona pool of assets. Securities may be backed by variousassets—for example, mortgages, credit card loans,automobile loans—in effect, converting illiquidassets into tradable securities. An asset-backed secu-rity enables the original lending institution to devolvecredit risks to investors. There are several key fea-tures of asset-backed securities: the original lenderwill usually sell the assets to a trust or other form ofintermediary (special purchase vehicle) and so, in thecase of a bank, this frees “capital” that regulatoryguidelines require a bank to hold against the assets.The intermediary will finance the purchase of theassets by issuing securities. Because income and therepayment of principal are dependent on the underly-ing assets, if the underlying assets are prepaid so isthe security. Issuers often provide different tranchesof the security so that if there are prepayments, thefirst tier will be repaid first, the second tier next, etc.The pricing of the various tranches will reflect theprobability of early repayment. Asset-backed securi-ties have also been developed that securitize futureincome streams—such as the earnings of musicians.

Classification

Asset-backed securities owned by nonresidents areto be included in the gross external debt position.They should be classified as long-term, bonds andnotes (portfolio investment, debt securities in theIIP) unless they have an original maturity of oneyear or less, in which instance they are to be classi-fied as money market instruments. Alternatively,depending on the relationship between debtor andcreditor, these securities could be classified as directinvestment, intercompany lending (see the descrip-tion of direct investment in Chapter 3). These securi-ties present a special problem regardless of theamount outstanding because there can be partialrepayments of principal at any time. So, simplyrevaluing the original face value to end-period mar-ket prices will cause overvaluation of the positiondata if there has been a partial repayment.

B

Balances on Nostro and Vostro Accounts

A vostro (your) account is another bank’s accountwith a reporting bank, while a nostro (our) account isa reporting bank’s account with another bank.

Classification

Liability positions in nostro and vostro accounts areto be included in the gross external debt position.They are classified as banks, short-term, currencyand deposits, or loans (other investment in the IIP)depending on the nature of the account.

Bank Deposits

Bank deposits are claims on banks that are eithertransferable or are “other deposits.” Transferabledeposits consist of deposits that are exchangeable ondemand at par without restriction, or penalty, anddirectly usable for making payments by check, giroorder, direct debit/credit, or other payment facility.“Other deposits” comprise all claims represented byevidence of deposit—for example, savings andfixed-term deposits; sight deposits that permit imme-diate cash withdrawals but not direct third-partytransfers; and shares that are legally (or practically)redeemable on demand or on short notice in savingsand loan associations, credit unions, building soci-eties, etc.

Classification

Bank deposits are liabilities of banks and otherdepository institutions, and if owned by a nonresi-dent are to be included in the gross external debtposition. They should be classified as banks, short-term, currency and deposits (other investment in theIIP) unless detailed information is available to makethe short-term/long-term attribution.

Banker’s Acceptances

A negotiable order to pay a specified amount ofmoney on a future date, drawn on and guaranteed bya bank. These drafts are usually drawn for interna-tional trade finance purposes as an order to pay anexporter a stated sum on a specific future date forgoods received. The act of a bank stamping the word“accepted” on the draft creates a banker’s accep-tance. The acceptance represents an unconditionalclaim on the part of the owner and an unconditionalliability on behalf of the accepting bank; the bankhas a claim on the drawer, who is obliged to pay thebank the face value on or before the maturity date.By writing the word “accepted” on the face of thedraft the bank carries primary obligation, guarantee-ing payment to the owner of the acceptance.Banker’s acceptances can be discounted in the sec-

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Asset-Backed Securities

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Balances on Nostro and Vostro Accounts

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Banker’s Acceptances

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Bank Deposits

Appendix I • Financial Instruments and Transactions: Classifications

ondary market, the discount reflecting the time tomaturity and credit quality of the guaranteeing bank.Since the banker’s acceptance carries a banker’sobligation to pay (in effect “two-name paper”) and isnegotiable, it becomes an attractive asset. Banker’sacceptances are always sold at a discount and havematurities of up to 270 days.

Classification

Banker’s acceptances are money market instrumentsthat are claims on the accepting bank, with the bankowning a claim on the issuer of the bill. As recom-mended in the 1993 SNA, flexibility in the applica-tion of this recommendation is required to takenational practices and variations in the nature ofthese instruments into account.

If owned by nonresidents, banker’s acceptancesshould be included in the gross external debt posi-tion. They should be classified as short-term, moneymarket instruments (portfolio investment, debt secu-rities in the IIP) unless they have an original matu-rity of over one year, in which instance they are to beclassified as bonds and notes. Alternatively, depend-ing on the relationship between debtor and creditor,these securities could be classified as direct invest-ment, intercompany lending (see the description ofdirect investment in Chapter 3).

Bearer Depository Receipt (BDR)

A form of depository receipt issued in bearer ratherthan registered form. See Depository Receipts.

Classification

A BDR is classified according to the nature of theunderlying instrument backing it. This is becausethe “issuing” intermediary does not take the under-lying security onto its balance sheet but simply actsas a facilitator. So, the debtor is the issuer of theunderlying security. If owned by nonresidents, theseinstruments are to be included in the gross externaldebt position. They should be classified as long-term, bonds and notes (portfolio investment, debtsecurities in the IIP) unless they have an originalmaturity of one year or less, in which instance theyare to be classified as money market instruments.Alternatively, depending on the relationshipbetween debtor and creditor, these securities couldbe classified as direct investment, intercompany

lending (see the description of direct investment inChapter 3).

Bonds and Notes

Bonds and notes are debt securities with an originalmaturity of over one year. They are usually traded(or tradable) in organized and other financial mar-kets. Bonds and notes usually give the holder theunconditional right to fixed money income or con-tractually determined variable money income. Withthe exception of perpetual bonds, bonds and notesalso provide the holder with an unconditional rightto a fixed sum as repayment of principal on a speci-fied date or dates.

Classification

Bonds and notes owned by nonresidents are to beincluded in the gross external debt position. Theyshould be classified as long-term, bonds and notes(portfolio investment, debt securities in the IIP).Alternatively, depending on the relationship betweendebtor and creditor, these securities could be classi-fied as direct investment, intercompany lending (seethe description of direct investment in Chapter 3).

Bonds with an Embedded Call Option

A bond that gives the issuer a right to buy back thebonds on or by a particular date. The value of thisright is usually reflected in the interest rate on thebond.

Classification

Bonds with embedded call options owned by nonres-idents are to be included in the gross external debtposition. They should be classified as long-term,bonds and notes (portfolio investment, debt securi-ties in the IIP) unless they have an original maturityof one year or less, in which instance they are to beclassified as money market instruments. Alterna-tively, depending on the relationship between debtorand creditor, these securities could be classified asdirect investment, intercompany lending (see thedescription of direct investment in Chapter 3).

Bonds with an Embedded Put Option

A bond whereby the creditor has the right to sellback the bonds to the issuer on or by a particular

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Bearer Depository Receipt (BDR)

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Bonds and Notes

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Bonds with an Embedded Put Option


date, or under certain circumstance, such as a creditdownrating of the issuer. This right is usuallyreflected in the interest rate on the bond.

Classification

Bonds with embedded put options owned by nonres-idents are to be included in the gross external debtposition. They should be classified as long-term,bonds and notes (portfolio investment, debt securi-ties in the IIP) unless they have an original maturityof one year or less, in which instance they are to beclassified as money market instruments. Alterna-tively, depending on the relationship between debtorand creditor, these securities could be classified asdirect investment, intercompany lending (see thedescription of direct investment in Chapter 3). Theoption is regarded as an integral part of the bond andis not separately valued and classified.

Brady Bonds

Brady bonds, named after U.S. Treasury SecretaryNicholas Brady, arose from the Brady Plan. Thisplan was a voluntary market-based approach, devel-oped in the late 1980s, to reduce debt and debt ser-vice owed to commercial banks by a number ofemerging market countries. Brady bonds wereissued by the debtor country in exchange for com-mercial bank loans (and in some cases unpaid inter-est). In essence they provided a mechanism bywhich debtor countries could repackage existingdebt. They are dollar denominated, “issued” in theinternational markets. The principal amount is usu-ally (but not always) collateralized by speciallyissued U.S. Treasury 30-year zero-coupon bondspurchased by the debtor country using a combina-tion of IMF, World Bank, and the country’s own for-eign currency reserves. Interest payments on Bradybonds, in some cases, are guaranteed by securities ofat least double-A-rated credit quality held with theNew York Federal Reserve Bank. Brady bonds aremore tradable than the original bank loans but comein different forms. The main types are as follows.• Par bonds: Bonds issued to the same value as the

original loan, but the coupon on the bonds isbelow market rate. Principal and interest paymentsare usually guaranteed.

• Discount bonds: Bonds issued at a discount to theoriginal value of the loan, but the coupon is atmarket rate. Principal and interest payments areusually guaranteed.

• Debt-conversion bonds: Bonds issued to the samevalue as the original loan but on condition that“new” money is provided in the form of new-money bonds.

• Front-loaded interest reduction bonds: Bondsissued with low-rate fixed coupons that step upafter the first few years.

There are also other, less common types.

Classification

Brady bonds owned by nonresidents are to beincluded in the gross external debt position. Theyshould be classified as long-term, bonds and notes(portfolio investment, debt securities in the IIP).When a Brady bond is issued, the original loan isassumed to have been redeemed unless the terms ofthe issue of the Brady bond state otherwise. Anydebt reduction in nominal value terms should berecorded—see Chapter 8. The initial purchase of theprincipal collateral (U.S. Treasury bonds) is a sepa-rate transaction and is classified as debt of theUnited States.

C

Certificate of Deposit (CD)

A certificate issued by a bank acknowledging adeposit in that bank for a specified period of time at aspecified rate of interest; CDs are essentially a formof negotiable time deposit (evidenced by the certifi-cate). CDs are widely issued in the domestic andinternational markets, and are typically bearer instru-ments, issued at face value with original maturities ofone to six months, although there have been maturi-ties of up to seven years. Typically, interest costs arepayable at maturity for issues of one year or less, andsemiannually on longer issues. The rate of interest ona given CD depends on several factors: current mar-ket conditions, the denomination of the certificate,and the market standing of the bank offering it. Typi-cally, CDs are highly liquid instruments, whichallows banks access to a cheaper source of funds thanborrowing on the interbank market.

Classification

CDs owned by nonresidents are to be included in thegross external debt position. Those with an originalmaturity of one year or less should be classified as

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Certificate of Deposit (CD)


short-term, money market instruments (portfolioinvestment, debt securities in the IIP), while thosewith an original maturity of over one year should beclassified as bonds and notes. A small minority ofCDs are known to be nonnegotiable—not tradable—and if owned by nonresidents are to be classified asbanks, short-term, currency and deposits (otherinvestment in the IIP). Alternatively, depending onthe relationship between debtor and creditor, thesesecurities could be classified as direct investment,intercompany lending (see the description of directinvestment in Chapter 3).

Collateralized Debt Obligations (CDOs)

CDOs are bonds whose income payments and prin-cipal repayments are dependent on a pool of instru-ments. Typically, a CDO is backed by a diversifiedpool of loan and bond instruments either purchasedin the secondary market or from the balance sheet ofa commercial bank. The diversified nature of theinstruments differentiates a CDO from an asset-backed security, which is backed by a homogeneouspool of instruments, such as mortgages and creditcard loans. Because income and the repayment ofprincipal are dependent on the performance of theunderlying instruments, there is a probability ofearly repayment. Issuers are often provided with dif-ferent tranches of the security, so that if there areprepayments the first tier will be repaid first, the sec-ond tier next, etc. The pricing of each tranchereflects the probability of repayment.

Classification

CDOs owned by nonresidents are to be included inthe gross external debt position. They should beclassified as long-term, bonds and notes (portfolioinvestment, debt securities in the IIP) unless theyhave an original maturity of one year or less, inwhich instance they are to be classified as moneymarket instruments. Alternatively, depending on therelationship between debtor and creditor, these secu-rities could be classified as direct investment, inter-company lending (see the description of directinvestment in Chapter 3). These securities present aspecial problem regardless of the amount outstand-ing because there can be partial repayments of prin-cipal at any time. So, simply revaluing the originalface value to end-period market prices will causeovervaluation of the position data if there has been apartial repayment.

Commercial Paper (CP)

Commercial paper is an unsecured promise to pay acertain amount on a stated maturity date, issued inbearer form. CP enables corporations to raise short-term funds directly from end investors through theirown in-house CP sales team or via arranged placingthrough bank dealers. Short-term in nature, withmaturities ranging from overnight to one year, CP isusually sold at a discount. A coupon is paid in a fewmarkets. Typically, issue size ranges from $100,000up to about $1 billion. In bypassing financial inter-mediaries in the short-term money markets, CP canoffer a cheaper form of financing to corporations.But because of its unsecured nature, the credit qual-ity of the issuer is important for the investor. Compa-nies with a poor credit rating can obtain a higherrating for the issue by approaching their bank orinsurance company for a third-party guarantee, orperhaps issue CP under a MOF (Multiple OptionFacility), which provides a backup line of creditshould the issue be unsuccessful.

Classification

Commercial paper owned by nonresidents is to beincluded in the gross external debt position. Suchpaper should be classified as short-term, money mar-ket instruments (portfolio investment, debt securitiesin the IIP). Alternatively, depending on the relation-ship between debtor and creditor, these securitiescould be classified as direct investment, intercom-pany lending (see the description of direct invest-ment in Chapter 3). When CP is issued at a discount,this discount represents interest income.

Commodity-Linked Bonds

A bond whose redemption value is linked to theprice of a commodity. Typically, issuers whoseincome stream is closely tied to commodity earningsissue these bonds.

Classification

Bonds with payoffs linked to movements in com-modity prices and owned by nonresidents are to beincluded in the gross external debt position. Theyshould be classified as long-term, bonds and notes(portfolio investment, debt securities in the IIP)unless they have an original maturity of one year orless, in which instance they are to be classified asmoney market instruments. Alternatively, depending

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Commodity-Linked Bonds


on the relationship between debtor and creditor,these securities could be classified as direct invest-ment, intercompany lending (see the description ofdirect investment in Chapter 3).

Commodity-Linked Derivatives

Derivatives whose value derives from the price of acommodity. These include:• Commodity future—traded on an organized

exchange, in which counterparties commit to buyor sell a specified amount of a commodity at anagreed contract price on a specified date;

• Commodity option—gives the purchaser the rightbut not the obligation to purchase (call) or sell (put)a specified amount of a commodity at an agreedcontract price on or before a specified date; and

• Commodity swap—a swap of two paymentstreams, where one represents a currently prevail-ing spot price and the other an agreed contractprice for a specified quantity and quality of a spec-ified commodity.

Net cash settlements are usually made.

Classification

Commodity-linked derivatives in which the counter-party is a nonresident are included indistinguishablyin the memorandum item, financial derivatives.

Convertible Bonds

A convertible bond is a fixed-rate bond that may, atthe option of the investor, be converted into theequity of the borrower or its parent. The price atwhich the bond is convertible into equity is set at thetime of issue and typically will be at a premium tothe market value of the equity at the time of issue.The conversion option on the bond may be exercisedat one specified future date or within a range ofdates—“the window period.” The conversion rightcannot be separated from the debt. The instrumentallows the investor to participate in the appreciationof the underlying asset of the company while limit-ing risk. A convertible bond will generally pay acoupon rate higher than the dividend rate of theunderlying equity at the time of issue but lower thanthe rate of a comparable bond without a conversionoption. For the investor, the value of the convertiblebond lies in the excess return of the bond yield overthe dividend yield of the underlying shares.

Classification

Convertible bonds owned by nonresidents are to beincluded in the gross external debt position. Theyshould be classified as long-term, bonds and notes(portfolio investment, debt securities in the IIP)unless they have an original maturity of one year orless, in which instance they are to be classified asmoney market instruments. Alternatively, dependingon the relationship between debtor and creditor,these securities could be classified as direct invest-ment, intercompany lending (see the description ofdirect investment in Chapter 3). As bonds are con-verted into equity, so the debt is extinguished. Theequity issued is recorded in the memorandum item,equity liabilities. If the nonresident is in a directinvestment relationship with the issuer, then theequity is classified as Direct investment in reportingeconomy: equity capital and reinvested earnings inthe memorandum item.

Credit Derivatives

Derivatives that provide a market in credit risk.Investors will use credit derivatives to gain or reduceexposure to credit risk. With a credit derivative theinvestor is taking a view on the creditworthiness ofthe issuer(s) of the underlying instrument(s) withoutnecessarily risking principal (although credit deriva-tives may be embedded in a security). For instance, acreditor may lend to a debtor but wants to protectagainst the risk of default by that debtor. The credi-tor “buys” protection in the form of a credit defaultswap—the risk premium inherent in the interest rateis swapped by the creditor for a cash payment inevent of default. Also, these instruments are used tocircumvent local investment rules; for example, if aforeign investor cannot invest in equity securitiesand so enters into a total return swap where the for-eign investor pays a reference rate, say LIBOR,against the total return—dividends and capitalgain/loss—on an equity security. The other mostcommon structure is a spread option whose payoffstructure depends on the interest rate spread betweenemerging country debt and, say, U.S. Treasurybonds.

Classification

Credit derivatives in which the counterparty is a non-resident are included indistinguishably in the memo-randum item, financial derivatives.

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Convertible Bonds

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Credit Derivatives


Credit-Linked Note

A so-called structured security that combines acredit derivative and a regular bond.

Classification

Credit-linked notes owned by nonresidents are to beincluded in the gross external debt position. Theyshould be classified as long-term, bonds and notes(portfolio investment, debt securities in the IIP).Alternatively, depending on the relationship betweendebtor and creditor, these securities could be classi-fied as direct investment, intercompany lending(see the description of direct investment in Chapter 3).The credit derivative is regarded as an integral part ofthe bond and is not separately valued and classified.

Currency

Currency consists of notes and coin that are in circu-lation and commonly used to make payments.

Classification

Domestic currency owned by nonresidents isincluded within the gross external debt position asmonetary authorities (or perhaps banks), short-term,currency and deposits (other investment in the IIP).

Currency-Linked Bonds

A bond in which the coupon and/or redemptionvalue are linked to the movement in an exchangerate. Examples of these types of bonds were thetesobonos issued by Mexican banks in 1994. Thesebonds, issued and payable in pesos, had a redemp-tion value linked to the movement in the U.S. dol-lar/Mexican peso exchange rate. When the Mexicanpeso depreciated, the redemption value increased.

Classification

Bonds with payoffs linked to movements inexchange rates and owned by nonresidents are to beincluded in the gross external debt position. Theyshould be classified as long-term, bonds and notes(portfolio investment, debt securities in the IIP)unless they have an original maturity of one year orless, in which instance they are to be classified asmoney market instruments. Alternatively, dependingon the relationship between debtor and creditor,these securities could be classified as direct invest-

ment, intercompany lending (see the description ofdirect investment in Chapter 3).

Currency Pool Loans

Currency pool loans, provided by the World Bankand regional development banks, are multicurrencyobligations committed in U.S. dollar-equivalentterms whose currency composition is the same(pooled) for all borrowers. The World Bank guaran-tees that at least 90 percent of the U.S. dollar-equiva-lent value of the currency pool is maintained in fixedcurrency ratios of 1 U.S. dollar: 125 Japanese yen: 1euro. These ratios have been maintained since 1991,and prior to the introduction of the euro, the currencyratios were maintained in a fixed ratio of 1 U.S. dol-lar: 125 Japanese yen: 2 deutsche mark equivalent(consisting of deutsche mark, Netherlands guilders,and Swiss francs). The currency amount disbursed isconverted into a U.S. dollar equivalent amount, usingthe applicable exchange rate on the day of disburse-ments. The U.S. dollar equivalent amount is thendivided by the pool unit value on the day of disburse-ment to determine the pool units disbursed. The poolunits are what the borrower will have to repay. Whenpool units are to be repaid, they are converted backinto the dollar equivalent amount using the prevailingpool unit value. Thus, the pool unit value may bethought of as an exchange rate used to convert theunits into their equivalent value in U.S. dollars, and itchanges daily in accordance with movements of theexchange rates of the currencies in the pool. The poolunit value is calculated by dividing the U.S. dollarequivalent of the currencies in the pool by the totalnumber of pool units outstanding. As the U.S. dollarappreciates relative to other currencies in the pool,the pool unit value decreases.

Classification

Currency pool loans of the borrowing economy areto be included in the gross external debt position.They should be classified as loans (other investmentin the IIP).

D

Deep-Discount Bond

A bond that has small interest payments and isissued at a considerable discount to its par value. Seealso Zero-Coupon Bonds.

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Classification

Deep-discount bonds owned by nonresidents are tobe included within the gross external debt position.They should be classified as long-term, bonds andnotes (portfolio investment, debt securities in theIIP) unless they have an original maturity of oneyear or less, in which instance they are to be classi-fied as money market instruments. Alternatively,depending on the relationship between debtor andcreditor, these securities could be classified as directinvestment, intercompany lending (see the descrip-tion of direct investment in Chapter 3).

Depository Receipts

A depository receipt allows a nonresident entity tointroduce its equity or debt into another market in aform more readily acceptable to the investors inthat market. A depository bank will purchase theunderlying foreign security and then issue receipts ina currency more acceptable to the investor. Theinvestor can exchange the depository receipts forthe underlying security at any time. See also Ameri-can Depository Receipts and Bearer DepositoryReceipts.

Classification

A depository receipt is classified according to thenature of the underlying instrument backing it. Thisis because the “issuing” intermediary does not takethe underlying security onto its balance sheet butsimply acts as a facilitator. So, the debtor is theissuer of the underlying security. If owned by non-residents, these instruments, if a debt security is theunderlying instrument, are to be included in thegross external debt position. They should be classi-fied as long-term, bonds and notes (portfolio invest-ment, debt securities in the IIP) unless they have anoriginal maturity of one year or less, in whichinstance they are to be classified as money marketinstruments. Alternatively, depending on the rela-tionship between debtor and creditor, these securi-ties could be classified as direct investment,intercompany lending (see the description of directinvestment in Chapter 3). If the underlying item is anequity investment, it should be classified in thememorandum item, equity liabilities. If the nonresi-dent is in a direct investment relationship with theissuer, then the equity is classified as Direct invest-ment in reporting economy: equity capital and rein-vested earnings in the memorandum item.

Deposits in Mutual Associations

Deposits in the form of shares or similar evidence ofdeposit issued by mutual associations such as sav-ings and loans, building societies, credit unions, andthe like are classified as bank deposits. See BankDeposits.

Classification

Deposits in mutual associations owned by nonresi-dents are to be included in the gross external debtposition. They should be classified as banks, short-term, currency and deposits (other investment in theIIP).

Dual-Currency Bonds

Dual-currency bonds are a group of debt securitieswhere the interest and/or principal payments differfrom the currency in which the bond is issued. Theissue of currency-linked bonds followed the devel-opment of the currency swap market that broadenedthe range of currencies in which international bondswere issued.

Classification

Dual-currency bonds owned by nonresidents are tobe included in the gross external debt position. Theyshould be classified as long-term, bonds and notes(portfolio investment, debt securities in the IIP)unless they have an original maturity of one year orless, in which instance they are to be classified asmoney market instruments. Alternatively, dependingon the relationship between debtor and creditor,these securities could be classified as direct invest-ment, intercompany lending (see the description ofdirect investment in Chapter 3).

E

Equity

Equity securities cover all instruments and recordsacknowledging, after the claims of all creditors havebeen met, claims to the residual values of incorpo-rated enterprises.

Classification

Equity securities are included in the memorandumitem, equity liabilities. If the nonresident is in a

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direct investment relationship with the issuer, thenthe equity is classified as Direct investment inreporting economy: equity capital and reinvestedearnings in the memorandum item.

Equity-Linked Bond

An equity-linked bond comprises features of bothdebt and equity. Equity-linked bonds are debt instru-ments that contain an option to purchase (either byconversion of existing debt or by exercising the rightto purchase) an equity stake in the issuer, its parent,or another company at a fixed price. These instru-ments are usually issued when stock market pricesare rising because companies can raise funds atlower than market interest rates while investorsreceive interest payments, and potentially lock intocapital gains.

Classification

Equity-linked bonds, if owned by nonresidents, areto be included in the gross external debt position.They should be classified as long-term, bonds andnotes (portfolio investment, debt securities inthe IIP) unless they have an original maturity ofone year or less, in which instance they are to beclassified as money market instruments. Alter-natively, depending on the relationship betweendebtor and creditor, these securities could be classi-fied as direct investment, intercompany lending(see the description of direct investment in Chap-ter 3). If the bonds are converted into equity,the debt is extinguished. The equity issued isrecorded in the memorandum item, equity lia-bilities. If the nonresident is in a direct investmentrelationship with the issuer, then the equity is clas-sified as Direct investment in reporting economy:equity capital and reinvested earnings in the memo-randum item. See also Equity Warrant Bond andWarrants.

Equity-Linked Derivatives

Derivatives whose value derives from equity prices.These include:• Equity future—traded on an organized exchange,

in which counterparties commit to buy or sell aspecified amount of an individual equity or a bas-ket of equities or an equity index at an agreed con-tract price on a specified date;

• Equity option—gives the purchaser the right butnot the obligation to purchase (call) or sell (put) aspecified amount of an individual equity or a bas-ket of equities or an equity index at an agreed con-tract price on or before a specified date; and

• Equity swap—in which one party exchanges a rateof return linked to an equity investment for the rateof return on another equity investment.

Net cash settlements are usually made.

Classification

Equity-linked derivatives in which the counterpartyis a nonresident are included indistinguishably in thememorandum item, financial derivatives.

Equity Warrant Bond (Debt-with-EquityWarrants)

Equity warrant bonds are debt securities that incor-porate warrants, which give the holder the option topurchase equity in the issuer, its parent company, oranother company during a predetermined period oron one particular date at a fixed contract price. Thewarrants are detachable and may be traded sepa-rately from the debt security. The exercise of theequity warrant will normally increase the total capi-tal funds of the issuer because the debt is notreplaced by equity but remains outstanding until thedate of its redemption. The issue of equity warrantbonds reduces the funding costs for borrowersbecause the investor will generally accept a loweryield in anticipation of the future profit to be gainedfrom exercising the warrant.

Classification

Because the warrant is detachable and may betraded separately from the debt security, thetwo instruments should be separately recorded.Bonds owned by nonresidents are to be included inthe gross external debt position. They shouldbe classified as long-term, bonds and notes (port-folio investment, debt securities in the IIP) unlessthey have an original maturity of one year or less,in which instance they are to be classified as moneymarket instruments. Alternatively, depending onthe relationship between debtor and creditor,these securities could be classified as direct invest-ment, intercompany lending (see the descrip-tion of direct investment in Chapter 3). Warrants

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owned by nonresidents are to be included indis-tinguishably in the memorandum item, financialderivatives.

F

Fixed-Rate Bond

A bond whose coupon payments remain unchangedfor the life of the bond or for a certain number ofyears. See also Variable-Rate Bond.

Classification

Fixed-rate bonds owned by nonresidents are to beincluded in the gross external debt position. Theyshould be classified as long-term, bonds and notes(portfolio investment, debt securities in the IIP)unless they have an original maturity of one year orless, in which instance they are to be classified asmoney market instruments. Alternatively, dependingon the relationship between debtor and creditor,these securities could be classified as direct invest-ment, intercompany lending (see the description ofdirect investment in Chapter 3).

Foreign Bonds

A foreign bond is a security issued by a nonresidentborrower in a domestic capital market, other than itsown, usually denominated in the currency of thatmarket. Issues are placed publicly or privately. Thesebonds generally adopt the characteristics of thedomestic market of the country in which they areissued, such as in terms of registration—bearer orregistered form—settlement, and coupon paymentarrangements. Common foreign bonds are Yankeebonds (U.S. market), Samurai bonds (Japan), andBulldog bonds (U.K.).

Classification

If the owner of the foreign bond is a nonresident, andthis is most likely given that the bonds are issued inforeign markets, the bonds are to be included in thegross external debt position. They should be classi-fied as long-term, bonds and notes (portfolio invest-ment, debt securities in the IIP) unless they have anoriginal maturity of one year or less, in whichinstance they are to be classified as money marketinstruments. Alternatively, depending on the rela-

tionship between debtor and creditor, these securi-ties could be classified as direct investment, inter-company lending (see the description of directinvestment in Chapter 3).

Foreign-Currency-Linked Derivatives

Derivatives whose value is linked to foreign cur-rency exchange rates. The most common foreign-currency-linked derivatives are:• Forward-type foreign exchange rate contracts,

under which currencies are sold or purchased foran agreed exchange rate on a specified day;

• Foreign exchange swaps, whereby there is an ini-tial exchange of foreign currencies and a simulta-neous forward purchase/sale of the samecurrencies;

• Cross-currency interest rate swaps, whereby—following an initial exchange of a specifiedamount of foreign currencies—cash flows relatedto interest and principal payments are exchangedaccording to a predetermined schedule; and

• Options that give the purchaser the right but notthe obligation to purchase or sell a specifiedamount of a foreign currency at an agreed contractprice on or before a specified date.

Classification

Foreign-currency-linked derivatives in which thecounterparty is a nonresident are included indistin-guishably in the memorandum item, financial deriv-atives.

Forward-Type Derivatives

A contract in which two counterparties commit toexchange an underlying item—real or financial—ina specified quantity, on a specified date, at an agreedcontract price or, in the specific example of a swapscontract, agree to exchange cash flows, determinedby reference to the price(s) of, say, currencies orinterest rates according to predetermined rules. Inessence, two counterparties are trading risk expo-sures of equal market value.

Classification

Forward-type derivatives in which the counterpartyis a nonresident are included in the memorandumitem, financial derivatives.

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G

Gold Swaps

A gold swap involves an exchange of gold for for-eign exchange deposits with an agreement that thetransaction be reversed at an agreed future date at anagreed gold price. The gold taker (cash provider)will not usually record the gold on its balance sheet,while the gold provider (cash taker) will not usuallyremove the gold from its balance sheet. In this man-ner, the transaction is analogous to a repurchaseagreement and should be recorded as a collateralizedloan. See Appendix II; see also Repurchase Agree-ments in Part 2 of this appendix.

Classification

For the cash taker, a gold swap is classified as a loan;so borrowing under a gold swap from a nonresidentis included within the gross external debt position.The debt should be classified as a loan (other invest-ment in the IIP).

I

Index-Linked Securities

Index-linked securities are debt instruments withcoupon and/or principal payments linked to com-modity prices, interest rates, stock exchange, orother price indices. The benefits to the issuer ofindexing include a reduction in interest costs if thedeal is targeted at a particular group of investors’requirements, and/or an ability to hedge an exposedposition in a particular market. The benefit toinvestors is in the ability to gain exposure to a widerange of markets (for example, foreign exchangeor property markets) without the same degree ofrisk that may be involved in investing in the mar-kets directly. Issues linked to a consumer priceindex also provide investors with protection againstinflation.

Classification

Index-linked securities owned by nonresidents are tobe included within the gross external debt position.They should be classified as long-term, bonds andnotes (portfolio investment, debt securities in theIIP) unless they have an original maturity of oneyear or less, in which instance they are to be classi-

fied as short-term, money market instruments. Alter-natively, depending on the relationship betweendebtor and creditor, these securities could be classi-fied as direct investment, intercompany lending (seethe description of direct investment in Chapter 3).When interest payments are index linked, the pay-ments are treated as interest. If the value of the prin-cipal is index linked, the issue price should berecorded as principal, and any subsequent change invalue due to indexation should be treated as an inter-est cost, and added to the value of the underlyinginstrument.

Interest-Rate-Linked Derivatives

Derivatives whose value is linked to interest rates.The most common are:• Interest rate swaps, which involve an exchange of

cash flows related to interest payments, orreceipts, on a notional amount of principal in onecurrency over a period of time;

• Forward rate agreements, in which a cash settle-ment is made by one party to another calculated bythe difference between a market interest rate of aspecified maturity in one currency on a specificdate and an agreed interest rate, times a notionalamount of principal that is never exchanged (if themarket rate is above the agreed rate, one party willagree to make a cash settlement to the other, andvice versa); and

• Interest rate options that give the purchaser theright to buy or sell a specified notional value at aspecified interest rate—the price traded is 100 lessthe agreed interest rate, with settlement based onthe difference between the market rate and thespecified rate times the notional value.

Classification

Interest-rate-linked derivatives in which the counter-party is a nonresident are included indistinguishablyin the memorandum item, financial derivatives.

L

Land Ownership

By convention, land can only be owned by residents.So if a nonresident purchases land, then a notionalresident entity is created on which the nonresidenthas a financial claim.

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Classification

The financial claim the nonresident has on thenotional resident entity is assumed to be a directinvestment equity investment, so the equity invest-ment is classified in the memorandum item, Directinvestment in reporting economy: equity capital andreinvested earnings.

Letters of Credit

Letters of credit provide a guarantee that funds willbe made available, but no financial liability existsuntil funds are actually advanced.

Classification

Because letters of credit are not debt instruments,they are not included within the gross external debtposition.

Loans

Loans comprise those financial assets createdthrough the direct lending of funds by a creditor to adebtor through an arrangement in which the lendereither receives no security evidencing the transactionor receives a nonnegotiable document or instrument.Included are loans to finance trade, other loans andadvances (including mortgages), use of IMF credit,and loans from the IMF. In addition, finance leasesand repurchase agreements are covered under loans.Loans may be payable in the domestic or foreigncurrency(s).

Classification

Loans extended by nonresidents to residents are tobe included in the gross external debt position asloans (other investment in the IIP). Alternatively,depending on the relationship between debtor andcreditor, the debt could be classified as direct invest-ment, intercompany lending (see the description ofdirect investment in Chapter 3).

M

Medium-Term Notes (MTNs)

These are debt instruments of usually one- to five-year maturity issued in bearer form under a programagreement through one or more dealers. Once a

program is set up, issues can be made quickly totake advantage of market conditions, with issuesstructured more closely to investors’ needs than inthe public bond markets. Typically, the MTNmarket is not as liquid as the international bondmarket, so issuers may have to pay a higher interestrate.

Classification

Medium-term notes owned by nonresidents are to beincluded within the gross external debt position.They should be classified as long-term, bonds andnotes (portfolio investment, debt securities in theIIP) unless they have an original maturity of oneyear or less, in which instance they are to be classi-fied as money market instruments. Alternatively,depending on the relationship between debtor andcreditor, these securities could be classified as directinvestment, intercompany lending (see the descrip-tion of direct investment in Chapter 3).

Military Debt

Loans and other credits extended for militarypurposes.

Classification

Military debt owed to nonresidents is to be includedin the gross external debt position, allocated by thenature of the debt instrument.

Miscellaneous Accounts Payable andReceivable

See Other Accounts Payable and Receivable.

Money Market Instruments

Money market instruments are debt securities thatgenerally give the owner the unconditional rightto receive a stated, fixed sum of money on a speci-fied date. These instruments usually are traded, at adiscount, in organized markets; the discount isdependent upon the interest rate and the timeremaining to maturity. Included are such instru-ments as treasury bills, commercial and financialpaper, banker’s acceptances, negotiable certificatesof deposit (with original maturities of one year orless), and short-term notes issued under noteissuance facilities.

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Classification

Money market instruments owned by nonresidentsare to be included in the gross external debt position.They should be classified as short-term, money mar-ket instruments (portfolio investment, debt securitiesin the IIP). Alternatively, depending on the relation-ship between debtor and creditor, these securitiescould be classified as direct investment, intercom-pany lending (see the description of direct invest-ment in Chapter 3).

Mortgage-Backed Securities

A mortgage-backed security is a form of asset-backed security. See Asset-Backed Securities.

Classification

Mortgage-backed securities owned by nonresidentsare to be included in the gross external debt position.They should be classified as long-term, bonds andnotes (portfolio investment, debt securities in the IIP).

Mutual Fund Shares

Mutual funds are financial institutions through whichinvestors pool their funds to invest in a diversifiedportfolio of securities. The shares in the fund pur-chased by individual investors represent an ownershipinterest in the pool of underlying assets—that is, theinvestors have an equity stake. Because professionalfund managers make the selection of assets, mutualfunds provide individual investors with an opportunityto invest in a diversified and professionally managedportfolio of securities without the need of detailedknowledge of the individual companies issuing thestocks and bonds. Usually, fund managers must ade-quately inform investors about the risks and expensesassociated with investment in specific funds.

Classification

Because nonresidents own mutual fund shares, theshares are equity investments to be included in thememorandum item, equity liabilities.

N

Nondeliverable Forward Contracts (NDFs)

A nondeliverable forward contract is a foreign cur-rency financial derivative instrument. An NDF dif-fers from a normal foreign currency forward contract

in that there is no physical settlement of two curren-cies at maturity. Rather, based on the movement oftwo currencies, a net cash settlement will be madeby one party to the other. NDFs are commonly usedto hedge local currency risks in emerging marketswhere local currencies are not freely convertible,where capital markets are small and undeveloped,and where there are restrictions on capital move-ments. Under these conditions, an NDF marketmight develop in an offshore financial center, withcontracts settled in major foreign currencies, such asthe U.S. dollar.

Classification

NDF contracts in which the counterparty is a nonres-ident are included indistinguishably in the memoran-dum item, financial derivatives.

Nonparticipating Preferred Shares

These are a type of preferred shares in which the pay-ment of a “dividend” (usually at a fixed rate) is calcu-lated according to a predetermined formula and notdetermined by the earnings of the issuer. In otherwords, the investor does not participate in the distrib-ution of profits to equity investors (if any), nor sharein any surplus on dissolution of the issuer. See alsoPreferred Shares and Participating Preferred Shares.

Classification

Nonparticipating preferred shares are debt instru-ments, and so if owned by a nonresident are to beincluded in the gross external debt position. Theyshould be classified as long-term, bonds and notes(portfolio investment, debt securities in the IIP)unless they have an original maturity of one year orless, in which instance they are to be classified asmoney market instruments. Alternatively, dependingon the relationship between debtor and creditor,these securities could be classified as direct invest-ment, intercompany lending (see the description ofdirect investment in Chapter 3).

Nontraded Debt

Debt instruments that are not usually traded or trad-able in organized and other financial markets.

Classification

Depends on the nature of the instrument.

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Note Issuance Facilities (NIFs) / RevolvingUnderwriting Facilities (RUFs)

A note issued under an NIF/RUF is a short-terminstrument issued under a legally binding medium-term facility—a form of revolving credit. A bank, orbanks, underwrite, for a fee, the issuance of thisthree- or six-month paper and may be called upon topurchase any unsold paper at each rollover date, orto provide standby credit facilities. The basic differ-ence between an NIF and an RUF is in the under-writing guarantee: under an RUF the underwritingbanks agree to provide loans should the issue fail,but under an NIF they could either lend or purchasethe outstanding notes. First developed in the early1980s, the market for NIFs grew substantially for ashort period in the mid-1980s. It was a potentiallyprofitable market for international banks at a timewhen the syndicated credits market was depressed,following the debt crisis of the early 1980s. By theearly 1990s, euro commercial paper (ECP), and euromedium-term notes (EMTNs) had become morepopular forms of finance.

Classification

Notes issued under an NIF/RUF that are owned by anonresident are to be included in the gross externaldebt position. They should be classified as short-term, money market instruments (portfolio invest-ment, debt securities in the IIP). This is because thecontractual maturity is less than one year’s maturity.Alternatively, depending on the relationship betweendebtor and creditor, these securities could be classi-fied as direct investment, intercompany lending (seethe description of direct investment in Chapter 3).

O

Operational Leases

Operational leases are arrangements in whichmachinery or equipment is rented out for specifiedperiods of time that are shorter than the totalexpected service lives of the machinery or equip-ment. Typically under an operational lease, thelessor normally maintains the stock of equipment ingood working order, and the equipment can be hiredon demand or at short notice; the equipment may berented out for varying periods of time; and the lessoris frequently responsible for the maintenance andrepair of the equipment as part of the service which

he provides to the lessee. Under an operational lease,ownership of the equipment does not change hands;rather, the lessor is regarded as providing a service tothe lessee, on a continuous basis.

Classification

Operational leases are not financial instruments, butrather the provision of a service, the cost of whichaccrues continuously. Any payments under an opera-tional lease are either classified as prepayments forservices—creating a trade credit claim on thelessor—or postpayments for services rendered—extinguishing a trade credit liability to the lessor.

Options

An option is a contract that gives the purchaser theright but not the obligation to buy (call) or sell (put)a specified underlying item—real or financial—at anagreed contract (strike) price on or before a specifieddate from the writer of the option.

Classification

Options owned by nonresidents are to be included inthe memorandum item, financial derivatives.

Other Accounts Payable and Receivable

Other accounts payable and receivable—see alsoTrade Credit—include amounts due in respect oftaxes, dividends, purchases and sales of securities,rent, wages and salaries, and social contributions.

Classification

Other accounts payable owed to nonresidents are tobe included in the gross external debt position. Theyshould be classified as other debt liabilities (otherinvestment in the IIP). Alternatively, depending onthe relationship between debtor and creditor, thesesecurities could be classified as direct investment,intercompany lending (see the description of directinvestment in Chapter 3).

P

Participating Preferred Shares

Also known as a participating preference share.These are a type of preferred share where the

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investor has some entitlement to a share in the prof-its or a share of any surplus on dissolution of theissuer (in addition to the fixed dividend paymentreceived). See also Preferred Shares and Nonpartici-pating Preferred Shares.

Classification

Because of the claim on the residual value of theissuer, participating preference shares are classifiedas equity instruments, and so are included in thememorandum item, equity liabilities. If the nonresi-dent is in a direct investment relationship with theissuer, then the equity is classified as Direct invest-ment in reporting economy: equity capital and rein-vested earnings in the memorandum item.

Permanent Interest-Bearing Shares (PIBS)

These are deferred shares issued by mutual soci-eties, which rank beneath ordinary shares (whichare more akin to deposits than equity in mutualsocieties) and all other liabilities (including subor-dinated debt) in the event of a dissolution of thesociety. They provide “permanent” capital. In theUnited Kingdom these instruments are non-profit-participating by regulatory requirement; rather,predetermined (but not necessarily fixed) interestcosts are payable, with the amounts to be paid notlinked to the issuer’s profits; interest costs are notto be paid if this would result in the society breach-ing capital adequacy guidelines and are noncumula-tive; but more PIBS can be issued in lieu of a cashdividend.

Classification

PIBS are debt instruments because they are a formof nonparticipating preferred share (defined as suchbecause the holders of the instruments do not partic-ipate in the profits of the society). PIBS owned bynonresidents are to be included within the grossexternal debt position. They should be classified aslong-term, bonds and notes (portfolio investment,debt securities in the IIP) unless they have an origi-nal maturity of one year or less, in which instancethey are to be classified as money market instru-ments. Alternatively, depending on the relationshipbetween debtor and creditor, these securities couldbe classified as direct investment, intercompanylending (see the description of direct investment inChapter 3).

Perpetual Floating-Rate Notes

A debt security whose coupon is refixed periodicallyon a refix date by reference to an independent inter-est rate index such as three-month LIBOR. Gener-ally, these instruments are issued by financialinstitutions, particularly banks, and are perpetual soas to replicate equity and qualify as tier-two capitalunder the Basel capital adequacy requirements.Investor demand for perpetual floating-rate notes hasbeen weak in recent years.

Classification

Despite the perpetual nature of these instruments,they are debt securities because the instruments givethe holder a contractually determined moneyincome. Perpetual floating-rate notes owned bynonresidents are to be included within the grossexternal debt position. They should be classified aslong-term, bonds and notes (portfolio investment,debt securities in the IIP) unless they have an origi-nal maturity of one year or less, in which instancethey are to be classified as money market instru-ments. Alternatively, depending on the relationshipbetween debtor and creditor, these securities couldbe classified as direct investment, intercompanylending (see the description of direct investment inChapter 3).

Preferred Shares

Also known as a preference share. Preferred sharesare a class of equity capital that rank ahead of com-mon equity in respect of dividends and distributionof assets upon dissolution of the incorporated enter-prise. Investors have little control over the decisionsof the company: voting rights are normally restrictedto situations where the rights attached to preferredshares are being considered for amendment. Pre-ferred shares are registered securities. Preferredshare issues typically pay a fixed-rate dividend pay-ment that is calculated according to a predeterminedformula, but some preferred shares participate in theprofits of the issuer.

Classification

Preferred shares are classified as equity securities ifthe shares are participating and debt securities if theshares are nonparticipating. See Nonparticipatingand Participating Preferred Shares for specific clas-sification requirements.

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Promissory Note

An unconditional promise to pay a certain sum ondemand on a specified due date. Promissory notesare widely used in international trade as a securemeans of payment. They are drawn up (issued) by animporter in favor of the exporter. When the latterendorses the note, provided the importer is credit-worthy, a promissory note is traded.

Classification

Promissory notes are money market instruments thatare claims on the issuer. If owned by nonresidents,promissory notes should be included in the grossexternal debt position. They should be classified asshort-term, money market instruments (portfolioinvestment, debt securities in the IIP) unless theyhave an original maturity over one year, in whichinstance they are to be classified as bonds and notes.Alternatively, depending on the relationship betweendebtor and creditor, these securities could be classi-fied as direct investment, intercompany lending (seethe description of direct investment in Chapter 3).

R

Reverse Security Transactions

See Appendix II.

S

Stripped Securities

Stripped securities are securities that have beentransformed from a principal amount with periodicinterest coupons into a series of zero-coupon bonds,with the range of maturities matching the couponpayment dates and the redemption date of the princi-pal amount. Strips can be created in two ways.Either the owner of the original security can ask thesettlement or clearing house in which the security isregistered to “create” strips from the original secu-rity, in which case the strips replace the originalsecurity and remain the direct obligation of theissuer of the security; or the owner of the originalsecurity can issue strips in its own name, “backed”by the original security, in which case the strips rep-resent new liabilities and are not the direct obligationof the issuer of the original security. Usually, short-term strips are bought by money managers as gov-

ernment bill or note substitutes; intermediate matu-rity strips will be purchased by investors who believethat the yield curve might become more positive.Whereas demand is strongest for the longer maturi-ties because these instruments have longer durationthan the original bonds and are leveraged invest-ments, a relatively small up-front payment gives theinvestor exposure to a larger nominal amount.

Classification

Stripped securities owned by a nonresident are to beincluded in the gross external debt position. Depend-ing on their maturity, a stripped security is to beclassified as either short-term, money market instru-ments (original maturity of one year or less) or long-term, bonds and notes (original maturity of over oneyear) (portfolio investment, debt securities in theIIP). Alternatively, depending on the relationshipbetween debtor and creditor, these securities couldbe classified as direct investment, intercompanylending (see the description of direct investment inChapter 3). The residence of the issuer depends onwho has issued the strips. If the owner of the originalsecurity issues the stripped bonds, then the residenceof the issuer is that of the entity issuing the strips;the underlying securities remain extant. If the stripsremain the direct obligation of the original issuer,then the issuer is the original issuer, and the strips“replace” the original securities that have beenstripped.

Structured Bonds

Structured bonds have characteristics that aredesigned to attract a certain type of investor and/ortake advantage of particular market circumstances.However, structuring securities to appeal to a partic-ular type of investor risks the possibility of a loss ofliquidity if the market moves in such a way as tomake the structured features of the issue no longerattractive. Typically the structured features areachieved through the use of derivatives—forinstance, a credit-linked note is a bond with anembedded credit derivative.

Classification

Structured bonds are debt instruments, and if ownedby a nonresident are to be included in the grossexternal debt position. They should be classified aslong-term, bonds and notes (portfolio investment,

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debt securities in the IIP) unless they have an origi-nal maturity of one year or less, in which instancethey are to be classified as money market instru-ments. Alternatively, depending on the relationshipbetween debtor and creditor, these securities couldbe classified as direct investment, intercompanylending (see the description of direct investment inChapter 3). Any embedded derivative is regarded asan integral part of the bond and not separately valuedand identified.

Structured Floating-Rate Notes

The structured floating-rate note is a variation of astandard variable-rate bond (that is, a long-dateddebt security whose coupon payment is reset period-ically by reference to an independent interest rateindex such as six-month LIBOR). The structuredissue includes a derivative that allows the couponcalculation to be tailored to meet investors’ interestrate expectations. For instance, there may be aninterest rate collar or band—the interest rate cannotincrease above an upper specified rate or fall below alower specified rate. The issue of structured floating-rate notes has grown as borrowers have used finan-cial derivatives to tailor financing products toinvestor demands while meeting their own fundingneeds.

Classification

Structured floating-rate notes are debt instruments,and if owned by a nonresident are to be included inthe gross external debt position. They should beclassified as long-term, bonds and notes (portfolioinvestment, debt securities in the IIP) unless theyhave an original maturity of one year or less, inwhich instance they are to be classified as moneymarket instruments. Alternatively, depending on therelationship between debtor and creditor, these secu-rities could be classified as direct investment, inter-company lending (see the description of directinvestment in Chapter 3). Any embedded derivativeis regarded as an integral part of the note and notseparately valued and identified.

Swaps

A forward-type financial derivative contract inwhich two counterparties agree to exchange cashflows determined with reference to prices of, say,currencies or interest rates, according to predeter-

mined rules. At inception, this instrument typicallyhas zero market value, but as market prices changethe swap acquires value.

Classification

Swaps in which the counterparty is a nonresidentare included in the memorandum item, financialderivatives.

T

Total Return Swap

A credit derivative that swaps the total return on afinancial instrument, cash flows and capital gainsand losses, for a guaranteed interest rate, such as aninterbank rate, plus a margin.

Classification

Total return swaps in which the counterparty is anonresident are included in the memorandum item,financial derivatives.

Trade Credit

Trade credits consist of claims and liabilities arisingfrom the direct extension of credit by suppliers fortransactions in goods and services, and advance pay-ments by buyers for goods and services and for workin progress (or to be undertaken). The direct exten-sion of trade credit by buyers arises when theyprepay for goods and services; the debt is extin-guished when the supplier provides the goods and/orservices.

Classification

Trade credit owed to nonresidents is to be included inthe gross external debt position. Such credit shouldbe classified as trade credit (other investment in theIIP). Alternatively, depending on the relationshipbetween debtor and creditor, the credit could be clas-sified as direct investment, intercompany lending (seethe description of direct investment in Chapter 3).1993 SNA regards trade credit as a form of accountspayable/receivable (1993 SNA, paragraph 11.100).

Treasury Bills

A common form of sovereign short-term debt; manygovernments of the world issue treasury bills. Typi-

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cally issued through the central bank with maturitiesranging from four weeks to two years, they are typi-cally issued at a discount to face value and areredeemed at par.

Classification

Treasury bills are debt instruments, and so if ownedby a nonresident are to be included in the grossexternal debt position. These bills should be classi-fied as short-term, money market instruments (port-folio investment, debt securities in the IIP) unlessthey have an original maturity of more than one year,in which instance they are to be classified as longterm, bonds and notes.

U

Use of IMF Credit and Loans

These comprise members’ drawings on the IMFother than those drawn against the country’s reservetranche position. Use of IMF credit and loansincludes purchases and drawings under Stand-By,Extended, Structural Adjustment, Enhanced Struc-tural Adjustment, and Systemic TransformationFacility Arrangements, together with Trust Fundloans.

Classification

Use of IMF credit and loans is to be included in thegross external debt position as monetary authorities,loans (other investment in the IIP). Because of theparticular accounting procedures of the IMF, the useof IMF credit might be considered to have some ofthe characteristics of a swap of currencies. However,since the IMF has lent in SDR terms, with paymentsin SDR terms, at an interest rate that is SDR-related,the recommended classification reflects the eco-nomic nature of the transaction—a loan.

V

Variable-Rate Bond

A bond whose interest payments are linked to a ref-erence index (for example, LIBOR), or the price of aspecific commodity, or the price of a specific finan-cial instrument that normally changes over time in acontinuous manner in response to market pressures.

Classification

Variable-rate bonds owned by nonresidents are to beincluded in the gross external debt position. Theyshould be classified as long-term, bonds and notes(portfolio investment, debt securities in the IIP)unless they have an original maturity of one year orless, in which instance they are to be classified asmoney market instruments. Alternatively, dependingon the relationship between debtor and creditor,these securities could be classified as direct invest-ment, intercompany lending (see the description ofdirect investment in Chapter 3).

Variable-Rate Notes (VRNs)

These securities adopted the standard characteristicsof a variable-rate bond. However, whereas a standardcharacteristic of a variable-rate bond is that it carriesa fixed spread over a referral index, the spread overLIBOR on a VRN varies over time depending on thechange in the perceived credit risk of the issuer. Thespread is reset at each rollover date—normally everythree months—by means of negotiation between theissuer and arranging house. VRNs are usually issuedwith no maturity date (perpetual VRNs) but fixedfive-year and longer-dated issues are in existence.VRNs generally have a put option for the existingholders of notes to sell the issue back to the leadmanager of the issuing syndicate, at par, at any inter-est payment date.

Classification

VRNs owned by nonresidents are to be included inthe gross external debt position. They should be clas-sified as long-term, bonds and notes (portfolio invest-ment, debt securities in the IIP) unless they have anoriginal maturity of one year or less, in whichinstance they are to be classified as money marketinstruments. Alternatively, depending on the relation-ship between debtor and creditor, these securitiescould be classified as direct investment, intercom-pany lending (see the description of direct investmentin Chapter 3). The put option, embedded in theinstrument, is not valued and classified separately.

W

Warrants

Warrants are a form of financial derivative giving theowner the right but not the obligation to purchase or

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sell from the issuer of the warrant a fixed amount ofan underlying asset, such as equities and bonds, at anagreed contract price for a specified period of timeor on a specified date. Although similar to tradedoptions, a distinguishing factor is that the exercise ofthe warrants can create new securities, thus dilutingthe capital of existing bond or shareholders, whereastraded options typically grant rights over assets thatare already available. Warrants can be issued in theirown right or with equity or bonds to make the under-lying issue more attractive. They can be quoted andtraded separately in the secondary market.

Classification

Warrants owned by nonresidents are to be includedin the memorandum item, financial derivatives.

Z

Zero-Coupon Bonds

A single-payment security that does not involveinterest payments during the life of the bond. Thebond is sold at a discount from par value, and the fullreturn is paid at maturity. The difference between thediscounted issue price and the face or redemptionvalue reflects the market rate of interest at the timeof issue and time to maturity. The longer the matu-rity of the bond and the higher the interest rate, thegreater the discount against the face or redemptionvalue. Zero-coupon, and deep-discount bonds, havefour particular advantages for investors:• There may be some tax advantage in receiving a

capital gain rather than an income payment;• There is no or little (deep-discount bond) reinvest-

ment risk (the possibility that when coupon pay-ments fall due, and need to be reinvested, interestrates will be lower);

• The bond has a longer “duration” than a bond ofcomparable maturity that pays fixed- or variable-rate interest, so making the zero-coupon bond’sprice more sensitive to interest rate changes; and

• A zero-coupon bond is a leveraged investment inthat a relatively small initial outlay gives exposureto a larger nominal amount.

See also Deep-Discount Bond.

Classification

Zero-coupon bonds owned by nonresidents are to beincluded in the gross external debt position. They

should be classified as long-term, bonds and notes(portfolio investment, debt securities in the IIP)unless they have an original maturity of one year orless, in which instance they are to be classified asmoney market instruments. Alternatively, dependingon the relationship between debtor and creditor,these securities could be classified as direct invest-ment, intercompany lending (see the description ofdirect investment in Chapter 3).

Part 2. Classification of SpecificTransactions

This section discusses the classification treatmentwithin the gross external debt position of specifictransactions.

Arrears: When Should They Be Recorded?

Arrears should be recorded from the day after arequired payment has not been made. It is recognizedthat, in some instances, arrears arise for operationalreasons rather than a reluctance or inability to pay.Nonetheless, in principle such arrears when outstand-ing at the reference date should be recorded as arrears.

Collateralization of External Debt

To provide additional assurance to the creditor, thedebtor may set aside either financial assets or futurestreams of income as collateral for the debt incurred.In other words, payments on the debt might be“backed” by future export earnings, such as receiptsfrom petroleum sales, or the creditor may have aclaim on certain financial assets held with third par-ties if the debtor defaults. Alternatively, the debtormight invest funds in a zero-coupon instrument thatat maturity will equal the value of the principal debtincurred, which is then due for repayment. In allcases, external debt should be recorded gross—thatis, separately from the collateral. For instance, wherethe debtor has invested funds in a zero-coupon bond,both the external debt and the zero-coupon bond arerecorded on a gross basis, the zero-coupon bondbeing an asset of the debtor. Also, when debt is con-tractually to be serviced by an income source of thedebtor (for example, future export earnings), thedebtor continues to record the receipt of income andthe payment of principal and/or interest even if theincome is passed directly from “source” (for exam-ple, the purchaser of the exports) to the account of

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the creditor, without directly involving the debtor.There may well be analytical interest in informationon the value of external debt that has been collateral-ized, and in the type of financial asset or incomestream used to back the external debt.

Consignment Trade

No debt is created for goods on consignment—thatis, goods intended for sale but not actually sold at thetime of crossing a frontier—because ownership ofthe goods has not changed hands.

Defeasement

Defeasance is a technique by which a debtor unitremoves liabilities from its balance sheet by pairingthem with financial assets, the income and value ofwhich are sufficient to ensure that all debt servicepayments are met. Defeasance may be carried out byplacing the paired assets and liabilities in a separateaccount within the institutional unit concerned or bytransferring them to another unit. The Guide doesnot recognize defeasance as affecting the outstand-ing debt of the debtor as long as there has been nochange in the legal obligations of the debtor. In otherwords, provided the payment obligations remain dejure with the original debtor, ownership of the liabil-ities remains unchanged, and should be reported asexternal debt of the original debtor.

Financial Leases: Treatment of Residual Values

As explained in Chapter 3, under a financial lease,ownership of the underlying item is considered tohave changed hands because the risks and rewards ofownership have, de facto, been transferred from thelegal owner to the user; this de facto change of own-ership is financed by a financial claim, which is theasset of the lessor and a liability of the lessee. How-ever, even though the rentals may enable the lessorover the period of the contract to recover most of thecosts of goods and the carrying charges, there maybe a residual amount. The lessee may have an optionto pay the residual value to gain legal ownership ofthe underlying item. How should the residualamount be recorded?

The residual amount is part of the debt obligationthat arises when the goods are assumed to havechanged ownership. In other words, under statisticalconvention, the debt at the inception of the lease isdefined as the full value of the good, inclusive of the

residual amount. This debt obligation is recorded asa loan. The loan liability arising from the residualvalue is extinguished either when the goods arereturned or when a payment is made and legal own-ership changes hands. The IMF’s Balance of Pay-ments Textbook (IMF, 1996, page 126) provides anexample of the circumstance in which there is a finalresidual payment.

This issue also raises the question of whether thereis a point at which the residual value is such a largepercentage of the total value of the goods that thelease should be regarded as operational and notfinancial. There is no firm percentage; rather, thesearrangements are determined more by their nature.When a lease is a financial arrangement, it is usu-ally evident from the roles and obligations of thetransactors—for example, the lessee is responsiblefor repairs and maintenance, and the lessor is afinancial institution, etc.

Fundamental to the assumption of a change of own-ership is the idea that, de facto, the lessee assumesthe risks and rewards of ownership from the legalowner. But if there is option rather than agreement topurchase the residual value, or if it is agreed that thelessee will pay a market price for the residualamount, the greater the percentage size of the resid-ual amount at inception, the more diminished theextent to which the de facto risks and rewards ofownership can be said to have changed hands.

Guaranteed External Debt

The provision by one institutional unit of a guaran-tee to make future debt-service payments to a non-resident creditor if certain conditions are met, suchas a default by the debtor, does not negate the claimthe creditor has on the debtor. Thus, the debtor onwhom the nonresident creditor has a claim, and notthe guarantor, should record an external debt liabil-ity, unless and until the guarantor assumes the exter-nal debt. Chapter 8 provides guidance on theclassification of debt assumption.

Islamic Banking2

Activities of Islamic financial institutions differfrom those of standard commercial depository cor-

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2Islamic banking is described in detail in Appendix 2 of theIMF’s Monetary and Financial Statistics Manual (IMF, 2000d).


porations in that predetermined interest on financialtransactions is prohibited. As is evident from the def-inition of external debt in Chapter 2, the nonpaymentof interest on liabilities does not in itself precludeinstruments from being classified as external debt.The classification of Islamic banking instruments asexternal debt, or not, can be determined by the fol-lowing general guidance.

Islamic instruments—deposits include conventionaland transferable deposits, such as Amanah and Qard-hasan deposits—as well as various investment par-ticipation certificates that are not investments in thepermanent capital of a financial institution and donot have the characteristics of tradable securities.

Islamic instruments—debt securities consist of vari-ous investment participation certificates that havethe characteristics of tradable securities and are notpermanent capital of an institutional unit. Includedin this category are the most tradable investmentcertificates recorded as liabilities of a financialcorporation.

Islamic instruments—loans cover arrangements inwhich a financial institution makes prepayments forclients, finances ventures or trade, or supplies work-ing capital to clients. The arrangements may includeshort-term or other partnerships in which a financialinstitution is not making permanent, equity-typeinvestments.

Nonlife Insurance

For nonlife insurance the following transactionsresult in external debt:• Any prepayments of premiums by nonresidents

are classified as external debt of the insurancecompany, under other debt liabilities.

• Reserves that are held against outstanding claimsof nonresidents—that is, claims that have arisenbecause an event has occurred that results in avalid claim—are also external debt of the insur-ance company. Again, these reserves are includedin other debt liabilities.

Nonresident Deposits

Because of exchange control or other restrictions,nonresident deposits in domestic banks may not betransferable out of the economy. Such restrictionsmay be introduced after the deposits have been

made or may have been established when theaccounts were opened. All such nonresident depositclaims on resident banks should be classified asexternal debt. Nonetheless, if the amounts are sig-nificant and are of analytical interest in their ownright, it is recommended that additional informationbe provided.

On-Lending of Borrowed Funds

An institutional unit within an economy might bor-row funds from a nonresident(s) and then on-lendthe funds to a second institutional unit within theeconomy. In such instances, the first institutionalunit—that is, the institutional unit that borrowedfrom the nonresident(s)—should record an externaldebt liability, with any subsequent on-lending classi-fied as a domestic claim/liability. As set out in Chap-ter 2, the decisive consideration is whether thecreditor has a claim on the debtor, and in this exam-ple the nonresident creditor has a claim on the firstinstitutional unit.

If an institutional unit within an economy borrowedfrom a nonresident(s) and on-lent the funds to a non-resident, the unit should record both external debtand an external claim. The nonresident borrowerwould also record an external debt liability in thateconomy’s measure of external debt.

Part-Payments for Capital Goods

For capital goods with long delivery periods, such asships, the purchaser may make part-payments to thebuilder or exporter while the good is being pro-duced. These part-payments should be recorded astrade credit debt of the exporter. The debt is extin-guished when the purchaser takes delivery of thegood.

Penalties Arising from Commercial Contracts

Under the terms of a commercial contract, one party(resident) may be required to compensate anotherparty (nonresident) (that is, pay a penalty) in theevent of the first party failing to meet its obligations,or some of its obligations, under the contract. Oncethe penalty is owed and until it is paid to the nonres-ident, it is external debt, and recorded under otherdebt liabilities. The debt should be recorded from thetime when the resident becomes liable under thecontract for the penalty.

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Prepayments of Goods and Services

When an importer makes a prepayment to anexporter for goods and services, the exporter has aliability to the importer that remains outstanding untilownership of the goods changes hands or the serviceis provided. Similarly, when an importer makes apostpayment some time after he acquires goods orservices, the importer has a liability to the exporterthat remains outstanding until the postpayment ismade. These liabilities should be recorded as debt lia-bilities because future payments are required; in thecase of the prepayment, the principal amount out-standing is repaid in goods or in a service provided,whereas in the case of the postpayment, it is likelythat a financial payment will be made, although in theinstance of barter, goods or services may be providedto extinguish the debt. Unless the prepayment is formore than one year hence, these debt liabilitiesshould be recorded as short term, trade credit. Also,unless the agreed date for payment is past, neither theprepayment nor postpayment of goods and servicesshould be recorded as arrears.

Processing of Goods

In BPM5, when goods are exported across a borderfor processing with the intention that the processedgoods are returned to the exporting economy, agoods transaction should be recorded in the balanceof payments—an import of the processing economyfrom the original economy. In such circumstances, acorresponding financial liability is established andrecorded as external debt under trade credit. Whenthe processed good is returned, the financial liabilityis extinguished. If the amounts are significant, it isrecommended that such trade credit be separatelyidentified (as is recommended in the trade accountof the balance of payments).

Project Loans: Disbursements

Disbursements of project loans can take the form of• Advances to the borrowing entity—disbursements

are to be recorded when the lender advances fundsto the borrower;

• Direct payment by the lender to suppliers of goodsand services—disbursements are to be recordedwhen the lender pays the supplier; and

• On a reimbursement basis after the borrower hasalready paid the suppliers—disbursements are tobe recorded when the lender makes reimburse-ments to the borrower.

Public Investment Projects

Public investment projects involve the constructionand operation by private corporations of assets of akind that are usually the responsibility of the generalgovernment sector, or public corporations. Thesecommonly include, for example, roads, bridges,water supply and sewerage treatment works, hospi-tals, prison facilities, electricity generation and dis-tribution facilities, and pipelines. In many suchinstances, such transactions are likely to be classi-fied as resident to resident, particularly if the privatecorporation creates a separate unit to constructand/or operate the asset (although in such instancesthat unit may incur external debt liabilities to itsnonresident parent, which need to be recorded). Butif the private sector corporation is a nonresident, theclassification of the transactions as external debtdepends on the nature of the arrangement:• Where an asset is constructed by a corporation and

transferred to government on completion, any pre-payments by the government are claims on a non-resident enterprise—that is, external debt of theprivate nonresident corporation. If the governmentonly pays on completion and needs to borrowabroad to finance this purchase, then the govern-ment will incur external debt when it borrows.

• Where there are lease arrangements between thegovernment and corporation, these are classifiedin the normal way as operating or finance leases,and hence external debt or not, depending onwhether the government or corporation gains mostof the risks and benefits of ownership as a result ofthe contracts entered into. For instance, if the pri-vate corporation continues to own the asset butwill transfer ownership to the government at alater date, and in the meantime the governmentmakes payments both to cover the costs of operat-ing the asset and to meet the financing costs, thena finance lease, and hence external debt, arises forthe government and should be recorded as such.

As with all finance leases, at the time of effectivechange of ownership, the market value of the good isrecorded and represents the external debt of the gov-ernment. The payments to be made need to be sepa-rated into operating and financing costs. If a marketvalue is available, the total amount paid in financingcosts over the life of the lease in relation to that pricewill determine the implicit rate of interest on theloan. Otherwise, the financing costs discounted by arepresentative interest rate of the government—thepresent value of the finance payments—could repre-

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sent the market value of the asset in the absence ofother information, and generate data on the futureinterest and principal payments—Appendix toChapter 2, examples 1 and 2, provides calculationsthat illustrate the principles involved.

Reinsurance

Positions arising from reinsurance are treated in thesame way as those arising from insurance.

For reinsurance relating to life insurance, any techni-cal reserves held by insurance companies that areassets of nonresident policyholders are external debtof the insurance company. As with claims of house-holds in life insurance companies, any such externaldebt should be included under other debt liabilitiesin the gross external debt position.

For nonlife insurance, prepayment of premiums bynonresidents, and reserves held against claims ofnonresidents that have arisen, are also external debt.In both instances, any such external debt is includedunder other debt liabilities (see also Nonlife Insur-ance, above).

Repurchase Agreements: Delay in Returningthe Security

If the security taker fails to return the security to thesecurity provider, then the recording treatmentdepends on whether the failure is simply a delay or

whether there is a default. If the failure is due to adelay (for example, the result of another party in thechain of repo securities being unable to access thespecific security at that particular date), it has noimpact on the gross external debt position, althoughin line with common market practice the securityprovider may retain the funds without paying anyinterest. If there is a default, usually under the termsof the reverse agreement the security provider’s loanliability to the security taker is extinguished—thesecurity taker no longer has a claim on the securityprovider. If the security provider defaults on return-ing the cash, then the security provider’s securityholdings fall, and those of the security takerincrease, and the loan is extinguished. In eitherevent, because the security provided is likely to be ofgreater value than the cash provided, residual claimsmay still continue to exist.

The Value of Debt After Consolidation IsGreater Than the Value of the ConsolidatedDebts Combined

If the terms of a loan are changed, a new contract iscreated. Thus, if two or more old debts are consoli-dated into one debt, the new debt replaces the two ormore old debts and is classified by type of instru-ment (loan, security, etc.). If the total value of thenew debt is greater than the old debts combined—forexample, because of extra charges arising fromrescheduling—the gross external debt positionincreases.

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1. A reverse securities transaction is defined in theGuide to include all arrangements whereby oneparty legally acquires securities and agrees, under alegal agreement at inception, to return the same orequivalent securities on or by an agreed date to thesame party from whom the securities were acquiredinitially. These arrangements are known as repur-chase agreements (repos), securities lending, andsell-/buybacks.1 Where cash is involved, the eco-nomic nature of the agreement is similar to that of acollateralized loan in that the purchaser of the secu-rity is providing funds collateralized by the securi-ties to the seller for the period of the agreement andis receiving a return from these funds through theagreed fixed price at which the securities are resoldwhen the agreement is reversed.

2. As outlined in Chapter 3, securities that are pro-vided under a reverse securities transaction arereported as remaining on the balance sheet of thesecurity provider. If the security taker sells outrightthese securities so acquired, the security taker reportsa negative (or “short”) position in the security.

3. This appendix provides some background infor-mation on reverse security transactions and someexamples of how these positions should be recordedin the gross external debt position.

What Are These Instruments?

Repurchase Agreements (Repos)

4. Under a repo, securities are provided for cash witha commitment by the seller (security provider) to

repurchase the same or similar securities for cash at afixed price on a specified future date. The securitytaker views the transaction as a reverse repo. Thesecurity taker earns interest on the cash advancedthrough the difference between the selling and buyingrates for the securities; interest is related to the currentinterbank rate and not that of the security being“repoed.”2 Full, unfettered ownership passes to thesecurity taker, who can on-sell the security, but themarket risk—the benefits (and risks) of ownership(such as the right to holding gains—and losses)—remains with the security provider, who also receivesthe property/investment income attached to the secu-rity, albeit from the security taker rather than the secu-rity issuer. Originally, it was intended that the securitytaker’s right to on-sell would be invoked only in theevent of a default by the security provider, but as themarket has developed, the right to on-sell at the secu-rity taker’s option has become commonplace.

5. Repos are actively used in international financialmarkets. They often have a very short overnightmaturity, but are also for longer maturities (some-times up to several weeks), or have an “open” matu-rity (that is, the parties agree daily to renew orterminate the agreement). Several different types ofinstitutions are involved. Most commonly, financialinstitutions transact with other financial institutions,both domestic and nonresident, and central bankswith domestic financial institutions and other centralbanks. However, nonfinancial enterprises and gov-ernments may also use repos.

6. Repos are undertaken for a variety of reasons:• To finance security purchases—that is, the secu-

rity provider acquires a security outright and thensells it under a repo to help finance the position;

Appendix II. Reverse Security Transactions

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1Sell-/buybacks are the same as repos in economic effect, but areless sophisticated operationally. If the seller acquires an optionrather than an obligation to buy back the security, the arrange-ment is sometimes called a spurious repurchase agreement. Sucha transaction is not considered to be a reverse security transactionin the Guide.

2In the event that a coupon payment is made during the life of therepo, this is taken into account when determining the funds to berepaid. However, market participants endeavor to avoid such a sit-uation if possible.

Appendix II • Reverse Security Transactions

• To increase liquidity by raising funds while retain-ing exposure to market price movements in thesecurity—that is, the security provider may want alonger-term position in the security but may alsorequire cash in the short term;

• To acquire securities in order to cover a negative(or “short”) position—that is, the security takertakes a negative position in the security, thus bene-fiting from market price declines;

• To take leverage positions in securities through aprogram of buying securities, repoing them out,purchasing more securities with the cash acquiredand so on, with only the requirement for marginslimiting this activity—that is, the security providercreates a large positive exposure to movements inthe price of the securities without having to fullyfund this exposure with own funds;

• Central banks use repos as an operational tool toease or drain liquidity in the domestic financialmarkets—in many countries, the repo rate (the ratepaid by the borrower in a repo transaction) is thebenchmark rate for central bank market lending.

7. Chains of repos and reverse repos are commonpractice in financial markets as highly creditworthymarket players raise funds at lower rates than theyare able to on-lend. In this manner, the repo marketis part of broader financial intermediation activity.3

The development of repo markets can increase theliquidity of a money market while, at the sametime, deepening the market for the underlyingsecurities used (frequently government securities,but not necessarily), leading to finer borrowingrates both for money market participants andgovernments.

8. Usually, the security provider in a repo is the ini-tiator of the transaction, which tends to place thesecurity taker in a slightly stronger negotiating posi-tion. These are called “cash-driven” repos. In thesecircumstances, the security provider is not requiredto provide a specific security—a list of acceptablesecurities is generally available. Frequently, substi-tution of the security is permitted during the life ofthe repo—that is, the security provider may wish toaccess the security repoed and so usually is permit-

ted to do so by substituting it for another of equalquality (generally, one on the list of acceptablesecurities). The right to substitute securities willusually affect the rate of interest charged on therepo.

9. In certain circumstances, one party may haveneed for a specific type of security. These transac-tions are known as “securities-driven” repos. Theyresult when a particular security goes “special”—that is, is in very high demand and there is insuf-ficient supply to meet commitments. In thesecircumstances, cash is provided as collateral(noncash collateral is discussed under SecuritiesLending, below) and the security provider is in astronger bargaining position. In essence, whena security-driven transaction takes place, thesecurity provider is prepared to accept cash in returnfor the security “lent,” provided that the providercan be compensated for the risk of lending byobtaining a sufficient spread between the interest tobe paid on the cash received and what can be earnedin the money market. In extreme cases, when thesecurity may be unavailable from any other source,the interest rate on the cash received may fall tozero.

10. Whether a transaction is cash-driven or securi-ties-driven will affect which party pays margin. Mar-gin payments provide one party with collateral ofgreater market value than the instrument being pro-vided—the term “haircut” is sometimes used todescribe this difference. Margin payments may bemade at the outset—known as initial margins—andduring the life of a repo—known as variation mar-gin.4 As the market value of the collateral falls, sovariation margin is paid, restoring the margin to itsoriginal market value. If the transaction is cash-driven, the security provider will provide the margin;if the transaction is securities-driven, the securitytaker will provide the margin. Margin may be cashor securities.

11. Market and credit risk affect the amount of mar-gin provided. The market risk is that of the underly-ing security—the more variable the market price ofthe security, the greater the margin; the credit risk isthat of the two counterparties to the repo to eachother—the greater the perceived credit risk of the

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3Repo market players may have matched or unmatched books: ina matched book, maturities of all repos out are the same as thosefor repos in; in an unmatched book, the maturities differ, in whichcase the market player is speculating on movements in the yieldcurve. 4Sale-/buybacks do not have margin payments.


margin provider, the higher the margin. In bothinstances, the higher margin protects the margintaker against the higher probability of adverse devel-opments. Because each party at the inception of arepo is equally exposed to risk, in many developedfinancial markets, initial margin may not be requiredif the credit standing is approximately equal (mone-tary authorities usually ask for initial margin andrarely, if ever, pay initial margin), but variation mar-gin is usually provided when the market price of thesecurity falls. On the other hand, when the value ofthe security rises, the security taker may or may notreturn part of the security’s value as a “reverse varia-tion margin,” depending on the market’s practices inany given country. In less developed capital markets,and depending on the depth and price volatility ofthe market of the security underlying the repo, initialmargins of substantially more (possibly up to 25 per-cent) than the value of the cash provided may berequired.

12. The legal and market arrangements for repos,including the payments of margin (whether initialor variation), the ability to substitute securities,and the retention of market risk by the securityprovider, support the view that repos are classifiedas loans, with the security remaining on the balancesheet of the security provider. This is certainly theway repos are viewed by market participants. Onthe other hand, given the change of ownership ofthe security, some argue that a security transac-tion should be recorded—the security provider nolonger has a legal claim on the security issuer.In Chapter 4 a memorandum table to the grossexternal debt position is provided that can be usedto present data on resident-issued debt securitiesthat residents (1) provided to and (2) acquired fromnonresidents under outstanding reverse transactions,including repo agreements. This table helps intracking the change of ownership of these debtsecurities between residents and nonresidents and,more generally, the positions acquired under reversetransactions.

Securities Lending

13. Under a securities lending agreement, securi-ties are provided under a legal agreement thatrequires the security taker to return the same or sim-ilar securities on or by an agreed date to the sameparty from whom the securities were acquired ini-tially. No cash is provided by the security taker to

the security provider in return for the acquisitionof the securities, although a fee may be paid bythe security taker and collateral provided (as in theform of other securities). If cash collateral isprovided, the transaction has the same economicimpact as a repo.

14. As with repos, full, unfettered ownership passesto the security taker, who can on-sell the security,but the market risk—the benefits (and risks) ofownership (such as the right to holding gains—andlosses)—remains with the original owner of thesecurity, who also receives the property/investmentincome attached to the security, albeit from thesecurity taker rather than the security issuer.Because securities lending is a securities-drivenactivity, so the security taker initiates the tran-saction, which means that the bargaining advantagelies with the “lender” of the security. The level ofthe fee charged depends on the availability ofthe security. The payment may be made at inceptionor at the closeout of the contract. In most cases,the original security owner considers the arrange-ments to be temporary and does not remove thesecurities or include the collateral on its balancesheet, since the owner retains the rights to any divi-dends or interest while the securities are on loan,albeit from the security taker rather than the secu-rity issuer.5

15. Security loans are actively used in financialmarkets. In many cases, the transfer of securitiesbetween holders is conducted by security deposito-ries. The security owner will provide the depositorywith the general right to on-lend the securities sub-ject to certain legal safeguards. As a consequence,frequently the owner of the security will be unawarethat the security it owns has been sold under a secu-rities loan agreement.

16. The primary purposes of securities lending are:• For the security taker, the security is acquired in

order to meet a commitment to sell the security—that is, to cover a negative (or “short”) position.

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5In instances where equities are loaned, the period of the loan usu-ally avoids coinciding with a shareholders’ meeting, or any otherinstance where voting rights are required to be exercised (such asfor a takeover bid). However, it is not always possible to knowwhen these situations will arise, and the arrangements usually per-mit the return of the equities to the original owner in suchcircumstances.

Appendix II • Reverse Security Transactions

The security taker can take leverage positions byselling securities it does not own and then cover-ing the position with securities acquired undersecurities loans.

• For the security provider, the fee paid by the secu-rity taker generates income—the owner has along-term position in the security, but through asecurities loan earns additional income.

• The depository can earn extra fee income, whichmight be partially passed on to the security ownerthrough lower custodial fees. The depository ismore likely to be able to manage the collateralprovided by the security taker than the securityowner, who, in return for allowing securities to belent, may pay lower custodial fees and not havethe responsibility of managing the collateralprovided.

17. Like repos, chains of securities lending can beestablished whereby brokers successively on-lendsecurities to brokers, dealers, or other parties. Thelending chains are reversed when the securities arereturned. Securities lending involves securities thatmay be issued by residents or nonresidents, by gov-ernments or by corporations, and can be either equi-ties or debt instruments. Securities lending increasesliquidity in the securities market as well as thetimeliness of some trade settlements—especiallyfor securities that trade infrequently or in smallvolume.

18. The securities taker will usually provide collat-eral in the form of other securities of equal or greatervalue to the securities “lent,” providing initial mar-gin, although in some instances no collateral is pro-vided. If cash collateral is provided, the transactionhas the same economic impact as a repo (discussedabove). If the market value of securities placed ascollateral falls relative to the value of the securities“loaned,” the securities taker is usually required toplace variation margin, to restore the relative posi-tion. If the value of the securities placed as collateralincreases, the securities provider may or may not berequired to return part of the collateral, depending oncountry practice.

19. Because of the requirement for the securities tobe returned, the payments of margin, the retentionby the original security owner of the market risks of

the securities, and the right to receive incomepayments on the security, securities lent under secu-rity loans remain on the balance sheet of the origi-nal owner. If a security taker sells the securityacquired under a security loan, a negative (or“short”) position is recorded in the security, reflect-ing the obligation to return the security to the secu-rity provider. As noted above, Chapter 4 provides amemorandum table to the gross external debt posi-tion that can be used to present data on resident-issued debt securities that residents (1) provided toand (2) acquired from nonresidents under outstand-ing reverse transactions, including security lendingagreements.

Recording Examples

20. To help compilers, some examples are set out inTable A2.1 of how different types of reverse secu-rity transactions should be recorded in the grossexternal debt position and in the memorandumtable, when debt securities are involved.6 Theseexamples show the change in the position when res-ident-issued debt securities are acquired by a non-resident from a resident, or vice versa, under areverse security transaction. In all these examples, itis assumed that debt securities involved in the trans-actions are valued at 100, and any cash provided isvalued at 95. Each example involves a transaction ina debt security issued by a resident of A. Eachexample specifies an initial transaction, followed bydifferent subsequent transactions. For each subse-quent transaction, the recorded entries include boththe initial transaction and the subsequent transac-tion. So, the entries for example 1(b) include boththe sale of the debt security under a repo by a resi-dent of A to a nonresident (1(a)), and the subsequentsale under a repo by the nonresident to another resi-dent of A (1(b)); the entries for example 1(c)include both the sale of the debt security under arepo by a resident of A to a nonresident (1(a)), andthe subsequent sale under a repo by the nonresidentto another nonresident (1(c)).

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6When equity securities are involved in reverse security transac-tions, external debt is affected only if the equity securities are usedas collateral to raise cash from a nonresident. In this instance, aloan is recorded.


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Table A2.1. External Debt: Recording of Reverse Security Transactions

Memorandum Items:Change in the Gross Debt Securities Acquired Under Reverse

External Debt Position Security Transactions: Change in the Position___________________________ ___________________________________________Debt Acquired by nonresidents Acquired by residents

securities Loans from residents from nonresidentsTransaction (+ = increase) (+ = increase) (+ = increase) (– = increase)

Example 1: Repurchase agreement (repo)

(a) Resident of A sells the security under a repo to a nonresident — +95 +100 —

(b) Following 1(a), the nonresident sells the security under a repo to another resident of A — +95 +100 –100

(c) Following 1(a), the nonresident sells the security under a repo to another nonresident — +95 +100 —

(d) Following 1(a), the nonresident sells the security outright to a resident of A –100 +95 +100 —

(e) Following 1(a), the nonresident sells the security outright to another nonresident — +95 +100 —

Example 2: Repurchase agreement (repo)(a) Resident of A buys the security under a

repo from a nonresident — — — –100(b) Following 2(a), the resident sells the security

under a repo to another resident of A — — — –100(c) Following 2(a), the resident sells the security

under a repo to a nonresident — +95 +100 –100(d) Following 2(a), the resident sells the security

outright to another resident — — — –100(e) Following 2(a), the resident sells the security

outright to a nonresident +100 — — –100

Example 3: Security loan(a) Resident of A “sells” the security under a

security loan to a nonresident — — +100 —(b) Following 3(a), the nonresident “sells” the

security under a security loan to another resident of A — — +100 –100

(c) Following 3(a), the nonresident “sells” the security under a security loan to another nonresident — — +100 —

(d) Following 3(a), the nonresident sells the security outright to a resident of A –100 — +100 —

(e) Following 3(a), the nonresident sells the security outright to another nonresident — — +100 —

Example 4: Security loan(a) Resident of A “buys” the security under a

securities loan from a nonresident — — — –100(b) Following 4(a), the resident “sells” the

security under a security loan to another resident of A — — — –100

(c) Following 4(a), the resident “sells” the security under a security loan to a nonresident — — +100 –100

(d) Following 4(a), the resident sells the security outright to another resident of A — — — –100

(e) Following 4(a), the resident sells the security outright to another nonresident +100 — — –100

A

Accrual of Interest Costs

Continuous recording of interest costs, so matchingthe cost of capital with the provision of capital.

Affiliated Enterprises

Enterprises related through direct investment owner-ship structures, such as branches, subsidiaries, asso-ciates, and joint ventures. Affiliated enterprisesinclude those in a direct ownership relationship butalso those that are related through a third enterpriseand/or a chain of direct investment relationships. Fora fuller exposition of direct investment relationships,see the OECD Benchmark Definition of ForeignDirect Investment (OECD, 1996, pp. 9–12).

Agreed Minute

Paris Club document detailing the terms for a debtrescheduling between creditors and the debtor. Itspecifies the coverage of debt-service payments(types of debt treated), the cutoff date, the consolida-tion period, the proportion of payments to berescheduled, the provisions regarding the down pay-ment (if any), and the repayment schedules forrescheduled and deferred debt. Creditor govern-ments commit to incorporate these terms in the bilat-eral agreements negotiated with the debtorgovernment that implements the Agreed Minute.Paris Club creditors will agree to reschedule onlywith countries that have an IMF upper credit tranchearrangement (Stand-By Arrangement or ExtendedFund Facility (EFF)), a Poverty Reduction andGrowth Facility (PRGF) arrangement, or a RightsAccumulation Program.

Amortization Schedule

The schedule for the repayment of principal andpayment of interest on an ongoing basis. For loans,

the amortization schedule is normally included in anannex to the contract or can be estimated from thecontract.

Arbitrage

Buying (or borrowing) in one market and selling (orlending) in the same or another market to profit frommarket inefficiencies or price differences.

Arrangement on Guidelines for OfficiallySupported Export Credits (OECD Consensus)

The Arrangement (sometimes known as the Consen-sus) is a gentleman’s agreement governing the provi-sion of officially supported export credits with acredit period of two years or more. It is negotiatedby an international body called the Participants tothe Arrangement on Guidelines for Officially Sup-ported Export Credits, which meets in Paris underthe auspices, and with the administrative support, ofthe Secretariat of the OECD. The Participants areAustralia, Canada, the European Union (includingall the Member States), Japan, Korea, New Zealand,Norway, Switzerland, and the United States. Addi-tionally, there are three Observers: the Czech Repub-lic, Hungary, and Poland.

B

Balance of Payments

The balance of payments is a statistical statementthat systematically summarizes, for a specific periodof time, the economic transactions of an economywith the rest of the world. Transactions, for the mostpart between residents and nonresidents, consist ofthose involving goods, services, and income; thoseinvolving financial claims and liabilities to the restof the world; and those (such as gifts) classified astransfers.

Appendix III. Glossary of External Debt Terms

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Agreed

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Minute

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Balance

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of

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Payments

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Amortization

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Schedule


Bank for International Settlements (BIS)

Established in 1930 by intergovernmental conven-tion, the Bank for International Settlements pro-motes cooperation among central banks. In thiscapacity it carries out four main functions: it holdsand manages deposits from a large number of centralbanks throughout the world; it serves as a forum forinternational monetary cooperation; it assists asagent or trustee in the execution of various interna-tional financial agreements; and it carries outresearch and issues publications on monetary andeconomic subjects.

Berne Union

The International Union of Credit and InvestmentInsurers. This Union is an informal association ofexport credit insurance agencies, founded in 1934.The two main objectives of the Berne Union are thepromotion of the international acceptance of soundprinciples in export credit insurance and investmentinsurance, and the exchange of information relatingthereto. The almost 50 members meet twice a year toexchange information and seek to establish commonstandards, for instance on the appropriate down pay-ment and repayment periods for various kinds ofexports. Informal credit ratings of the borrowingcountries are maintained. They also consult witheach other on a continuing basis, and cooperateclosely. All members participate as insurers and notas representatives of their governments.

Bilateral Deadline

In the context of Paris Club reschedulings, the dateby which all bilateral agreements must be con-cluded. It is set in the Agreed Minute and is typicallyabout six months later, but can be extended uponrequest.

Bilateral Debt

Loans extended by a bilateral creditor.

Bilateral Rescheduling Agreements

Rescheduling agreements reached bilaterally betweenthe debtor and creditor countries. These are legallythe equivalent of new loan agreements. After a ParisClub rescheduling, such agreements are required toput into effect the debt restructuring set forth in themultinational Agreed Minute.

Bullet Repayment

The repayment of principal in a single payment atthe maturity of the debt.

Buyer’s Credit

A financial arrangement in which a bank or financialinstitution, or an export credit agency in the export-ing country, extends a loan directly to a foreignbuyer or to a bank in the importing country to payfor the purchase of goods and services from theexporting country. Also known as financial credit.This term does not refer to credit extended directlyfrom the buyer to the seller (for example, throughadvance payment for goods and services).

C

Capital Account

In the balance of payments, the capital account cov-ers capital transfers and the acquisition or disposalof nonproduced nonfinancial items (for example,patents).

Capital Transfers

Capital transfers consists of the transfer—without aquid pro quo—of ownership of a fixed asset or theforgiveness, by mutual agreement between creditorand debtor, of the debtor’s financial liability when nocounterpart is received in return by the creditor.

Capitalized Interest

Capitalized interest is the conversion of accrued inter-est costs or future interest payments, by a contractualarrangement with the creditor, into a new debt instru-ment or the principal amount. The most commonform of capitalization is the reinvestment of interestcosts into the principal amount, either because of anexplicit agreement regarding the specific debt instru-ment or as part of a rescheduling agreement. Fre-quently as part of a rescheduling agreement, somepercentage of interest due during the consolidationperiod (see below) is converted, through an agree-ment made with the creditor, into principal.

Claim Payments

Payments made to exporters or banks, after theclaims-waiting period, by an export credit agency on

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Berne

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Union

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Bullet

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Repayment

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Buyer’s

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Credit

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Capital

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Account

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Capital

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Transfers

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Bilateral

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Deadline

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Capitalized

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Interest

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Bilateral

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Debt

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Bilateral

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Rescheduling

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Agreements

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Claim

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Payments

Appendix III • Glossary of External Debt Terms

insured or guaranteed loans when the original bor-rower or borrowing-country guarantor fails to pay.These are recorded by the agencies as unrecoveredclaims until they are recovered from the debtor orthe debtor’s guarantor.

Claims-Waiting Period

The period that exporters or banks must wait afterthe due-date of payment before the export creditagency will pay on the corresponding claim.

Cofinancing

The joint or parallel financing of programs or pro-jects through loans or grants to developing countriesprovided by commercial banks, export credit agen-cies, other official institutions in association withother agencies or banks, or the World Bank and othermultilateral financial institutions.

Commercial Credit

In the context of the Paris Club, loans originallyextended on terms that do not qualify as officialdevelopment assistance (ODA) credits. These aretypically export credits on market terms but alsoinclude other non-ODA loans by governments.

Commercial Interest Reference Rates (CIRRs)

A set of currency-specific interest rates for majorOECD countries. CIRRs have been established for13 currencies, the majority of which are based oneither the five-year government bond yields or onthree-, five- and seven-year bond yields, accordingto the length of the repayment period. CIRRs areadjusted monthly and are intended to reflect com-mercial rates.

Commercial Risk

In the context of export credits, the risk of nonpay-ment by a nonsovereign or private sector buyer orborrower in his or her domestic currency arisingfrom default, insolvency, and/or a failure to take upgoods that have been shipped according to the sup-ply contract (contrasted with transfer risk arisingfrom an inability to convert domestic currency intothe currency in which the debt service is payable, orwith broader political risk).

Commitment

Generally, a firm obligation to lend, guarantee, orinsure resources of a specific amount under specificfinancial terms and conditions. However, in theOECD’s Arrangement on Guidelines for OfficiallySupported Export Credits (see above), commitmentsimply refers to any statement, in whatever form,whereby the willingness or intention to provide offi-cial support is communicated to the recipient coun-try, the buyer, the borrower, the exporter, or thefinancial institution.

Commitment Charge (or Fee)

This is the charge made for holding available theundisbursed balance of a loan commitment. Typi-cally, it is a fixed-rate charge (for example, 1.5percent a year) calculated on the basis of the undis-bursed balance.

Commitment, Date of

The date on which the commitment is made.

Comparable Treatment

An understanding in a debt-restructuring agreementwith the Paris Club creditors that the debtor will secureat least equivalent debt relief from other creditors.

Complete Market

A financial market place is said to be complete whena market exists with an equilibrium price for everyasset in every possible state of the world.

Completion Point

In the context of the HIPC Initiative (see below),when the IMF and World Bank Executive Boardsdecide that a country has met the conditions forassistance under the Initiative. The timing of thecompletion point depends on the satisfactory imple-mentation of key structural policy reforms agreed atthe decision point, the maintenance of macroeco-nomic stability, and the adoption and implementa-tion of a poverty reduction strategy developedthrough a broad-based participatory process. (Seealso Decision Point.)

Concessional Loans

These are loans that are extended on terms substan-tially more generous than market loans. The conces-

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Period

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Cofinancing

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Commercial

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Credit

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Commercial

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Interest

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Reference

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Rates

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CIRRs)

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Commitment

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Commitment Charge (or Fee)

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Commitment, Date of

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Comparable Treatment

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Completion Point

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Commercial Risk

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Concessional Loans


sionality is achieved either through interest ratesbelow those available on the market or by graceperiods, or a combination of these. Concessionalloans typically have long grace periods.

Concessional Restructuring

Debt restructuring with a reduction in present valueof the debt service. In the context of the Paris Club,concessional restructuring terms have been grantedto low-income countries since October 1988 with areduction in the present value of eligible debt of upto one-third (Toronto terms); since December 1991,with a present value reduction of up to one-half(London terms or “enhanced concessions” or“enhanced Toronto” terms); and, since January1995, with a present value reduction of up to two-thirds (Naples terms). In the context of the HIPC Ini-tiative, creditors agreed in November 1996 toincrease the present value reduction to up to 80 per-cent (Lyon terms) and then in June 1999 to 90 per-cent (Cologne terms). Such restructuring can be inthe form of flow restructuring or stock-of-debt oper-ations. While the terms (grace period and maturity)are standard, creditors can choose from a menu ofoptions to implement the debt relief.

Concessionality Level

A net present value calculation, measured at the timethe loan is extended, that compares the outstandingnominal value of a debt and the future debt-servicepayments discounted at an interest rate applicable tothe currency of the transaction, expressed as a per-centage of the nominal value of the debt. The con-cessionality level of bilateral debt (or tied aid) iscalculated in a similar manner, but instead of usingthe nominal value of the debt, the face value of theloan is used—that is, including both the disbursedand undisbursed amounts, and the difference iscalled the grant element. (See also Grant Elementand Net Present Value.)

Consolidated Amount or Consolidated Debt

The debt-service payments and arrears, or debtstock, restructured under a Paris Club reschedulingagreement.

Consolidated Reporting

Reporting covering the claims and liabilities of alloffices worldwide of the same entity, but excluding

positions between offices of the same entity. Officesinclude head offices, branch offices, and sub-sidiaries. A consolidated balance sheet refers to abalance sheet grouping of assets and liabilities of aparent company and all its offices, after eliminationof all unrealized profits on intragroup trading and ofall intragroup balances.

Consolidation Period

In Paris Club restructuring agreements, the period inwhich debt-service payments to be restructured (the“current maturities consolidated”) have fallen or willfall due. The beginning of the consolidation periodmay precede, coincide with, or come after the dateof the Agreed Minute. The standard consolidationperiod is one year, but sometimes debt paymentsover a two- or three-year period have been consoli-dated, corresponding with a multiyear arrangementwith the IMF.

Contingent Asset/Liability (Contingencies)

The principal characteristic of a contingency is thatone or more conditions must be fulfilled before afinancial transaction takes place.

Cover

Provision of export credit guarantee or insuranceagainst risks of payment delays or nonpaymentsrelating to export transactions. Cover is usually,though not always, provided for both commercialrisk and political risk. In most cases, cover is notprovided for the full value of future debt-servicepayments; the percentage of cover is typicallybetween 90 percent and 95 percent. (See also Quan-titative Limits.)

Coverage of Rescheduling Agreements

The debt service or arrears rescheduled. Comprehen-sive coverage implies the inclusion of most or all eli-gible debt service and arrears.

Credit

An amount for which there is a specific obligation ofrepayment. Credits include loans, trade credits,bonds, bills, etc., and other agreements that give riseto specific obligations to repay over a period of timeusually, but not always, with interest. Credit is

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Coverage of Rescheduling Agreements

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Credit


extended to finance consumption and investmentexpenditures, and financial transactions.

Credit Guarantee

Commitment by an export credit agency to reim-burse a lender if the borrower fails to repay a loan.The lender pays a guarantee fee.

Credit Insurance

The main business of most export credit agencies isinsurance of finance provided by exporters or banks(although some major agencies lend on their ownaccount). Insurance policies provide for the exportcredit agency to reimburse the lender for losses up toa certain percentage of the credit covered and undercertain conditions. Lenders or exporters pay a pre-mium to the export credit agency. Insurance policiestypically protect the lender against political or trans-fer risks in the borrowing country that prevent theremittance of debt-service payments.

Creditor

An entity with a financial claim on another entity.

Creditor Country

The country in which the creditor resides. In ParisClub terminology, it is an official bilateral creditor.

Creditor Reporting System

A statistical reporting system, maintained by theOECD, to monitor the debt of developing countries.Major creditor countries, primarily the 22 membercountries of the Development Assistance Com-mittee (DAC), together with the European Commis-sion, supply information. The data are publishedin the OECD’s annual External Debt Statisticspublication.

Cross-Border Positions

Asset and liability positions of residents of an econ-omy vis-à-vis residents of all other economies.

Currency of Reporting

The unit of account in which amounts are reportedeither to the compiling agency and/or to an interna-

tional agency compiling debt statistics. See Chapter2 for details on unit of account.

Currency of Transaction

The medium of exchange in which an individualtransaction occurs. It may be currency, goods, or ser-vices. The medium of exchange of one transaction(for example, disbursement) does not necessarilydetermine the medium of exchange of another (forexample, repayment).

Current Account

The current account of the balance of payments cov-ers all transactions (other than those in financialitems) that involve economic values and occurbetween residents and nonresident entities. Alsocovered are offsets to current economic values pro-vided or acquired without a quid pro quo. Includedare goods, services, income, and current transfers.The balance on goods, services, income, and currenttransfers is commonly referred to as the “current bal-ance” or “current account” balance.

Current Maturities

In the context of restructuring agreements, principaland interest payments falling due in the consolida-tion period.

Current Transfers

Current transfers are all transfers—that is, the trans-fer of a real resource or a financial item without aquid pro quo—that are not transfers of capital. Cur-rent transfers directly affect the level of disposableincome and should influence the consumption ofgoods and services.

Cutoff Date

The date (established at the time of a country’s firstParis Club debt reorganization/restructuring) beforewhich loans must have been contracted in orderfor their debt service to be eligible for restructuring.New loans extended after the cutoff date are pro-tected from future restructuring (subordination strat-egy). In exceptional cases, arrears on post-cutoff-datedebt can be deferred over short periods of time inrestructuring agreements.

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Credit Guarantee

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Current Account

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Credit Insurance

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Creditor

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Creditor Country

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Current Maturities

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Creditor Reporting System

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Current Transfers

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Cross-Border Positions

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Cutoff Date

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Currency of Reporting


D

De Minimis Creditors (or Clause)

Minor creditors that are exempted from debt restruc-turing to simplify implementation of the Paris Clubrestructuring agreements. Their claims are payablein full as they fall due. An exposure limit defining aminor creditor is specified in each Agreed Minute.

Debt- and Debt-Service-Reduction (DDSR)Operations

Debt-restructuring agreements are typically under-taken for bank loan debt obligations and involve thebuyback and exchange of eligible debt either forfinancial instruments that are valued at a substantialdiscount (simple cash buyback) or for new bonds fea-turing a present value reduction. In some instances,the principal portion of new financial instruments isfully collateralized with zero-coupon bonds issued bythe treasury of an industrial country, while interestobligations are also partially secured. DDSR opera-tions are characterized by a “menu approach,” allow-ing individual creditors to select from among severalDDSR options. Under the Brady plan of March 1989,some of these arrangements have been supported byloans from official creditors.

Debt Assumption

The assumption of a debt liability of one entity byanother entity, usually by mutual agreement.

Debt Buyback

The repurchase by a debtor of its own debt, usuallyat a substantial discount. The debtor’s obligationsare reduced while the creditor receives a once-and-for-all payment. Although in apparent contraventionof standard commercial bank loan agreements, somedebtors have bought back their own debt on the sec-ondary market.

Debt Conversion

The exchange of debt for a nondebt liability, such asequity, or for counterpart funds, such as can be usedto finance a particular project or policy.

Debt Default

Failure to meet a debt obligation payment, eitherprincipal or interest. A payment that is overdue or inarrears is technically “in default,” since by virtue of

nonpayment the borrower has failed to abide by theterms and conditions of the debt obligation. In prac-tice, the point at which a debt obligation is consid-ered “in default” will vary.

Debt-for-Charity Swap

The purchase by a nonprofit organization such as anongovernmental organization (NGO) of the exter-nal debt of a country at a discount in the secondarymarket, which the NGO then exchanges for localcurrency to be used for philanthropic purposes.

Debt-for-Commodity Swap

The repayment in kind by a debtor country of all orpart of its external debt. Typically, the lender takes aspecific, earmarked percentage of the receipts fromthe exports of a particular commodity or group ofcommodities to service the debt.

Debt-for-Development Swap

Financing part of a development project through theexchange of a foreign-currency-denominated debtfor local currency, typically at a substantial discount.The process normally involves a foreign nongovern-mental organization (NGO) that purchases the debtfrom the original creditor at a substantial discountusing its own foreign currency resources, and thenresells it to the debtor country government for thelocal currency equivalent (resulting in a further dis-count). The NGO in turn spends the money on adevelopment project, previously agreed upon withthe debtor country government.

Debt-for-Equity Swap

A transaction in which debt of an economy isexchanged, usually at a discount, for equity in anenterprise in the same economy. Although variablein form, such arrangements usually result in theextinction of a fixed-rate liability (for example, adebt security or loan) denominated in foreign cur-rency and the creation of an equity liability (denomi-nated in domestic currency) to a nonresident. Theremay be clauses in the agreement to prevent the repa-triation of capital before some specified future date.

Debt-for-Nature Swap

Similar to a debt-for-development swap, except thatthe funds are used for projects that improve theenvironment.

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Debt Forgiveness

The voluntary cancellation of all or part of a debtwithin a contractual arrangement between a creditorin one economy and a debtor in another economy.

Debt Instrument(s)

Existing debt instruments typically arise out of con-tractual relationships under which an institutionalunit (the debtor) has an unconditional liability toanother institutional unit (the creditor) to repay prin-cipal with or without interest, or to pay interest with-out principal. These instruments include debtsecurities, loans, trade credit, and currency anddeposits. Debt instruments may also be created bythe force of law—in particular, obligations to paytaxes or to make other compulsory payments—orthrough rights and obligations that results in a debtoraccepting an obligation to make future payment(s) toa creditor.

Debt-Reduction Option

Option under concessional Paris Club debt restruc-turings where creditors effect the required debtreduction in present value terms through a reductionof the principal of the consolidated amount. A com-mercial interest rate and standard repayment termsapply to the remaining amounts. (See ConcessionalRestructuring.)

Debt Refinancing

Debt refinancing refers to the conversion of the orig-inal debt including arrears, into a new debt instru-ment. In other words, overdue payments or futuredebt-service obligations are “paid off” using a newdebt obligation. In the Guide, as in BPM5, a changein the terms of a debt instrument is to be reported asthe creation of a new debt instrument, with the origi-nal debt extinguished.

Debt Relief

Any form of debt reorganization that relieves theoverall burden of debt. Debt relief results wherethere is a reduction in the present value of thesedebt-service obligations and/or a deferral of the pay-ments due, thus providing smaller near-term debt-service obligations. This can be measured, in mostcases, by an increase in the duration of these obliga-tions; that is, payments become weighted more

toward the latter part of the debt instrument’s life.However, if debt reorganization results in changes inpresent value and duration that are countervailing intheir impact on the debt burden, then there is no debtrelief, unless the net impact is significant—such ascould occur if there was a deep reduction in presentvalue (together with small decrease in duration) or asharp increase in duration (together with a smallincrease in present value).

Debt Reorganization/Restructuring

Debt reorganization arises from bilateral arrange-ments involving both the creditor and the debtor thatalter the terms established for the servicing of a debt.This includes debt rescheduling, refinancing, for-giveness, conversion, and prepayments.

Debt Rescheduling

Debt rescheduling refers to the formal deferment ofdebt-service payments and the application of newand extended maturities to the deferred amount.Rescheduling debt is one means of providing adebtor with debt relief through a delay and, in thecase of concessional rescheduling, a reduction indebt-service obligations.

Debt Service

Refers to payments in respect of both principal andinterest. Actual debt service is the set of paymentsactually made to satisfy a debt obligation, includingprincipal, interest, and any late payment fees. Sched-uled debt service is the set of payments, includingprincipal and interest, that is required to be madethrough the life of the debt.

Debt-Service (-to-Exports) Ratio

The ratio of debt service (interest and principal pay-ments due) during a year, expressed as a percentage ofexports (typically of goods and services) for that year.Forward-looking debt-service ratios require someforecast of export earnings. This ratio is considered tobe a key indicator of a country’s debt burden.

Debt-Service-Reduction Option

Option under concessional Paris Club debt resched-ulings where creditors effect the required debt reduc-tion in present value terms through a reduction in the

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applicable interest rate. (See Concessional Restruc-turing.)

Debt-Sustainability Analysis

A study of a country’s medium- to long-term debt sit-uation. A country’s eligibility for support under theHIPC Initiative is determined on the basis of such ananalysis, jointly undertaken by the staffs of the IMF,the World Bank, and the country concerned.

Debt Swaps

Debt swaps are exchanges of debt, such as loans orsecurities, for a new debt contract (that is, debt-to-debt swaps), or exchanges of debt-for-equity, debt-for-exports, or debt-for-domestic currency, such asto be used for projects in the debtor country (alsoknown as debt conversion).

Debt Workout

The process of working out a satisfactory methodwhereby the debtor country can repay external debt,including restructuring, adjustment, and the provi-sion of new money.

Debtor Country

The country in which the debtor resides.

Debtor Reporting System (DRS)

A statistical reporting system maintained by theWorld Bank to monitor the debt of developing coun-tries. Information is supplied through reports fromdebtor countries. The data supplied are the basis forthe annual World Bank report, Global DevelopmentFinance (formerly World Debt Tables).

Decision Point

In the context of the HIPC Initiative, the point atwhich a country’s eligibility for assistance is deter-mined by the IMF and World Bank Executive Boardson the basis of a debt-sustainability analysis andthree years of sound performance under IMF- andWorld Bank-supported adjustment programs. Theinternational community enters into a commitment atthe decision point to deliver assistance at the comple-tion point, provided that the debtor adheres to its pol-icy commitments. The debt-sustainability analysis is

essentially a medium-term balance of payments pro-jection that assesses the debt burden of the countryand its capacity to service those obligations. If exter-nal debt ratios for that country fall within or aboveapplicable targets, it will be considered for specialassistance: the target is 150 percent for the ratio ofthe present value of debt to exports, with exceptionsto this target in the special case of very openeconomies with a high debt burden in relation to fis-cal revenues. (See also Completion Point.)

At the decision point, the Executive Boards of theIMF and World Bank will formally decide on acountry’s eligibility, and the international commu-nity will commit to provide sufficient assistance bythe completion point for the country to achieve debtsustainability calculated at the decision point. Thedelivery of assistance committed by the IMF andBank will depend on satisfactory assurances ofaction by other creditors.

Deferred Payments

In the context of Paris Club debt reschedulings,obligations that are not consolidated but postponednonconcessionally, usually for a short time, as speci-fied in the Agreed Minute.

Development Assistance Committee (DAC)of the OECD

Established in 1960 as the Development AssistanceGroup, with the objective of expanding the volumeof resources made available to developing countriesand to improve their effectiveness. The DAC period-ically reviews both the amount and the nature of itsmembers’ contributions to aid programs, both bilat-eral and multilateral. The DAC does not disburseassistance funds directly, but is concerned insteadwith promoting increased assistance efforts by itsmembers. The members of the DAC are Australia,Austria, Belgium, Canada, Denmark, Finland,France, Germany, Greece, Ireland, Italy, Japan, Lux-embourg, the Netherlands, New Zealand, Norway,Portugal, Spain, Sweden, Switzerland, the UnitedKingdom, the United States, and the Commission ofthe European Communities.

Disbursed Loans

The amount that has been disbursed from a loan buthas not yet been repaid or forgiven.

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Disbursements

The transactions of providing financial resources.The two counterparties must record the transactionsimultaneously. In practice, disbursements arerecorded at one of several stages: provision of goodsand services (where trade credit is involved); placingof funds at the disposal of the recipient in an ear-marked fund or account; withdrawal of funds by therecipient from an earmarked fund or account; orpayment by the lender of invoices on behalf of theborrower. The term “utilized” may apply when thecredit extended is in a form other than currency. Dis-bursements should be recorded gross—the actualamount disbursed.

Domestic Currency

The domestic currency is that which is legal tenderin the economy and issued by the monetary authorityfor that economy, or for the common currency areato which the economy belongs.

Duration

Duration is the weighted average term to maturity of adebt instrument. The time period until the receipt/payment of each cash flow, such as six months, isweighted by the present value of that cash flow, as aproportion of the present value of total cash flowsover the life of the instrument. Present value can becalculated using the yield to maturity or another inter-est rate. The more the cash flows are concentratedtoward the early part of a debt instrument’s life, theshorter the duration relative to the time to maturity.

E

Eligible Debt or Debt Service

In the context of the Paris Club, debt that can berescheduled—namely, debt that is contracted beforethe cutoff date, with maturities of one year or longer.

Enhanced Concessions (or EnhancedTorontoTerms)

See Concessional Restructuring.

Enhanced Structural Adjustment Facility (ESAF)

See Structural Adjustment Facility (SAF). Renamedthe Poverty Reduction and Growth Facility (PRGF)in November 1999.

ESAF-HIPC Trust

A trust established by the IMF in February 1997 toprovide assistance to the countries deemed eligiblefor assistance under the HIPC Initiative by theBoards of the IMF and the World Bank. Through thistrust, the IMF will provide grants (or, in exceptionalcircumstances, highly concessional loans) that willbe used to retire a country’s obligations falling dueto the IMF after the completion point.

Escrow Accounts

In the context of external debt payments, accountstypically held in banks outside of the debtor countrythrough which a portion of the export proceeds of adebtor is channeled. Typically involve balances ofone-year maturity to cover future debt-service pay-ments. Creditors who are the beneficiaries of suchaccounts thus obtain extra security for their loansand effective priority in debt service.

Exceptional Financing

As an alternative to—or in conjunction with—theuse of reserve assets, IMF credit and loans, andliabilities constituting foreign authorities’ reserves,to deal with payments imbalance, exceptionalfinancing denotes any other arrangements madeby the authorities of an economy to finance balanceof payments needs. The identification of excep-tional financing transactions is linked to ananalytical concept rather than being based onprecise criteria. Among the transactions regardedas exceptional financing transactions are debtforgiveness, debt-for-equity swaps, and other typesof transactions relating to debt reorganizations.Under certain circumstances, some borrowings bythe government or other sectors might meet thecriterion.

Export Credit

A loan extended to finance a specific purchaseof goods or services from within the creditorcountry. Export credits extended by the supplierof goods—such as when the importer of goodsand services is allowed to defer payment—are known as supplier’s credits; export creditsextended by a financial institution, or an exportcredit agency in the exporting country are known asbuyer’s credits. (See also Officially SupportedExport Credits.)

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Export Credit Agency

An agency in a creditor country that provides insur-ance, guarantees, or loans for the export of goodsand services.

Extended Fund Facility (EFF)

An IMF lending facility established in 1974 to assistmember countries in overcoming balance of pay-ments problems that stem largely from structuralproblems and require a longer period of adjustmentthan is possible under a Stand-By Arrangement. Amember requesting an Extended Arrangement out-lines its objectives and policies for the whole periodof the arrangement (typically three years) and pre-sents a detailed statement each year of the policiesand measures it plans to pursue over the next 12months. The phasing and performance criteria arecomparable to those of Stand-By Arrangements,although phasing on a semiannual basis is possible.Countries must repay EFF resources over a period of4!/2 to 10 years. (See Stand-By Arrangement.)

External Debt

Gross external debt, at any given time, is the out-standing amount of those actual current, and notcontingent, liabilities that require payment(s) ofinterest and/or principal by the debtor at somepoint(s) in the future and that are owed to nonresi-dents by residents of an economy.

F

Face Value

The amount of principal to be repaid (for example,the redemption amount of a bond). Sometimes calledinitial contractual value, for loans, the face value isthe original amount of the loan as stated in the loancontract. If the loan is not fully disbursed, then theface value will include future disbursements, just asthe face value of a zero-coupon bond includes inter-est that has not yet accrued.

Financial Account

The financial account of the balance of paymentsconsists of the transactions in foreign financialassets and liabilities of an economy. The foreignfinancial assets of an economy consist of holdings

of monetary gold, IMF Special Drawing Rights, andclaims on nonresidents. The foreign liabilities of aneconomy consist of claims of nonresidents on resi-dents. The primary basis for classification of thefinancial account is functional: direct, portfolio, andother investment, financial derivatives, and reserveassets.

Financial Asset

Financial assets are stores of value, over which own-ership rights are enforced and from which their own-ers may derive economic benefits—such as propertyincome and/or holding gains and losses—by holdingthem over a period of time. Most financial assets dif-fer from other assets in the system of nationalaccounts in that they have counterpart liabilities onthe part of another institutional unit.

Financial Claim

A financial claim (1) entitles a creditor to receive apayment, or payments, from a debtor in circum-stances specified in a contract between them; or(2) specifies between the two parties certain rights orobligations, the nature of which requires them to betreated as financial.


Financial derivatives are financial instruments thatare linked to a specific financial instrument or indi-cator or commodity, and through which specificfinancial risks can be traded in financial markets intheir own right. The value of a financial derivativederives from the price of an underlying item, such asan asset or index. Unlike debt instruments, no princi-pal amount is advanced to be repaid, and no invest-ment income accrues. Financial derivatives are usedfor a number of purposes including risk manage-ment, hedging, arbitrage between markets, andspeculation. Transactions in financial derivativesshould be treated as separate transactions rather thanintegral parts of the value of underlying transactionsto which they may be linked.

Financial Liability

A financial liability (1) requires a debtor to make apayment, or payments, to a creditor in circumstancesspecified in a contract between them; or (2) specifiesbetween the two parties certain rights or obligations,

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the nature of which requires them to be treated asfinancial.

Flag-of-Convenience Countries

Countries with favorable tax rules and other regula-tions attracting companies whose main business(originally, primarily shipping—but increasingly,production or services) is outside the country.

Flow Rescheduling

In the context of the Paris Club, the rescheduling ofspecified debt service falling due during the consoli-dation period and, in some cases, of specifiedarrears outstanding at the beginning of the consoli-dation period. (See Stock-of-Debt Operation.)

Foreign Currency

In this Guide, a foreign currency is a currency otherthan the domestic currency.

Forfaiting

A mechanism, most commonly used in medium- andlong-term credit, involving the purchase of promis-sory notes or bills of exchange by the forfaiter, at adiscount. Banks or other financial services entitiesoften own forfait companies.

Fund Credit

See Use of IMF Credit and Loans in Appendix I.

G

Geographical Distribution of the Flows ofFinancial Resources to Aid Recipients (Annual)

An annual publication of the OECD that shows thesources of official development financing to indi-vidual developing countries and territories. Includedin this publication are detailed data on the geo-graphical distribution of net and gross disburse-ments, commitments, terms, and the sectoralallocation of commitments.

Goodwill Clause

Clause used in Paris Club agreements under whichcreditors agree in principle, but without commit-

ment, to consider favorably subsequent debt-reliefagreements for a debtor country that remains incompliance with the restructuring agreement as wellas with its IMF arrangement, and has sought compa-rable debt relief from other creditors. The clause canbe intended for a future flow restructuring or a stock-of-debt operation.

Grace Period and Maturity

The grace period for principal is the period from thedate of signature of the loan or the issue of the finan-cial instrument to the first repayment of principal.The repayment period is the period from the first tolast repayment of principal. Maturity is the sum ofboth periods: grace plus repayment periods.

Graduated Payments (or “BlendedPayments”)

In the context of Paris Club reschedulings, the termrefers to a repayment schedule where principalrepayments gradually increase over the repaymentperiod, reflecting an expected improvement in therepayment capacity of a debtor country. Creditorshave made increasing use of the graduated pay-ments, replacing flat payment schedules where equalamounts of principal repayments were made over therepayment period: from the creditor perspective,graduated payments provide for principal repay-ments starting earlier, and, from the debtor perspec-tive, they avoid a large jump in debt service.

Grant Element

Measure of the concessionality of a loan, calculatedas the difference between the face value of the loanand the sum of the discounted future debt-servicepayments to be made by the borrower expressed as apercentage of the face value of the loan. A 10 per-cent rate of discount is used by the DevelopmentAssistance Committee (DAC) and the World Bank tomeasure the grant element of official loans. (See alsoDevelopment Assistance Committee, Concessional-ity Level, and Official Development Assistance.)

Grant-Like Flows

Loans for which the original agreement stipulatesthat payments to service the debt are to be placedinto an account in the borrowing country and usedin the borrowing country to the benefit of that

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country. These transactions are treated as grantsin the OECD-DAC statistics because their repay-ment does not require a flow of foreign cur-rency across the exchanges. They are neverthelesscounted as external debt because the creditor isnonresident.

(The classification of these transactions as grants isnot consistent with BPM5 recommendations. InBPM5, grants are regarded as transfers: transactionswhere a real resource or financial item is providedbut no quid pro quo is received. In the above transac-tion, in return for a reduction in outstanding debt,domestic currency is provided.)

Gross Domestic Product (GDP)

Essentially, the sum of the gross value added of allresident producer units. For further details, see 1993SNA, paragraphs 2.171–2.174.

Gross National Product (GNP)

GDP plus net income from abroad. For furtherdetails, see 1993 SNA, paragraphs 7.16 and 7.17. Inthe 1993 SNA, GNP was renamed gross nationalincome.

H

Heavily Indebted Poor Countries (HIPCs)

Group of 41 developing countries classified as beingheavily indebted poor countries. These are thosecountries that are eligible for highly concessionalassistance from the International Development Asso-ciation (IDA), and from the IMF’s Poverty Reduc-tion and Growth Facility (PRGF, previously theEnhanced Structural Adjustment Facility, ESAF),and that face an unsustainable debt situation evenafter the full application of traditional debt-reliefmechanisms.

Helsinki Package

Agreement that came into force in 1992. Thisagreement prohibits (with some exceptions) the pro-vision of tied aid loans to high-income countries(based on World Bank per capita income), and forcommercially viable projects. (See also Arrange-ment on Guidelines for Officially Supported ExportCredits.)

High-Income Countries

The World Bank classifies as high-income thosecountries with GNP per capita income of $9,266 ormore in 2000.

HIPC Initiative

Framework for action to resolve the external debtproblems of heavily indebted poor countries(HIPCs) that was developed jointly by the IMF andthe World Bank and was adopted in September1996. The Initiative envisaged comprehensiveaction by the international financial community,including multilateral institutions, to reduce to sus-tainable levels the external debt burden on HIPCs,provided they build a track record of strong policyperformance.

Following a comprehensive review of the HIPC Ini-tiative, a number of modifications to the Initiativewere approved in September 1999 to provide faster,deeper, and broader debt relief and strengthen thelinks between debt relief, poverty reduction, andsocial policies.

HIPC Trust Fund

The Trust Fund administered by the InternationalDevelopment Association (IDA) to provide grantsto eligible heavily indebted poor countries (HIPCs)for relief on debt owed to participating multi-laterals. The Trust Fund will either prepay, or pur-chase, a portion of the debt owed to a multilateralcreditor and cancel such debt, or pay debt service,as it comes due. The HIPC Trust Fund receivescontributions from participating multilateral credi-tors and from bilateral donors. Contributions can beearmarked for debt owed by a particular debtor orto a particular multilateral creditor. Donors canalso provide contributions to an unallocated pooland participate in decisions regarding the use ofthese unallocated funds. The Trust Fund allowsmultilateral creditors to participate in the TrustFund in ways consistent with their financial policiesand aims to address the resource constraints for cer-tain multilateral creditors. (See also ESAF-HIPCTrust.)

Home Country

The country of residence of the head office of theinstitutional entity.

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Host Country

The country in which the institutional entity islocated.

Houston Terms

See Lower-Middle-Income-Country Terms.

I

IMF Adjustment Program

An adjustment program in a member country of theIMF. An IMF-supported program is a detailed eco-nomic program that is based on an analysis of theeconomic problems of the member country. It speci-fies the policies being implemented or that will beimplemented by the country in the monetary, fiscal,external, and structural areas, as necessary, in orderto achieve economic stabilization and set the basisfor self-sustained economic growth. It usually,though not necessarily, refers to a program that issupported by the use of IMF resources.

IMF Arrangement

Agreement between the IMF and a member countryon the basis of which the IMF provides financialassistance to a member country seeking to redressits balance of payments problems and to help cush-ion the impact of adjustment. Nonconcessionalresources are provided mainly under Stand-ByArrangements and the Extended Fund Facility(EFF), and concessional resources are providedunder the Poverty Reduction and Growth Facility(PRGF).

Institutional Sector

The grouping of institutional units with commoneconomic objectives and functions. (See also SectorClassification.)

Institutional Unit

In the 1993 SNA institutional units are the entitiesthat undertake the activities of production, consump-tion, and the accumulation of assets and liabilities.In other words, economic activity involves transac-tions between institutional units be they householdsor corporations. An institutional unit is defined in the

1993 SNA as “an economic entity that is capable, inits own right, of owning assets, incurring liabilitiesand engaging in economic activities and in transac-tions with other entities” (1993 SNA, paragraph4.2).

Insured (Guaranteed) Export Credit

An export credit that carries a guarantee, issued byan export credit agency, protecting the creditoragainst political, commercial, or transfer risks in thedebtor country that may prevent the remittance ofdebt-service payments. (See also Export CreditAgency.)

Interbank Positions

Asset and liability positions that banks have withother banks.

Interest

For the use of principal, interest can, and usuallydoes, accrue on the principal amount, resulting in aninterest cost for the debtor. When this cost is paidperiodically, as commonly occurs, it is known in thisGuide as an interest payment. Interest can be calcu-lated either on a fixed-interest-rate or on a variable-interest-rate basis. In this Guide, in contrast to afixed interest rate, which remains unchanged over aperiod of years, a variable interest rate is linked to areference index (for example, the London interbankoffered rate, LIBOR), or the price of a specific com-modity, or the price of a specific financial instrumentthat normally changes over time in a continuousmanner in response to market pressures. (See alsoPrincipal.)

International Bank for Reconstructionand Development (IBRD)

The International Bank for Reconstruction andDevelopment (IBRD) was set up as an intergovern-mental financial institution in 1946 as a result of theBretton Woods Accord. It is the original agency ofthe World Bank Group and is commonly referred toas the World Bank. (See also World Bank Group.)

International Banking Business (BIS Data)

For these data, the term “international” refers tobanks’ transactions in any currency with nonresi-

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dents plus their transactions in foreign (nonlocal)currency with residents.

International Development Association (IDA)

IDA, established in 1960, is the concessional lendingarm of the World Bank Group. IDA provides low-income developing countries with long-term loanson highly concessional terms: typically a 10-yeargrace period, a 40-year repayment period, and only asmall servicing charge.

International Interbank Market

An international money market in which bankslend to each other—either cross-border or locallyin foreign currency—large amounts of funds, usu-ally at short term (between overnight and sixmonths).

International Investment Position (IIP)

The IIP is the stock of external financial assets andliabilities on a specified reference date, usually theend of the quarter or year. The change in positionbetween two end-periods reflects financial transac-tions, valuation changes, and other adjustmentsoccurring during the period.

International Monetary Fund (IMF)

Following the Bretton Woods Accords and estab-lished in 1945, the IMF is a cooperative intergovern-mental monetary and financial institution with 184member countries. Its main purpose is to promoteinternational monetary cooperation so to facilitatethe growth of international trade and economicactivity more generally. The IMF provides financialresources to enable its members to correct paymentsimbalances without resorting to trade and paymentsrestrictions.

International Security IdentificationNumber (ISIN)

The ISIN is a unique international security codeissued by National Numbering Agencies (NNAs) tosecurities issued in their jurisdiction. The Associa-tion of National Numbering Agencies (ANNA) is theauthority responsible for coordinating all aspects ofthe implementation of the ISIN numbering system.More information on the ISIN code system is avail-

able in Appendix VII of the IMF’s Coordinated Port-folio Investment Survey Guide, 2nd ed. (IMF, 2002).

J

Joint Venture

An enterprise in which two or more parties holdmajor interests.

L

Late Interest Charges

The additional interest that may be levied on obliga-tions overdue beyond a specified time; in some ParisClub agreements, late interest charges have beenspecifically excluded from the debt consolidation.

Leverage

Having exposure to the full benefits arising fromholding a position in a financial asset, without hav-ing to fully fund the position with own funds.

Line of Credit

An agreement that creates a facility under which oneunit can borrow credit from another up to a specifiedceiling usually over a specified period of time. Linesof credit provide a guarantee that funds will be avail-able, but no financial asset/liability exists until fundsare actually advanced.

Loan Agreement

The legal evidence and terms of a loan.

Loan Guarantee

A legally binding agreement under which the guar-antor agrees to pay any or all of the amount due on aloan instrument in the event of nonpayment by theborrower.

London Club

A group of commercial banks whose representativesmeet periodically to negotiate the restructuring ofdebts of sovereign borrowers. There is no organiza-tional framework for the London Club comparableto that of the Paris Club.

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International Development Association (IDA)

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International Interbank Market

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International Monetary Fund (IMF)

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Joint Venture

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Late Interest Charges

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Leverage

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Line of Credit

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Loan Agreement

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International Security Identification

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Number (ISIN)

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Loan Guarantee

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London Club


London Interbank Offered Rate (LIBOR)

The London interbank offered rate for deposits, suchas the six-month dollar LIBOR. LIBOR is a refer-ence rate for the international banking markets andis commonly the basis on which lending margins arefixed. Thus, an original loan agreement or a resched-uling agreement may set the interest rate to the bor-rower at six-month dollar LIBOR plus 1.5 percent,with semiannual adjustments for changes in theLIBOR rate. Also, interest rate swap rates are quotedin reference to LIBOR; that is, the quoted rate is thefixed-rate side of the swap because the floating-rateside is LIBOR.

London Terms


Long-Maturities Option

In the context of the Paris Club, an option underwhich the consolidated amount is rescheduled over along period of time, but without a reduction in thepresent value of the debt.

Long-Term External Debt

External debt that has a maturity of more than oneyear. Maturity can be defined either on an original orremaining basis. (See also Original Maturity andRemaining Maturity.)

Low-Income Countries

In the context of the Paris Club, countries eligible toreceive concessional terms. The Paris Club decideseligibility on a case-by-case basis, but only countrieseligible to receive highly concessional IDA creditsfrom the World Bank Group are included. The WorldBank classifies as low-income those countries withGNP per capita income of $755 or less in 2000.

Lower-Middle-Income-Country Terms

In the context of the Paris Club, refers to therescheduling terms granted, since September 1990,to lower-middle-income countries. These terms arenonconcessional and originally provided for flatrepayment schedules, but in recent years graduatedpayment schedules have often been agreed upon forcommercial credits, namely, with a maturity of up to18 years, including a grace period of up to 8 years.

Official development assistance credits are resched-uled over 20 years, including a grace period of up to10 years. This set of rescheduling terms alsoincludes the limited use of debt swaps on a voluntarybasis. The World Bank classifies as lower-middleincome those countries with GNP per capita incomeof between $756 and $2,995 in 2000.

Lyon Terms


M

Market Valuation

Amounts of money that willing buyers pay toacquire something from willing sellers; theexchanges are made between independent parties onthe basis of commercial considerations only. Themarket value of a debt instrument should be basedon the market price for that instrument prevailing atthe time to which the position statement refers; thatis, current market prices as of the dates involved(beginning or end of the reference period). Chapter 2provides more details. (See also Nominal Value.)

Maturity Date (Final)

The date on which a debt obligation is contracted tobe extinguished. (See also Original Maturity andRemaining Maturity.)

Maturity Structure

A time profile of the maturities of claims or liabili-ties. Also known as “maturity profile” or “maturitydistribution.”

Mixed Credits

A credit that contains an aid element, so as to pro-vide concessional credit terms—such as a lower rateof interest or a longer credit period.

Moratorium Interest

Interest charged on rescheduled debt. In the ParisClub, moratorium interest rates are negotiated bilat-erally between the debtor and creditor countries andthus can differ among creditors. In the London Club,where all creditors are deemed to have access to

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London Terms

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Long-Maturities Option

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Long-Term External Debt

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Low-Income Countries

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Lyon Terms

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Market Valuation

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Maturity Date (Final)

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Maturity Structure

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Mixed Credits

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Lower-Middle-Income-Country Terms

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Moratorium Interest


funds at comparable rates, the moratorium interestrate applies equally to all rescheduled obligationsunder an agreement.

Multilateral Creditors

These creditors are multilateral institutions such asthe IMF and the World Bank, as well as other multi-lateral development banks.

Multiyear Rescheduling Agreement (MYRA)

An agreement granted by official creditors that cov-ers consolidation periods of two or more years inaccordance with multiyear IMF arrangements, suchas the Extended Fund Facility (EFF) and the PovertyReduction and Growth Facility (PRGF). The modali-ties of the agreement are that a succession of shorterconsolidations (tranches) are implemented after cer-tain conditions specified in the Agreed Minute aresatisfied, such as full implementation to date of therescheduling agreement and continued implementa-tion of the IMF arrangements.

N

Naples Terms


Nationality

Country of residence of the head office of an institu-tional entity.

National Numbering Agencies (NNAs)

NNAs have the sole right to allocate InternationalSecurity Identification Number (ISIN) codes to secu-rities within their own jurisdiction.

Net Flow

From the viewpoint of a loan, the net flow is grossdisbursements less principal repayments.

Net Present Value (NPV) of Debt

The nominal amount outstanding minus the sum ofall future debt-service obligations (interest and prin-cipal) on existing debt discounted at an interest ratedifferent from the contracted rate.

The concept is closely related to that of opportunitycost: if the debtor has a loan that bears a 3 percentrate of interest, it is clear that the debtor is better offthan by borrowing at 10 percent. But by discountingthe future debt-service obligations at 10 percent andcomparing the outcome with the amount borrowed,the NPV will tell how much the opportunity to bor-row at 3 percent, rather than at 10 percent, is worthto the debtor. The NPV can be used to assess theprofitability of buying back bonds, although accountneeds to be taken of how the buyback is to befinanced.

The Development Assistance Committee (DAC)OECD grant element is an NPV concept, since thegrant element is the percentage that the NPV, using a10 percent rate of discount, represents of the facevalue of the loan. In the context of the Paris Cluband the HIPC Initiative, sometimes present value ismisdescribed as NPV. (See Present Value, Conces-sionality Level, and Grant Element.)

Net Resource Transfer

A net resource transfer is a current account deficitexcluding any net interest payments.

Nominal Value

The nominal value of a debt instrument is theamount that at any moment in time the debtor owesto the creditor at that moment; this value is typicallyestablished by reference to the terms of a contractbetween the debtor and creditor. The nominal valueof a debt instrument reflects the value of the debt atcreation, and any subsequent economic flows, suchas transactions (for example, repayment ofprincipal), valuation changes (independent ofchanges in its market price), and other changes.Conceptually, the nominal value of a debt instrumentcan be calculated by discounting future interest andprincipal payments at the existing contractual inter-est rate(s) on the instrument; the latter may be fixed-rate or variable-rate. Chapter 2 provides moredetails. (See also Market Valuation.)

Nonconsolidated Debt

The debt that is wholly or partly excluded fromrescheduling. It has to be repaid on the terms onwhich it was originally borrowed, unless creditorsagree otherwise.

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Net Resource Transfer

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Nationality

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Value

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National Numbering Agencies (NNAs)

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Net Flow

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Net Present Value (NPV) of Debt

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Nonconsolidated Debt


Notional (Nominal) Amount of a FinancialDerivatives Contract

The notional amount is that underlying a financialderivatives contract and is necessary for calculatingpayments or receipts, but which may or may not beexchanged.

O

OECD Working Party on Export Creditsand Credit Guarantees

This is a forum for discussing export credit issuesand for exchanging information among 28 of the 29member countries of the OECD (only Iceland doesnot participate).

Official Development Assistance (ODA)

Flows of official financing administered with thepromotion of the economic development and wel-fare of developing countries as the main objective,and which are concessional in character with agrant element of at least 25 percent (using a fixed10 percent rate of discount). By convention, ODAflows comprise contributions of donor governmentagencies, at all levels, to developing countries(“bilateral ODA”) and to multilateral institutions.ODA receipts comprise disbursements by bilateraldonors and multilateral institutions. Lending byexport credit agencies—with the pure purpose ofexport promotion—is excluded.

Official Development Assistance (ODA) Loans

Loans with a maturity of over one year meeting thecriteria set out in the definition of ODA, provided bygovernments or official agencies and for whichrepayment is required in convertible currencies or inkind.

Official Development Bank

A nonmonetary financial intermediary controlled bythe public sector. It primarily engages in makinglong-term loans that are beyond the capacity or will-ingness of other financial institutions.

Official Development Finance (ODF)

Total official flows to developing countries exclud-ing (1) officially supported export credits, (2) official

support for private export credits (both are regardedas primarily trade promoting rather than develop-ment oriented), and (3) grants and loans for nonde-velopmental purposes. ODF comprises officialdevelopment assistance (ODA) and other officialdevelopment finance flows.

Officially Supported Export Credits

Loans or credits to finance the export of goods andservices for which an official export credit agency inthe creditor country provides guarantees, insurance,or direct financing. The financing element—asopposed to the guarantee/insurance element—can beextended by an exporter (supplier’s credit), orthrough a commercial bank in the form of trade-related credit provided either to the supplier, or tothe importer (buyer’s credit). It can also be extendeddirectly by an export credit agency of the exportingcountries, usually in the form of medium-termfinance as a supplement to resources of the privatesector, and generally for export promotion for capitalequipment and large-scale, medium-term projects.Under the rules of the Arrangement on Guidelinesfor Officially Supported Export Credits coveringexport credits with duration of two years or more, upto 85 percent of the export contract value can be offi-cially supported.

Offshore Financial Center

Countries or jurisdictions with financial centers thatcontain financial institutions that deal primarily withnonresidents and/or in foreign currency on a scaleout of proportion to the size of the host economy.Nonresident-owned or -controlled institutions play asignificant role within the center. The institutions inthe center may well gain from tax benefits not avail-able to those outside the center.

Organisation for Economic Co-operation andDevelopment (OECD)

The OECD provides governments of its membercountries with a setting in which to discuss, develop,and perfect economic and social policy. Theexchanges may lead to agreements to act in a formalway, but more often, the discussion makes for better-informed work within government on the spectrumof public policy and clarifies the impact of nationalpolicies on the international community. The chanceto reflect and exchange perspectives with other

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OECD Working Party on Export Credits

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and Credit Guarantees

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Assistance (ODA)

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Official

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Development

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Official Development Assistance (ODA) Loans

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Offshore Financial Center

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Organisation for Economic Co-operation and

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Development (OECD)

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Official Development Bank

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Official Development Finance (ODF)


countries similar to their own is provided. TheOECD’s objectives are to promote growth, employ-ment, free trade, and a rising standard of living inboth member countries and nonmember countries.

Original Maturity

The period of time from when the financial asset/lia-bility was created to its final maturity date.

Other Official Flows (OOFs)

Official flows of a creditor country that are notundertaken for economic development purposes or,if they are mainly for development, whose grant ele-ment is below the 25 percent threshold that wouldmake them eligible to be recorded as ODA. Theyinclude export credits extended or rescheduled bythe official sector.

Own Offices

Different offices of the same entity, including headoffices, branch offices, and subsidiaries. Also some-times called “related offices.”

P

Paris Club

An informal group of creditor governments that hasmet regularly in Paris since 1956 to reschedule bilat-eral debts; the French treasury provides the secre-tariat. Creditors meet with a debtor country toreschedule its debts as part of the international sup-port provided to a country that is experiencing debt-servicing difficulties and is pursuing an adjustmentprogram supported by the IMF. The Paris Club doesnot have a fixed membership, and its meetings areopen to all official creditors that accept its practicesand procedures. The core creditors are mainlyOECD member countries, but other creditors attendas relevant for a debtor country. Russia became amember in September 1997.

Political Risk

The risk of nonpayment on an export contract orproject due to action taken by the importer’s hostgovernment. Such action may include interventionto prevent transfer of payments, cancellation of alicense, or events such as war, civil strife, revolution,

and other disturbances that prevent the exporter fromperforming under the supply contract or the buyerfrom making payment. Sometimes physical disasterssuch as cyclones, floods, and earthquakes comeunder this heading.

Post-Cutoff-Date Debt

See Cutoff Date.

Poverty Reduction and Growth Facility (PRGF)

An IMF facility known until November 1999 as theEnhanced Structural Adjustment Facility (ESAF).The PRGF is available to those countries that are fac-ing protracted balance of payments problems and areeligible to borrow on concessional terms under theInternational Development Association (IDA). ThePRGF supports programs that are consistent withstrategies elaborated by the borrowing country in aPoverty Reduction Strategy Paper (PRSP). The PRSPis a comprehensive, nationally owned strategy that isprepared by the borrowing country and endorsed intheir respective areas of responsibility by the Boardsof the IMF and World Bank. Funds are provided at anannual interest rate of 0.5 percent. They are repayableover 10 years, including a grace period of 5!/2 years.(See Structural Adjustment Facility.)

Premium

In the context of export credits, the amount paid, usu-ally in advance, by the party to an export agency for itsfacilities. Cover will often not be fully effective untilthe premium has been paid. Premiums are normallycalculated on the basis of the exposure, length ofcredit, and the riskiness of transacting with the import-ing country. Premium income, an important source ofrevenue for export credit agencies, is intended to coverthe risk of nonpayment of the credit.

Prepayment

The partial or full repayment by the borrower, per-haps at a discount, of an outstanding debt obligationin advance of the maturity date. The prepaymentmay be at a discount from the current outstandingprincipal amount.

Present Value

The present value is the discounted sum of all futuredebt service at a given rate of interest. If the rate of

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Political Risk


interest is the contractual rate of the debt, by con-struction, the present value equals the nominal value,whereas if the rate of interest is the market interestrate, then the present value equals the market valueof the debt.

In debt-reorganization discussions, the present valueconcept is used to measure, in a consistent manner,the burden sharing of debt reduction among creditors.This can be illustrated by the following example.

Debtor A owes 100 to both creditor B and creditor C.The maturity of both loans is the same. Creditor B’sloan has an interest rate of 3 percent and that of C aninterest rate of 6 percent. The “market rate” isassumed to be 8 percent—that is, B and C couldhave lent the money at this higher rate. So, for bothB and C, the opportunity cost of lending at theirrespective interest rates, rather than at the marketrate, can be calculated by discounting future pay-ments at the market rate of 8 percent (present value),and comparing the outcome with the outstandingnominal value of 100. If PV(B) represents the pre-sent value for B and PV(C) represents the presentvalue for C, then:

PV(B) < PV(C) < 100

PV(B) is less than PV(C) because the size of thefuture payments to be made by A to B is less thanthose to be made to C. In turn, the payments by A toC are less than would have been the case if a marketrate of interest had been charged. This is illustratedby the annual interest payments. Debtor A wouldannually pay 3 to B; 6 to C; and 8 at the market rateof interest.

In deciding upon burden sharing of debt reduction,since B’s claims on A are already lower than those ofC, despite the same nominal value, debt reductionrequired from B might well be less than that requiredfrom C. So, it can be seen that by using a commoninterest rate to discount future payments, the burdenon the debtor of each loan can be quantified in acomparable manner.

Present Value of Debt-to-Exports Ratio (PV/X)

Present value (PV) of debt as a percentage ofexports (usually of goods and services) (X). In thecontext of the Paris Club and HIPC Initiative, some-times present value is misdescribed as net present

value (NPV). In this context NPV/X has the samemeaning as PV/X.

Previously Rescheduled Debt

Debt that has been rescheduled on a prior occasion.This type of debt was generally excluded from fur-ther rescheduling in both the Paris and London Clubsuntil 1983. Since then, however, previously resched-uled debt has frequently been rescheduled again forcountries facing acute payment difficulties.

Principal

The provision of economic value by the creditor, orthe creation of debt liabilities through other means,establishes a principal liability for the debtor, which,until extinguished, may change in value over time.For debt instruments alone, for the use of the princi-pal, interest can, and usually does, accrue on theprincipal amount, increasing its value.

Principal Repayment Schedule

The repayment schedule of principal by due dateand installment amount.

Private Creditors

Creditors that are neither governments nor publicsector agencies. These include private bondholders,private banks, other private financial institutions,and manufacturers, exporters, and other suppliers ofgoods that have a financial claim.

Provisioning

Funds set aside in an entity’s account for potentiallosses arising from financial claims that are not ser-viced by the debtor, and/or from claims on the entityarising out of insurance cover and/or guaranteesgiven. In many export credit agencies’ accounts, pro-visions are divided into general and specific provi-sions. General provisions apply to the overallbusiness, while specific provisions are on a case-by-case basis. Banks make provisions.

Public Debt

The debt obligations of the public sector.

Public External Debt

The external debt obligations of the public sector.

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Present Value of Debt-to-Exports

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Public External Debt


Q

Quantitative (or Cover) Limits

A ceiling on the amount of insurance or credit thatan export credit agency will provide under certaincircumstances. Limits can apply to individual buyersor to total exposure on buying countries or to maxi-mum contract sizes.

R

Recoveries

Repayments made to an export credit agency by aborrowing country after the agency has paid out onclaims by exporters or banks.

Refinancing

See Debt Refinancing.

Reinsurance by Export Credit Agencies

Export credit agencies may reinsure amounts origi-nally insured by a private sector insurer or commer-cial bank (some large official agencies are alsoproviding reinsurance for smaller official agencies).For example, a private insurer might keep the com-mercial risk of a loan on its own books, but seekreinsurance against specific political risks. Also,some export credit agencies may receive reinsurancefrom their governments or purchase it in the privatereinsurance market.

Remaining (Residual) Maturity

The period of time until debt payments fall due. Inthe Guide, it is recommended that short-termremaining maturity of outstanding external debt bemeasured by adding the value of outstanding short-term external debt (original maturity) to the value ofoutstanding long-term external debt (original matu-rity) due to be paid in one year or less.

Repayment Period

The period during which the debt obligation is to berepaid.

Rephasing

A revision of the terms of repayment of a debtobligation.

Reporting Banks

In BIS terminology, all those deposit-taking institu-tions (plus some non-deposit-taking financial institu-tions) that submit data to be included in the BISInternational Banking Statistics.

Repudiation of Debt

A unilateral disclaiming of a debt instrument obliga-tion by a debtor.

Rescheduling

See Debt Rescheduling.

Rescheduling Agreement

An agreement between a creditor, or a group of cred-itors, and a debtor to reschedule debt. This term issometimes used loosely to apply to a debt-reorgani-zation/restructuring agreement, one element ofwhich is rescheduling.

Rights Accumulation Program

An IMF program of assistance established in 1990whereby a member country with long overdue oblig-ations to the IMF, while still in arrears, may accumu-late “rights” toward a future disbursement from theIMF on the basis of a sustained performance underan IMF-monitored adjustment program. Countriesincurring arrears to the IMF after end-1989 are noteligible for assistance under this program. RightsAccumulation Programs adhere to the macroeco-nomic and structural policy standards associatedwith programs supported by the Extended FundFacility (EFF) and the Poverty Reduction andGrowth Facility (PRGF), and performance is moni-tored, and rights accrue, quarterly.

S

Sector Classification

In the 1993 SNA and BPM5, institutional sectors areformed by the grouping of similar kinds of institu-tional units according to their economic objectivesand functions.

Short-Term Commitments or Credits

In the context of export credits, short-term commit-ments are those that provide for repayment within a

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Recoveries

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Refinancing

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Reporting Banks

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Repudiation of Debt

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Rescheduling

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Rescheduling Agreement

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Reinsurance by Export Credit Agencies

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Rights Accumulation Program

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Remaining (Residual) Maturity

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Sector Classification

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Repayment Period

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Rephasing

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Short-Term Commitments or Credits


short period, usually six months (although someexport credit agencies define short-term credits asthose with repayment terms of up to one or twoyears). Short-term business represents the bulk ofthat of most export credit agencies and normallyincludes transactions in raw materials, commodities,and consumer goods.

Short-Term Debt

Debt that has maturity of one year or less. Maturitycan be defined either on an original or remainingbasis. (See also Original Maturity and RemainingMaturity.)

Special Accounts

In the context of the Paris Club, deposits into specialaccounts were first introduced in 1983 for debtorcountries that had a history of running into arrears.After signing the Agreed Minute, the debtor makesmonthly deposits into an earmarked account at thecentral bank of one of the creditor countries. Thedeposit amounts are roughly equal to the morato-rium interest that is expected to fall due on therescheduled debt owed to all Paris Club creditorscombined, and any other payments falling due dur-ing the consolidation period. The debtor then drawson the deposited funds to make payments as soon asthe bilateral agreements with the individual ParisClub creditors are signed and as other payments falldue.

Stand-By Arrangement

An IMF lending facility established in 1952 throughwhich a member country can use IMF financing upto a specified amount to overcome short-term orcyclical balance of payments difficulties. Install-ments are normally phased on a quarterly basis, withtheir release conditional upon the member’s meetingperformance criteria, such as monetary and bud-getary targets. These criteria allow both the memberand the IMF to assess the member’s progress in pol-icy implementation and may signal the need for fur-ther corrective policies. Stand-By Arrangementstypically cover a period of one to two years(although they can extend up to three years). Repay-ments are to be made over a period of 3!/4 to 5 years.The expected repayment period is shortened to 2!/4–4years if the country’s external position allows it torepay earlier.

Stand-By Credit

A commitment to lend up to a specified amount for aspecific period, to be used only in a certain contin-gency.

Standstill

This is an interim agreement between a debtorcountry and its commercial banking creditors thatdefers principal repayments of medium- and long-term debt and rolls over short-term obligations,pending agreement on debt reorganization. Theobjective is to give the debtor continuing access to aminimum amount of trade-related financing whilenegotiations take place and to prevent some banksfrom abruptly withdrawing their facilities at theexpense of others.

Stock Figures

The value of financial assets and liabilities outstand-ing at a particular point in time.

Stock-of-Debt Operation

In the context of the Paris Club, restructuring of theeligible stock of debt outstanding. These restructur-ing operations were granted to Egypt and Poland in1991 and, partially, for Russia and Peru in 1996 andare being implemented for low-income countriesunder Naples, Lyon, and Cologne terms (see Con-cessional Restructuring), provided that certain con-ditions are met: the debtor country has implementedearlier flow rescheduling agreements for at leastthree years and has an appropriate arrangement withthe IMF.

Stress Test

A stress test is a “what if” scenario that takes theworld as given but assumes a major change in oneor more variables in order to see what effect thiswould have on various indicators. For instance, foran economy, the impact on growth, inflation, andexternal debt of a huge change in oil prices could beconsidered. Stress tests are particularly useful forfinancial institutions: for instance, an individualentity might consider the impact on net worth of asharp movement in financial market prices, in orderto help determine the appropriate level of capital tohold.

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Standstill

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Stand-By Arrangement

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Structural Adjustment Facility (SAF)/Enhanced Structural AdjustmentFacility (ESAF)

The SAF was established by the IMF in 1986 and isno longer operational. The ESAF was established bythe IMF in 1987 and was made a permanent, ratherthan a temporary, facility in September 1996. It wasrenamed the Poverty Reduction and Growth Facilityin November 1999. (See Poverty Reduction andGrowth Facility.)

Subordination Strategy

The policy of Paris Club creditors is that loansextended after the cutoff date are not subject torescheduling; therefore, pre-cutoff date loans areeffectively subordinated to post-cutoff loans. (SeeCutoff Date.)

Supplier’s Credit

A financing arrangement under which an exporterextends credit to the buyer.

T

Technical Cooperation Grants

There are two basic types of technical cooperation:(1) free-standing technical cooperation (FTC), whichis the provision of resources aimed at the transfer oftechnical and managerial skills or of technology forthe purpose of building up general national capacitywithout reference to the implementation of any spe-cific investment projects; and (2) investment-relatedtechnical cooperation (IRTC), which denotes the pro-vision of technical services required for the imple-mentation of specific investment projects.

Terms-of-Reference Rescheduling

Paris Club rescheduling involving only a small num-ber of creditors. Typically this does not require arescheduling meeting between the debtor countryand its creditors, with the agreement being reachedthrough an exchange of letters.

Tied-Aid Loans

Bilateral loans that are linked to purchases of goodsand services by the debtor country from the creditorcountry.

Toronto Terms


Total Official Flows (Gross or Net)

The sum of official development assistance (ODA)and other official flows (OOF). Represents the total(gross or net) disbursements by the official sector ofthe creditor country to the recipient country.

Tranche

A particular portion of a financial claim or liabilitywith its own specific terms as opposed to the generalterms governing the whole claim or liability.

Transfer Clause

A provision that commits the debtor government toguarantee the immediate and unrestricted transfer offoreign exchange in all cases, provided that the pri-vate sector pays the local currency counterpart forservicing its debt.

Transfer Risk

The risk that a borrower will not be able to convertlocal currency into foreign exchange, and so beunable to make debt-service payments in foreigncurrency. The risk normally arises from exchangerestrictions imposed by the government in the bor-rower’s country. This is a particular kind of politicalrisk.

Transfers

Transfers are transactions where there is a transfer ofa real resource or a financial item without a quid proquo.

U

Undisbursed

Funds committed by the creditor but not yet utilizedby the borrower. In BIS terminology, this refers toopen lines of credit that are legally binding on lend-ing banks. A transaction in the balance of paymentsor a position in the international investment position(IIP) is only recorded when an actual disbursementtakes place.

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Subordination Strategy

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Supplier’s Credit

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Toronto Terms

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Total Official Flows (Gross or Net)

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Tranche

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Transfer Clause

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Risk

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Transfer

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Technical Cooperation Grants

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Transfers

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Terms-of-Reference Rescheduling

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Tied-Aid Loans

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Undisbursed


Unrecovered Claims

See Claim Payments.

Upper-Middle-Income Countries

In the context of the Paris Club, countries not consid-ered lower-middle-income or low-income countries.These countries receive nonconcessional reschedul-ing terms, originally with flat repayment schedules,but in the 1990s increasingly with graduated paymentschedules that have a maturity of up to 15 years and agrace period of 2–3 years for commercial credits.Official development assistance credits are resched-uled over 10 years, including a grace period of 5–6years. The World Bank classifies as upper-middle-income those countries with GNP per capita incomeof between $2,996 and $9,265 in 2000.

W

World Bank Group

Founded in 1944, the World Bank Group (or WorldBank) consists of five closely associated institutions:

the International Bank for Reconstruction andDevelopment (IBRD), the International Develop-ment Association (IDA), the International FinanceCorporation (IFC), the Multilateral InvestmentGuarantee Agency (MIGA), and the InternationalCentre for Settlement of Investment Disputes(ICSID). The World Bank is the world’s largestsource of development assistance; its main focus ison helping the poorest people and the poorest coun-tries through IDA credits (concessional lending) andon providing IBRD loans to low- and middle-incomecountries for developmental purposes. To achieve itspoverty-reduction mission, the World Bank focuseson investing in people, particularly through basichealth and education; protecting the environment;supporting and encouraging private business devel-opment; and promoting reforms to create a stablemacroeconomic environment and long-term eco-nomic growth.

Write-Off

A financial claim that a creditor regards as unrecov-erable and so no longer carries on its books.

269

delcada

Unrecovered Claims

delcada

Upper-Middle-Income Countries

delcada

World Bank Group

delcada

Write-Off

1. In the Guide, linkages between external debt sta-tistics, the IIP, and the national accounts have beendeveloped and explained. This appendix goes furtherand explains the relationship between the nationalaccounts and the IIP, such that data on the IIP can beincorporated into the external account componentsof the rest of the world account of the nationalaccounts system, bringing compilation and collec-tion efficiency gains as well as analytical benefits.

2. There is virtually complete concordance betweenthe 1993 SNA and BPM5 with respect to such issuesas the delineation of resident units, valuation oftransactions and of the stock of external assets andliabilities, time of recording of transactions in goodsand services, income flows, current transfers, capitaltransfers, external assets and liabilities, and coverageof the IIP. There are, however, differences in classifi-cation between the rest of the world account andBPM5. These reflect, inter alia, differences in analyt-ical requirements and the need in the 1993 SNA toadopt a uniform classification scheme for all sectorsof the economy. In this appendix, the financialaccount element of the national accounts is exam-ined, followed by a detailed comparison between thefinancial accounts and the IIP.

Financial Accounts

Features of Financial Accounts

3. The key features of financial accounts are that (1)they identify the liabilities that net borrowing institu-tional sectors use to finance their deficits, and thefinancial assets that net lending sectors use to allo-cate their surpluses; (2) they facilitate analysis of theflow of funds between different institutional sectorsof the economy; (3) they place emphasis on stockvariables such as financial assets and debt; and (4)they are developed from detailed information on thevarious institutional sectors and their activities infinancial assets/liabilities.

4. The complete system of financial accounts,including flow of funds accounts,1 has considerableanalytical power. For instance, corporate sector grossdebt-equity ratios can be calculated; related shifts byhouseholds or companies into financial deficit(defined relative to GDP) can be observed; andincreases in income gearing (interest payments as aproportion of income), shifts in the pattern of inter-mediation toward or away from the banking sector(as shown by the total assets of banks relative to non-bank financial institutions), and rapid growth of lend-ing in any individual market to a given sector canbe monitored. Furthermore, information on invest-ment patterns of institutional investors, the balancebetween sources of corporate debt finance in bankingand bond markets (to assess vulnerability to crises indifferent institutions or markets), and the maturity ofdebt (on an original maturity basis) is also available.

Financial Assets

5. Financial accounts deal with stocks of financialassets owned by institutional sectors and transactionsin these assets through financial markets. In the 1993SNA and the European System of Accounts 1995(ESA95),2 financial assets are defined as entities overwhich ownership rights are enforced and from whicheconomic benefits may be derived by their owners byholding them or using them, over a period of time(paragraph 11.16 of the 1993 SNA). In short, financialassets are stores of economic value. Most financialassets differ from other assets in that there are counter-part liabilities on behalf of another institutional unit.

6. The 1993 SNA distinguishes eight types of finan-cial assets:

270

Appendix IV. Relationship Between theNational Accounts and the International InvestmentPosition (IIP)

1Flow of funds accounts provide information on financial transac-tions among institutional sectors (for more details, see paragraphs11.103–11.111 and Table 11.3a of the 1993 SNA).2The ESA95 (Eurostat, 1996) is the system of national accounts usedby member states of the European Union. Unless otherwise stated,the ESA95 treatment is consistent in all aspects with the 1993 SNA.

Appendix IV • Relationship Between the National Accounts and the IIP

• Monetary gold and special drawing rights (SDRs)(AF.1);

• Currency and deposits (AF.2);• Securities other than shares (AF.3);• Loans (AF.4);• Shares and other equity (AF.5);• Insurance technical reserves (AF.6);• Financial derivatives (AF.7); and• Other accounts receivable/payable (AF.8).

Most financial assets are further disaggregated, inparticular according to maturity and market type.Thus, transferable deposits and other deposits (forexample, nontransferable savings deposits) areincluded within currency and deposits, while withinsecurities other than shares, a distinction is madebetween short-term and long-term securities.

Institutional Sectors

7. The 1993 SNA groups the institutional units of anational economy into five mutually exclusive institu-tional sectors: nonfinancial corporations, financialcorporations, general government, households, andnonprofit institutions serving households (NPISH)(Table A4.1). With regard to financial corporations, a

distinction is made between the central bank, otherdepository corporations (other monetary financialinstitutions in the ESA95), other financial institutions(except insurance corporations and pension funds),financial auxiliaries, and insurance corporations andpension funds. The general government is alsodivided in four subsectors: central government, stategovernment, local government, and social securityfunds. In the ESA95 (paragraph 2.49) the central bankand other financial corporations are grouped togetherin the monetary financial institutions (MFIs) sector.Also, the ESA95 divides the rest of the world sectorinto European Union (EU), and nonmember countriesand international organizations.

The Link Between the Accounts

8. Changes in stocks of financial assets and liabilitiesfrom one accounting point to another are the conse-quence of a combination of economic flows. Theseinclude financial transactions, valuation changes, andother changes, such as write-offs and transfers of assets/liabilities resulting from, say, an institutional unitchanging sectors. In the 1993 SNA flows and stocks arecompletely integrated—that is, changes in the stock orbalance sheet positions3 of the institutional units canbe fully explained by recorded flows (Table A4.2).

A Simplified Version of Financial AccountBalance Sheets

9. As mentioned above, the economy consists offive resident sectors—nonfinancial and financialcorporations, general government, households, andNPISH—all of which have relationships with therest of the world sector. Figure A4.1 is a matrix of

271

Table A4.1. Classification by Sector in 1993 SNA

Nonfinancial corporations (S.11)Financial corporations (S.12)• Central bank (S.121)• Other depository corporations (S.122)• Other financial intermediaries (except insurance corporations and

pension funds) (S.123)• Financial auxiliaries (S.124)• Insurance corporations and pension funds (S.125)

General government (S.13)1

• Central government (S.1311)• State government (S.1312)• Local government (S.1313)• Social security funds (S.1314)

Households (S.14)

Nonprofit institutions serving households (S.15)

Rest of the world (S.2)

Note: The abbreviations given in brackets are the sectors as they are num-bered in the 1993 SNA.

1The 1993 SNA also includes an alternative presentation of the general gov-ernment sector.This alternative presentation attributes social security funds tothe level of government at which they operate, leaving three subsectors: Centralgovernment plus social security funds operating at the central government level(S.1321); State government plus social security funds operating at the state gov-ernment level (S.1322); and Local government plus social security funds operat-ing at the local government level (S.1323).

Table A4.2. Link Between the Accounts

Flows (change to financial assets and liabilities)Financial account transactionsOther changes in volume of assets accountRevaluation account

Stocks (stocks of financial assets and liabilities)

3Balance sheets are statements, at a particular point in time, of thevalue of the stock of nonfinancial assets and financial assets andliabilities of an economy, sector, or institutional unit. For an econ-omy, gross assets less gross liabilities, the balancing item for abalance sheet, equals the “net worth” of the economy.


272

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various balance sheets that shows nonfinancial aswell as financial assets and liabilities by sector andinstrument; for example, households hold fixedassets of 1,423 as well as shares and other equity of411. For each financial asset/liability, the rows showtotal holdings and issues by sector, and the matchingof asset and liability positions.4 For each sector, thecolumns show financial assets owned or liabilitiesincurred, and also the net worth of the sector. Theneed for consistency among the rows and columnshelps to minimize errors in the data.

10. The financial accounts in a simplified form canbe derived from the second part of Figure A4.1because financial assets and liabilities are shown forall institutional sectors involved. Net financial assetsmay be derived as the balancing item between finan-cial assets and liabilities.

11. Figure A4.1 may be further simplified to showonly the balance sheets of the total economy and the

rest of the world sector. In Figure A4.2, the net worthof the total economy—its national wealth—equals thesum of a country’s nonfinancial assets (9,922) plus itsnet financial claims on the rest of the world. In thebalance sheet for the total economy, all financialassets and liabilities between residents are netted outin the consolidation to leave only the net financialassets position (positive or negative) on the rest of theworld. For the rest of the world balance sheet, onlyfinancial assets and liabilities are shown.

A More Detailed Version of Financial AccountBalance Sheets

12. Financial accounts may be expanded into threedimensions to track each instrument category, thefinancial claims of each sector on each other sector.By indicating who has lent to whom and with whatinstrument, such a matrix lends considerable ana-lytical power to financial accounts. As with thetwo-dimensional approach described above, the inter-locking row and column constraints of the three-dimensional matrix provide an important check on theconsistency of data. This is because for each sector,each transaction involves at least, and usually, two

273

Figure A4.2. Balance Sheets of the Total Economy and the Rest of the World

Assets Liabilities and Net Worth_______________________________________ ________________________________________Rest of the world Total economy Stocks and balancing items Total economy Rest of the world

16,877 Assets

9,922 AN Nonfinancial assets6,047 AN.1 Produced assets5,544 AN.11 Fixed assets

231 AN.12 Inventories272 AN.13 Valuables

3,875 AN.2 Nonproduced assets3,809 AN.21 Tangible nonproduced assets

66 AN.22 Intangible nonproduced assets

618 6,955 AF Financial assets/liabilities 6,446 357770 AF.1 Monetary gold and SDRs

105 1,482 AF.2 Currency and deposits 1,471 116125 1,263 AF.3 Securities other than shares 1,311 7770 1,384 AF.4 Loans 1,437 17

113 1,296 AF.5 Shares and other equity 1,406 326 370 AF.6 Insurance technical reserves 371 2545 163 AF.7 Financial derivatives 148 60

134 227 AF.8 Other accounts receivable/payable 302 59

B.90 Net worth 10,431 261

Note: Shaded areas indicate cells that are not applicable; codes from the 1993 SNA balance sheets are shown in center column.Data are derived from 1993 SNA, Table 13.1: Balance sheets—a line for financial derivatives has been added to reflect the 1999 revision to the 1993 SNA.

Data differ slightly due to small errors in the 1993 SNA table.

4Total financial assets and liabilities do not match because mone-tary gold and SDRs are financial assets that have no counterpartyliability.


balance sheet changes,5 and similarly for each instru-ment, each transaction involves two balance sheetchanges. For example, the issue of a new debt secu-rity by a nonfinancial corporation that is purchased bya nonresident results in the following entries: the non-financial corporation reports the increase in securitiesother than shares liabilities, and an increase in cur-rency and deposit assets; while the nonresidentreports an increase in securities other than sharesassets, and a reduction in currency and deposits.

13. The full three-dimensional matrix is an impor-tant analytical tool but, because of the cost and/or theconceptual complexity, relatively few countries havefull flow of funds data. Figure A4.3 provides thethree-dimensional financial asset matrix taken fromthe 1993 SNA (Table 13.3a, page 302). As can beseen, across the top of the matrix the columns showthe financial assets owned by the five mutually exclu-sive institutional sectors, with subsector detail for thefinancial corporations sector. The rows show the typeof claim disaggregated by institutional sector. Whilea detailed breakdown of the sector of debtor is shownfor securities other than shares, for loans, and fortrade credit and advances, only a resident/nonresi-dent breakdown is shown for shares and other equityand for currency and deposits. The matrix on finan-cial liabilities in the 1993 SNA (Table 13.3b, page303), not shown here, is similar to the financial assetsmatrix, although the columns show the institutionalsector of debtor and the rows show the institutionalsector of creditor. Using both matrixes, all asset, lia-bility, and counterpart combinations can be found.Compilers can adjust the sectors and instrument clas-sifications in either matrix, in order to reflect nationalconditions and needs of users.

14. Table A4.3 is derived from the matrix in FigureA4.3 but includes only the balance sheet of the restof the world. In comparison to the approach in Fig-ure A4.3, financial assets and liabilities of the rest ofthe world account are shown by counterpart institu-tional sector. Compared with the 1993 SNA, TableA4.3 includes additional counterpart sector informa-tion on the following instruments: currency, transfer-able deposits, other deposits, quoted shares, and

nonquoted shares. In some countries this additionalsectoral information is available.


15. The IIP is described in Chapter 17, and so only abrief summary is provided here. The instrumentclassification required by the BPM5 in respect of theIIP and the financial account of the balance of pay-ments consists of equity instruments (which includeequity securities, equity in unincorporated enter-prises, and reinvested earnings), debt instruments(which include bonds and notes, money marketinstruments, trade credits, use of IMF credit andloans, other loans, currency and deposits, and otheraccounts such as arrears), and financial derivatives.Two other financial assets—monetary gold andSDRs—are identified as part of reserve assets.

16. The institutional sector of the resident creditor,for assets, and that of the resident debtor, for liabili-ties, is of analytical value. Accordingly, for portfolioinvestment, financial derivatives and other invest-ment, the IIP distinguishes four sectors: general gov-ernment, monetary authorities, banks, and other. Fordirect investment, however, the domestic sector is aless significant factor. For this reason, the IIP doesnot classify direct investment by sector. Also,because by definition reserve assets can be owned orcontrolled only by the monetary authorities, no sec-toral classification is required for this item.

17. Classification of balance of payments transac-tions by institutional sector plays a significant role inlinking balance of payments statistics with other sta-tistical systems, such as the system of nationalaccounts, money and banking statistics, and govern-ment finance statistics. While the institutional sectorattribution in the IIP is not the same as in the 1993SNA, because of the differing analytical needs, thereis a significant degree of concordance. This isdescribed in more detail below.

Comparison Summary of the Restof the World Balance Sheet Accountand the IIP

Similarities Between the Rest of the WorldBalance Sheet Account and the IIP

18. As a consequence of an explicit decision bythe drafters of the 1993 SNA and BPM5, there is

274

5An example of the need for more than two entries is the settle-ment of a foreign currency financial derivatives contract underwhich the currency and deposits exchanged do not equal eachother in value, with the difference recorded as a redemption of afinancial derivative contract.


275

Financial Assets________________________________________________________________________________________________________Financial corporations_______________________________________________________

Other depositorycorporations________________

Deposit Other InsuranceNon- General money financial corporations Rest

financial govern- House- Central corpo- inter- Financial and pension of theType of Claim and Debtor Total corporations ment NPISH holds bank rations Other mediaries auxiliaries funds world

1. Monetary gold and SDRs

2. Currency and depositsa. Currency

i. National–Residents–Nonresidents

ii. Foreign–Residents

b. Transferable depositsi. National currency

–Residents–Nonresidents

ii. Foreign currency–Residents–Nonresidents

c. Other depositsi. National currency

–Residents–Nonresidents

ii. Foreign currency–Residents–Nonresidents

3. Securities other than sharesa. Short-term

i. Nonfinancial corporationsii. Financial corporationsiii. Central governmentiv. State and local governmentsv. Other resident sectorsvi. Rest of the world

b. Long-termi. Nonfinancial corporationsii. Financial corporationsiii. Central governmentiv. State and local governmentsv. Other resident sectorsvi. Rest of the world

4. Loansa. Short-term

i. Nonfinancial corporationsii. Financial corporationsiii. Central governmentiv. State and local governmentsv. Other resident sectorsvi. Rest of the world

b. Long-termi. Nonfinancial corporationsii. Financial corporationsiii. Central governmentiv. State and local governmentsv. Other resident sectorsvi. Rest of the world

Figure A4.3. Detailed Version of Balance Sheet Accounts


considerable homogeneity between the concep-tual framework for the rest of the world balancesheet account and the IIP. The degree of homo-geneity may be demonstrated by comparing theirrespective approaches to the coverage of financialinstruments, and the application of principles suchas residence, market valuation, accrual accounting,and maturity.

Coverage of Financial Instruments

19. The financial instruments recognized as finan-cial assets and liabilities in the 1993 SNA are iden-tical with those recognized in BPM5 and includedin the IIP. However, the presentation of thesefinancial assets and liabilities is not identical inthe two accounts, primarily because for analytical

276

5. Shares and other equitya. Resident enterprises

i. Quotedii. Not quoted

b. Nonresident enterprisesi. Quotedii. Not quoted

6. Insurance technical reserves6.1 Net equity of households in

life insurance reserves and in pension funds

6.2 Prepayments of premiums and reserves against outstanding claims

7. Financial Derivativesi. Nonfinancial corporationsii. Financial corporationsiii. Central governmentiv. State and local governmentsv. Other resident sectorsvi. Rest of the world

8. Other accounts receivable and payable8.1 Trade credit and advances

a. Nonfinancial corporationsb. Householdsc. Central governmentd. State and local governmentse. Other resident sectorsf. Rest of the world

8.2 Othera. Resident sectorsb. Rest of the world

Memorandum itemsDirect investment

EquityLoansOther

Figure A4.3 (concluded)

Financial Assets________________________________________________________________________________________________________Financial corporations_______________________________________________________

Other depositorycorporations________________

Deposit Other InsuranceNon- General money financial corporations Rest

financial govern- House- Central corpo- inter- Financial and pension of theType of Claim and Debtor Total corporations ment NPISH holds bank rations Other mediaries auxiliaries funds world


purposes the IIP groups financial instruments intofunctional categories. This makes reconciliationbetween the two accounts difficult. Table A4.4provides a concordance between the eight cate-gories of financial instruments in the 1993 SNA

and their attribution in the IIP. The extent to whichinstruments are separately identified in the twoaccounts varies, as is evident from the table.However, the balance of payments transactiondata provide a greater degree of detail than the

277

Table A4.3. Rest of the World Balance Sheet by Counterpart Sector

Financial Assets of Rest of World Liabilities of Rest of World

2. Currency and deposits 2. Currency and depositsa. Currency a. Currency

i. National i. National currencyii. Foreign i. Nonfinancial corporations

b. Transferable deposits ii. Financial corporationsi. National currency iii. Central governmentii. Foreign currency iv. State and local governments

c. Other deposits v. Other resident sectorsi. National currency ii. Foreign currencyii. Foreign currency i. Nonfinancial corporations

ii. Financial corporationsiii. Central governmentiv. State and local governmentsv. Other resident sectors

b. Transferable depositsi. National currency

i. Nonfinancial corporationsii. Financial corporationsiii. Central governmentiv. State and local governmentsv. Other resident sectors

ii. Foreign currencyi. Nonfinancial corporationsii. Financial corporationsiii. Central governmentiv. State and local governmentsv. Other resident sectors

c. Other depositsi. National currency

i. Nonfinancial corporationsii. Financial corporationsiii. Central governmentiv. State and local governmentsv. Other resident sectors

ii. Foreign currencyi. Nonfinancial corporationsii. Financial corporationsiii. Central governmentiv. State and local governmentsv. Other resident sectors

3. Securities other than shares 3. Securities other than sharesa. Short-term a. Short-term

i. Nonfinancial corporations i. Nonfinancial corporationsii. Financial corporations ii. Financial corporationsiii. Central government iii. Central governmentiv. State and local governments iv. State and local governmentsv. Other resident sectors v. Other resident sectors

b. Long-term b. Long-termi. Nonfinancial corporations i. Nonfinancial corporationsii. Financial corporations ii. Financial corporationsiii. Central government iii. Central governmentiv. State and local governments iv. State and local governmentsv. Other resident sectors v. Other resident sectors


IIP and so greater subdetail concordance with the1993 SNA flow accounts than there is between thestock measures. (See Table A4.5 of this appendix.The detailed presentation of balance of pay-ments transactions is provided on pages 132–40 ofBPM5.)

Monetary gold and SDRs

20. The 1993 SNA does not separately identify mon-etary gold from SDRs (see Table A4.4), unlike theIIP, which separately identifies these financial assetswithin reserve assets. Gold is a component of

278

4. Loans 4. Loansa. Short-term a. Short-term

i. Nonfinancial corporations i. Nonfinancial corporationsii. Financial corporations ii. Financial corporationsiii. Central government iii. Central governmentiv. State and local governments iv. State and local governmentsv. Other resident sectors v. Other resident sectors

b. Long-term b. Long-termi. Nonfinancial corporations i. Nonfinancial corporationsii. Financial corporations ii. Financial corporationsiii. Central government iii. Central governmentiv. State and local governments iv. State and local governmentsv. Other resident sectors v. Other resident sectors

5. Shares and other equity 5. Shares and other equitya. Resident enterprises i. Quoted

i. Quoted i. Nonfinancial corporationsii. Not quoted ii. Financial corporations

iii. Central governmentiv. State and local governmentsv. Other resident sectors

ii. Not quotedi. Nonfinancial corporationsii. Financial corporationsiii. Central governmentiv. State and local governmentsv. Other resident sectors

6. Insurance technical reserves 6. Insurance technical reserves6.1 Net equity of nonresident households in life insurance 6.1 Net equity of resident households in life insurance

reserves and in pension funds reserves and in pension funds6.2 Prepayments of premiums and reserves against outstanding 6.2 Prepayments of premiums and reserves against

claims outstanding claims

7. Financial derivatives 7. Financial derivativesi. Nonfinancial corporations i. Nonfinancial corporationsii. Households ii. Householdsiii. Central government iii. Central governmentiv. State and local governments iv. State and local governmentsv. Other resident sectors v. Other resident sectors

8. Other accounts receivable 8. Other accounts payable8.1 Trade credit and advances 8.1 Trade credit and advances

a. Nonfinancial corporations a. Nonfinancial corporationsb. Households b. Householdsc. Central government c. Central governmentd. State and local governments d. State and local governmentse. Other resident sectors e. Other resident sectors

8.2 Other 8.2 Othera. Resident sectors a. Nonresident sectors

Table A4.3 (concluded)

Financial Assets of Rest of World Liabilities of Rest of World


279

Table A4.4. Comparison of Breakdowns by Financial Instrument

1993 SNA BPM5 Classification of 1993 SNA Classification of Financial Instruments Code Financial Instruments IIP Code1

Monetary gold and special drawing rights AF.1Monetary gold 5.1 (RA)Special drawing rights (SDRs) 5.2 (RA)

Currency and deposits AF.2 Currency and deposits 4.3 (OI)Currency AF.21 5.4.1 (RA, foreign exchange)Transferable deposits AF.22 5.3. (RA, RPF)Other deposits AF.29 5.5 (part of RA, other claims)

Securities other than shares AF.3 Debt securities 1.2 (part of DI, other capital)Securities other than shares Money market instruments 2.2.1 (PI, debt securities)

Short-term AF.31 Bonds and notes 2.2.2 (PI, debt securities)Long-term AF.32 5.4.2.2 (RA, foreign exch.)

5.4.2.3 (RA, foreign exch.)5.5 (part of RA, other claims)

Loans AF.4 Loans 4.2.1.2 (OI)Short-term AF.41 Short-term loans 4.2.2.2 (OI)Long-term AF.42 4.2.3.2 (OI)

4.2.4.2 (OI)Long-term loans 4.2.1.1 (OI)

4.2.2.1 (OI4.2.3.1 (OI)4.2.4.1 (OI)5.3 (part of RA, RPF)

Shares and other equity AF.5Reinvested earnings 1.1 (part of DI)Equity capital 1.1 (part of DI)Equity securities 2.1 (PI)Equities 5.4.2.1 (RA, for. exchange)

5.5 (part of RA, other claims)

Insurance technical reserves AF.6 4.4.1.1 (part of OI, other Net equity of households in life insurance reserves and AF.61 Net equity of households in life assets/liabilities, long term)

in pension funds reserves insurance reserves and in 4.4.2.1 (part of OI, other Net equity of households in life insurance reserves AF.611 pension funds assets/liabilities, long term)Net equity of households in pension funds reserves AF.612 Prepayments of premiums and 4.4.3.1 (part of OI, other

Prepayments of insurance premiums and reserves for F.62 reserves against outstanding assets/liabilities, long term)outstanding claims claims 4.4.4.1(part of OI, other

assets/liabilities, long term)

Financial derivatives AF.7 Financial derivatives 3 (FD)5.4.3 (RA)

Other accounts receivable/payable AF.8Trade credits and advances AF.81 Other claims on affiliated 1.2 (part of DI other capital)Other AF.89 enterprises/other liabilities

to affiliated enterprisesOther claims on direct investors/ 1.2 (part of DI other capital)

other liabilities to direct investors

Trade credits (short- and 4.1 (OI)long-term)

Other 4.4 (part of OI, other Short-term assets/liabilities)Long-term

Memorandum itemDirect investment AF.m

Note: DI, direct investment; PI, portfolio investment; FD, financial derivatives; OI, other investment; RA, reserve assets; RPF, reserve position in the Fund.1In the 1999 revision to the IIP, the financial derivatives functional category is included between the portfolio and other investment functional categories.

This affects the numbering of other investment and reserve assets as compared with the published BPM5.


reserve assets if owned by the authorities (or by oth-ers who are subject to the effective control of theauthorities) and held as a reserve asset. SDRs areinternational reserve assets created by the IMF tosupplement other reserve assets. In the rest of theworld balance sheet, monetary gold and SDRs arenot regarded as liabilities of the rest of the world sec-tor, although they are regarded as external assets ofthe domestic economy.

Currency and deposits

21. In the 1993 SNA category, the currency anddeposits category is subcategorized into currency,transferable deposits, and other deposits (see TableA4.4). Such a subcategorization is not provided inthe IIP. However, for all sectors except the monetaryauthorities, for whom currency and deposit data arein reserve assets, the 1993 SNA category may bederived from 4.3 in other investment.

Securities other than shares

22. The 1993 SNA subcategorizes securities otherthan shares into short- and long-term (see TableA4.4). The same principle applies to the subcatego-rization in the IIP, although the subcategories are enti-tled money market instruments, and bonds and notes.However, the IIP allocates securities other than sharesto direct investment and reserve assets if they meet thecriteria to be included in those functional categories.For direct investment, a breakdown of securities otherthan shares by subcategories is not available.

Loans

23. In both accounts, data on loans are subcatego-rized into short- and long-term on the basis of origi-nal maturity (see Table A4.4). Within reserve assets,loans to the IMF are included.

Shares and other equity

24. The 1993 SNA does not subcategorize shares andother equity, while the IIP provides information onreinvested earnings, equity capital, equity securities,and equities (see Table A4.4). As elsewhere, the IIPattribution is primarily on a functional category basis,so if shares and other equity meet the definition ofdirect investment or reserve assets they are includedin these functional categories. Otherwise these instru-ments are included in portfolio investment.

Insurance technical reserves

25. In the 1993 SNA the insurance technicalreserves category is subcategorized into net equity ofhouseholds in life insurance reserves and in pensionfunds and prepayments of insurance premiums andreserves for outstanding claims (see Table A4.4).There is no subcategorization included in the IIP,and indeed the whole category is indistinguishablyincluded in the other assets, other investment cate-gory in the IIP. The different approach in the twoaccounts reflects the relative analytical importanceof this category to the domestic sectors comparedwith the rest of the world sector: much insurance andpension fund activity is within an economy.

Financial derivatives

26. Following the 1999 revisions, both the 1993SNA and the IIP show separate categories for finan-cial derivatives (see Table A4.4). However, the IIPalso allocates financial derivatives to reserve assetsif they meet the criteria to be included in this func-tional category.

Other accounts receivable/payable

27. In the 1993 SNA, the category other accountsreceivable or payable has two subcategories—tradecredits and advances and other (see Table A4.4). Inthe IIP, trade credit is separately identified withinother investment, with a breakdown between short-and long-term trade credits, on an original maturitybasis. The other subcategory from the 1993 SNA isincluded within the other assets subcategory of otherinvestment, which has a breakdown between short-and long-term. Trade credit and other assets that meetthe criteria are included within direct investment.

Core Principles

28. The core principles of the 1993 SNA, the IIP,and this Guide are the same. The concepts of resi-dence and valuation are identical. A resident is aninstitutional unit that has its center of economicinterest in the economic territory of a country, whilevaluation of the position data is to be at prices cur-rent on the day to which the balance sheet refers—that is, the market price.6 Both the 1993 SNA and

280

6The Guide also defines nominal value (Chapter 2) and regardsthis method of valuation as central to debt analysis.


BPM5 provide specific as well as general guidanceon valuation.7

29. The 1993 SNA and IIP, as well as this Guide,follow the principle of accrual accounting in thattransactions are recorded when economic value iscreated, transformed, exchanged, transferred, orextinguished. Claims and liabilities are deemed toarise when there is a change in ownership (that is,when both the creditor and debtor enter the claimand liability, respectively, on their books). By con-trast, under the cash basis of recording, transactionsare recorded only when payment is made orreceived. Under the due-for-payment basis ofrecording, a variation of the cash basis, transactionsare recorded when receipts or payments arising fromthe transactions fall due.

30. The 1993 SNA and BPM5 recommend the samemethod for converting positions denominated inforeign currencies into the national currency or asingle foreign currency, such as U.S. dollars: the useof the market exchange rates prevailing on the dateto which the balance sheet relates—the midpointbetween buying and selling spot rates—is recom-mended. The maturity concept used in both the1993 SNA and for the IIP is that of original maturitybreakdown, albeit as a secondary classification crite-rion. Short-term financial assets are usually definedas those with an original maturity of one year or less,and in exceptional cases two years at maximum.Long-term financial assets are defined as having anoriginal maturity of normally more than one yearand in exceptional cases more than two years atmaximum.

Discrepancies Between the Rest of the WorldBalance Sheet Account and the IIP

31. The main discrepancies between the rest of theworld balance sheet in the 1993 SNA and the IIP arein presentation, reflecting different analytical needs.As mentioned above, the IIP gives primacy in pre-sentation to functional categories—such as directinvestment—whereas the 1993 SNA gives primacy to

instrument and sector. In addition, the 1993 SNA rec-ommends the presentation of a broader range ofinstitutional sectors than is recommended by BPM5for the IIP. Whereas the IIP presents data for up tofour institutional sectors—monetary authorities,general government, banks, and other—the 1993SNA recommends that data be presented for fiveinstitutional sectors in the economy. In addition, the1993 SNA recommends the collection of subsectordetail, unlike BPM5. The broad reconciliationbetween the 1993 SNA and BPM5 institutional sec-tors is presented in Figure A4.4.

32. As shown in the figure, two subsectors of finan-cial corporations (central bank (S.121) and otherdepository corporations (S.122)) are related to theBPM5 sectors monetary authorities and banks. How-ever, the monetary authorities sector in the IIPincludes not only the central bank but also the opera-tions of other government institutions or commercialbanks when these operations are usually attributed tothe central bank. As a consequence, the delimitationof the sector general government in the IIP is not nec-essarily identical to the 1993 SNA definition, whichrecommends a further breakdown into the subsectorscentral, state, and local government, and social secu-rity funds.8 The other sector in the IIP comprises non-

281

Figure A4.4. Sectoral Breakdown in 1993 SNAand in IIP

1993 SNA IIP

Nonfinancial corporations (S.11) Other sectors

Central bank (S.121) Monetary authorities

Other depository corporations (S.122) Banks

Other financial intermediaries (except insurance Other sectorscorporations and pension funds) (S.123)

Financial auxiliaries (S.124)Insurance corporations and pension funds (S.125)

General government (S.13) General government• Central government (S.1311)• State government (S.1312)• Local government (S.1313)• Social security funds (S.1314)

Households (including noncorporations) (S.14) Other sectors

Nonprofit institutions serving households (S.15) Other sectors

7For instance, see paragraphs 14.48–14.52 of the 1993 SNA.Chapter V of BPM5 notes the need to apply market price proxiesor equivalents in situations in which a market price in its literalsense cannot be determined (for example, the possible case oftransfer pricing that significantly distorts measurement in resourcetransfers between affiliated enterprises).

8Although, as noted above, the 1993 SNA also recommends an alter-native presentation of the subcategories of general government.


282

Table A4.5. Correspondence of 1993 SNA Tables with BPM5 and IIP Components:1Account V—Rest of the World Account, V.III—External Accumulation Accounts

V.III.1: Capital Account

Correspondence to balance of payments standard 1993 SNA categories components [items], additional details and aggregates

Changes in assets Transactions in liabilitiesK.2 Acquisitions less disposals of nonproduced Item 2.A.2 acquisition/disposal of nonproduced nonfinancial assets

nonfinancial assets Sum of itemsB.9 Net lending (+)/net borrowing (–) 1. Current account balance; and

2.A. Capital account balance

Changes in liabilities and net worth Transactions in assetsB.12 Current external balance Item 1. Current accountD.9 Capital transfers receivable Item 2.A.1 Capital transfersD.9 Capital transfers payable Item 2.A.1 Capital transfersB.10.1 Changes in net worth due to saving and Sum of items

net capital transfers 1. Current account balance; and2.A.1 Net capital transfers

V.III.2: Financial Account2

Changes in assets Transactions in liabilitiesF.1 Monetary gold and SDRs Sum of items

2.B.5.1 monetary gold; and2.B.5.2 special drawing rights (with sign reversed3)

F.2 Currency and deposits Item2.B.4.2.3 currency and deposits

F.3 Securities other than shares Sum of items2.B.1.1.3.2.1 debt securities issued by direct investor;2.B.1.2.3.2.1 debt securities issued by affiliated enterprises;2.B.2.2.2 debt securities (part of portfolio investment)

F.4 Loans Item2.B.4.2.2 loans

F.5 Shares and other equity Sum of items2.B.1.1.1.2 equity capital: liabilities to affiliated enterprises

(part of direct investment abroad);2.B.1.2.1.2 equity capital: liabilities to direct investors

(part of direct investment in the reporting economy);2.B.1.2.2 reinvested earnings (part of direct investment in the reporting

economy); and2.B.2.2.1 equity securities (part of portfolio investment)

F.6 Insurance technical reserves Sum of items2.B.4.2.4.4.1.1 net equity of households in life insurance reserves and in pension

funds; and2.B.4.2.4.1.1.2 prepayments of premiums and reserves against outstanding claims

F.7 Financial derivatives 2.B.3.2 liabilities (financial derivatives)F.8 Other accounts receivable Sum of items

2.B.1.1.3.2.2 other liabilities of direct investors (part of direct investment abroad);2.B.1.2.3.2.2 other liabilities to direct investors

(part of direct investment in the reporting economy);2.B.4.2.1 trade credits (part of other investment);2.B.4.2.4 other liabilities;Minus items2.B.4.2.4.4.1.1 net equity of households in life insurance reserves and in pension

funds; and2.B.4.2.4.4.1.2 prepayments of premiums and reserves against outstanding claims

(all part of other investment)


283

Changes in liabilities and net worth Transactions in assets

F.2 Currency and deposits Sum of items2.B.4.1.3 currency and deposits (part of other investment);2.B.5.3.1 deposits (part of reserve position in the Fund);2.B.5.4.1 currency and deposits (part of foreign exchange); and2.B.5.5.1 currency and deposits (part of other reserve claims)

F.3 Securities other than shares Sum of items2.B.1.1.3.1.1 debt securities issued by affiliated enterprises

(part of direct investment abroad);2.B.1.2.3.1.1 debt securities issued by direct investors

(part of direct investment in the reporting economy);2.B.2.1.2 debt securities (part of portfolio investment);2.B.5.4.2.2 bonds and notes (part of foreign exchange);2.B.5.4.2.3 money market instruments and financial derivatives

(part of foreign exchange); and2.B.5.5.2.2 debt securities (part of other reserve claims)

F.4 Loans Sum of items2.B.4.1.2 loans (part of other investment); and2.B.5.3.2 loans (part of reserve position in the Fund)

F.5 Shares and other equity Sum of items2.B.1.1.1.1 equity capital: claims on affiliated enterprises

(part of direct investment abroad);2.B.1.1.2 reinvested earnings (part of direct investment abroad);2.B.1.2.1.1 equity capital: claims on direct investors

(part of direct investment in the reporting economy);2.B.2.1.1 equity securities (part of portfolio investment); and2.B.5.4.2.1 and 2.B.5.5.2.1 equities

(part of reserve assets, foreign exchange, and other claims)

F.6 Insurance technical reserves Sum of items2.B.4.1.4.4.1.1 net equity of households in life insurance reserves and in pension

funds;2.B.4.1.4.1.1.1; 2.B.4.1.4.2.1.1; 2.B.4.1.4.3.1.1; and2.B.4.1.4.4.1.2 prepayments of premiums and reserves against outstanding claims


F.7 Financial derivatives Sum of items 2.B.3.1 assets (financial derivatives), and 2.B.5.4.3 financial derivatives (part of foreign exchange)

F.8 Other accounts payable Sum of items2.B.1.1.3.1.2 other claims on affiliated enterprises (part of direct investment abroad);2.B.1.2.3.1.2 other claims on direct investors

(part of direct investment in the reporting economy);2.B.4.1.1 trade credits (part of other investment);2.B.4.1.4 other assets;

Minus tems2.B.4.1.4.4.1.1 net equity of households in life insurance reserves and in pension

funds;2.B.4.1.4.1.1.1; 2.B.4.1.4.2.1.1; 2.B.4.1.4.3.1.1; and2.B.4.1.4.4.1.2 prepayments of premiums and reserves against outstanding claims


B.9 Net lending (+)/net borrowing (–)

Table A4.5 (continued)

V.III.2: Financial Account (continued)



financial corporations (S.11), some subsectors offinancial corporations such as other financial interme-diaries (S.123), financial auxiliaries (S.124), as wellas insurance corporations and pension funds (S.125),households (S.14), and NPISH (S.15).

Detailed Examination of theClassification Linkages Among the Restof the World Account, the Balance of Payments Accounts, and the IIP

33. Although harmonization in concepts has beenattained between both systems, differences in pre-sentation reflect differences in analytical require-

ments, the relative quantitative significance of someitems in international transactions, and constraintsimposed by the internal structures of the respectiveaccounts. Nonetheless, bridges can be constructed toderive relevant national accounting flows and stocksfrom balance of payments accounts and the interna-tional investment position.

34. In terms of transactions, the 1993 SNA distin-guishes the following accounts in respect of the restof the world account of goods and services:• Account V.I: External account of goods and ser-

vices (page 316 of the 1993 SNA);• Account V.II: External account of primary

incomes and current transfers (page 316);

284

V.III.3: Other Changes in Assets Accounts,V.III.3.1: Other Changes in Volume of Assets Account


Changes in assets Changes in liabilitiesK.7 Catastrophic losses Catastrophic losses (part of other adjustments)K.8 Uncompensated seizures Uncompensated seizures (part of other adjustments)K.10 Other volume changes in financial assets and Other volume changes (part of other adjustments)

liabilities, n.e.c.K.12 Changes in classifications and structure Change in classifications and structure (part of other adjustments)

Changes in liabilities and net worth Changes in assetsK.7 Catastrophic losses Catastrophic losses (part of other adjustments)K.8 Uncompensated seizures Uncompensated seizures (part of other adjustments) K.10 Other volume changes in financial assets and

liabilities, n.e.c. Other volume changes (part of other adjustments)K.12 Changes in classifications and structure Change in classifications and structure (part of other adjustments)B.10.2 Changes in net worth due to other changes

in volume of assets

Changes in assets Changes in liabilitiesK.11 Nominal holding gains/losses in financial assets Sum of entries in the columns for price and exchange rate changesK.11.1 Neutral holding gains/losses in financial assets Sum of entries in the columns for neutral holding gains/lossesK.11.2 Real holding gains/losses in financial assets Sum of entries in the columns for real holding gains/losses

Changes in liabilities and net worth Changes in assetsK.11 Nominal holding gains/losses in liabilities Sum of entries in the columns for price and exchange rate changesK.11.1 Neutral holding gains/losses in liabilities Sum of entries in the columns for neutral holding gains/lossesK.11.2 Real holding gains/losses in liabilities Sum of entries in the columns for real holding gains/lossesB.10.3 Changes in net worth due to nominal holding Price and exchange rate changes in assets less price and exchange

gains/losses rate changes in liabilitiesB.10.31 Changes in net worth due to neutral holding Neutral holding gains/losses in assets less neutral holding gains/losses

gains/losses in liabilitiesB.10.32 Changes in net worth due to real holding Real holding gains/losses in assets less real holding gains/losses in liabilities

gains/losses

1The assets of the rest of the world sector in the 1993 SNA correspond with the liabilities in the balance of payments and the IIP, and vice versa.2The detailed presentation of balance of payments transactions that is used for this comparison with the 1993 SNA financial instrument categories is pro-

vided on pp. 132–40 of BPM5. Due to the introduction of financial derivatives as a separate category in the 1993 SNA and a separate functional category inBPM5, some series have been renumbered since the publication of these manuals.

3The domestic sector has a “claim” on the rest of the world sector.

Table A4.5 (concluded)


• Account V.III.1: Capital account (page 316) andV.III.2: Financial account (page 317), which arecomponents of V.III: External accumulationaccounts (page 316).

In BPM5, the transactions reflected in Accounts V.Iand V.II are those in the current account componentof the balance of payments accounts, while thosereflected in Account V.III.1 are contained in thecapital account component of the capital and finan-

cial account of the balance of payments. The flowsreflected in V.III.2 are shown in the financialaccount component of the capital and financialaccount. Account V.III.3.1: Other changes involume of assets (page 317) and Account V.III.3.2:Revaluation account (page 317) are included withinthe IIP statement in BPM5, in order to reconcilethe transactions between reporting dates with thechange in positions. Thus, Account V.III.3.1 corre-sponds to the column for “other adjustments” in

285

Table A4.6. Correspondence of 1993 SNATables with BPM5 and IIP Components:Account V—Rest of the World Account, V.IV—External Assets and Liabilities Account

V.IV.1: Opening Balance Sheet

Correspondence to international investment position standard 1993 SNA categories components and additional details

AF Financial assets Sum of itemsB.1.1.2 liabilities (equity capital and reinvested earnings) to direct investors

(part of direct investment in the reporting economy);B.1.2.2 liabilities (other capital) to direct investors (part of direct investment in the

reporting economy);A.1.1.2 liabilities (equity capital and reinvested earnings) to affiliated enterprises

(part of direct investment abroad);A.1.2.2 liabilities (other capital) to affiliated enterprises (part of direct investment abroad);B.2 portfolio investment; andB.3 financial derivatives; andB.4 other investment.

AF Liabilities Sum of itemsA.1.1.1 claims (equity capital and reinvested earnings) on affiliated enterprises

(part of direct investment abroad);A.1.2.1 claims (other capital) on affiliated enterprises (part of direct investment abroad);B.1.1.1 claims (equity capital and reinvested earnings) (part of direct investment in the

reporting economy);B.1.2.1 claims (other capital) on direct investors (part of direct investment in the

reporting economy);A.2 portfolio investment;A.3 financial derivatives; andA.4 other investment; andA.5 reserve assets.1

B.90 Net worth

V.IV.2: Changes in Balance Sheet

AF Total changes in financial assets Sum of transactions, price and exchange rate changes, and other adjustments in respect of the corresponding international investment position items identified in account V.IV.1.

AF Total changes in liabilities Sum of transactions, price and exchange rate changes, and other adjustments in respect of the corresponding international investment position items identified in account V.IV.1.

B.10 Changes in net worth, total Total changes in assets – total changes in liabilities.

V.IV.3: Closing Balance Sheet

AF Financial assets Sum of end of period values of corresponding items in the international investment position and identified in Account V.IV.1.

AF Liabilities Sum of end of period values of corresponding items in the international investment position and identified in Account V.IV.1.

B.90 Net worth

1Monetary gold and SDRs are components of reserve assets that have no counterpart liability in the rest of the world sector of the national accounts.


the IIP statement, while Account V.III.3.2 corre-sponds to the columns for “price changes” and“exchange rate changes” in the IIP statement.Account V.IV: External assets and liabilities account(page 318) is equivalent to the IIP statement inBPM5.

35. Tables A4.5 and A4.6 (on preceeding page) pro-vide reconciliation between the categories shown inthe relevant capital and financial accounts for theexternal sector of the 1993 SNA and correspondingitems in balance of payments accounts and the IIP.The major elements of the 1993 SNA capitalaccount of the external accumulation accounts(Table A4.5, Account V.III.1) are identical with thecapital account component of the capital and finan-cial account of the balance of payments. Althoughthe balancing item, net lending/net borrowing, inthe capital account of the 1993 SNA is not explicitlyidentified in the balance of payments, it nonethelesscan be derived by adding the current account bal-ance and the balance of transactions reflected in thecapital account of BPM5.

36. Coverage of the 1993 SNA financial account(Table A4.5, Account V.III.2) is identical with thecoverage of the financial account of the capital andfinancial account in the balance of payments,although the level of detail is different. As notedabove, in the 1993 SNA the primary focus is onfinancial instruments, whereas in the balance of pay-ments the primary focus is on functional categoriza-tion (that is, direct investment, portfolio investment,financial derivatives, other investment, and reserveassets). In addition to identifying types of financialinstruments (insurance technical reserves being anexception), the balance of payments includes anabbreviated sector breakdown (that is, monetaryauthorities, general government, banks, and other).Furthermore, to conform with the 1993 SNA, BPM5states that entries in the credit and debit sides of thefinancial account of the balance of payments arerecorded, in principle, on a net basis (that is,increases less decreases in assets or liabilities).However, gross recording is recommended as sup-plementary information, such as in the case of draw-ings and repayments on long-term loans.

286

1. The Heavily Indebted Poor Countries (HIPC) Ini-tiative is a major initiative of consequence to themonitoring of external debt position. The objectiveof this Initiative is to reduce external debt positionsof some low-income countries to sustainable lev-els—that is, to levels that enable them to meet theircurrent and future external debt-service obligationsin full, without recourse to debt rescheduling oraccumulation of arrears, and without compromisinggrowth. Among other things, this requires accuratemeasurement of the external debt position. In thisappendix, the HIPC Initiative is described, alongwith Debt Sustainability Analysis (DSA), a buildingblock of the HIPC Initiative.

HIPC Initiative

Origin and Description of the HIPC Initiative

2. For a number of low-income countries, it wasrecognized in the second half of the 1990s, by offi-cial creditors in particular, that the external debt situ-ation was becoming extremely difficult. For suchcountries, even full use of traditional mechanisms ofrescheduling and debt reduction—together with con-tinued provision of concessional financing and pur-suit of sound economic policies—would not besufficient to attain sustainable external debt levelswithin a reasonable period of time and without addi-tional external support. The HIPC Initiative is acomprehensive, integrated, and coordinated frame-work developed jointly by the IMF and the WorldBank to address these external debt problems of theHIPCs. The framework was adopted in September1996, through its endorsement by the Interim andDevelopment Committees of the IMF and WorldBank. Following a comprehensive review launchedin early 1999, the Initiative was enhanced in Sep-tember 1999 to provide faster, deeper, and broaderdebt relief, and to strengthen the links between debtrelief, poverty reduction, and social policies.

3. The Initiative is designed to enable HIPCs thathave a strong track record of economic adjustmentand reform to achieve a sustainable debt positionover the medium term. Central to the Initiative arethe country’s continued efforts toward macroeco-nomic and structural adjustment and social reforms,with an emphasis on poverty reduction. Thus, allcountries requesting HIPC Initiative assistance must(1) have adopted a Poverty Reduction Strategy Paper(PRSP) through a broad-based participatory process,by the decision point (see below), and (2) have madeprogress in implementing this strategy for at leastone year by the completion point (see below).1

These efforts are complemented by a commitmentfrom the international financial community to tacklethe country’s external debt problem in a comprehen-sive and coordinated fashion. Indeed, the Initiativerequires the participation of all creditors—bilateral,multilateral, and commercial.

Eligibility Criteria and the Structure of the HIPC Initiative

4. To receive assistance under the HIPC Initiative,countries need to be both eligible and face unsus-tainable external debt positions. To be eligible, acountry needs to have satisfied a set of criteria.Specifically, it must:• Be eligible for concessional assistance from the

IMF and World Bank;• Face an unsustainable debt burden, beyond exist-

ing, traditional debt-relief mechanisms;2 and

Appendix V. Heavily Indebted Poor Countries(HIPC) Initiative and DebtSustainability Analysis

287

1On a transitional basis, given the time country authorities needto prepare a participatory PRSP, countries can reach their deci-sion points based on an interim PRSP (I-PRSP), which sets outthe government’s commitment to and plans for developing aPRSP.

2Such as a Paris Club stock-of-debt operation on a Naples terms67 percent present value reduction with at least comparable actionfrom bilateral creditors. Table 8.2 in Chapter 8 sets out the evolu-tion of Paris Club rescheduling terms.


• Establish a track record of reform and sound poli-cies through IMF- and World Bank-supportedprograms.

5. The sustainability of the external debt position isdetermined by comparing the outcome of a compre-hensive loan-by-loan DSA, agreed both with theauthorities and creditors, with the HIPC targets. Atthe time of writing, these targets are set at 150 per-cent for the present value of the ratio of debt toexports, and 15 percent for the ratio of debt serviceto exports. For very open economies (with anexports-to-GDP ratio of at least 30 percent) that havea heavy fiscal burden of debt despite strong efforts togenerate revenue (indicated by a ratio of fiscal rev-enue to GDP of at least 15 percent), the presentvalue of debt-to-exports target can be lower than 150percent and is set so as to achieve a 250 percent ratioof the present value of debt to fiscal revenue at thedecision point.3

6. The IMF and World Bank Executive Boardsdetermine need, and commit assistance, at the deci-sion point. Those institutions and some other credi-tors also start delivering part of their assistancebetween the decision and completion points (interimrelief).4 Assistance is provided, irrevocably by allcreditors, at (or before) the completion point—sub-ject, as mentioned above, to the country implement-ing a set of key, predefined structural reforms.5 Thus,there is an incentive for countries to implementreforms quickly, and so develop ownership over thetimetable. Figure A5.1 sets out the process in dia-grammatical form.

Calculations of Overall Assistance

7. Assistance under the HIPC Initiative is defined asthe present value reduction required to lower externaldebt at the decision point to the Initiative’s targets.

Total assistance is defined as assistance at the com-pletion point plus the action provided during theinterim period. The external debt position calculationunder the HIPC Initiative (or net present value, NPV,calculation of external debt as it is described in HIPCterminology)6 is the sum of all future debt-serviceobligations (interest and principal) on existing debton a loan-by-loan basis, discounted at the marketinterest rate (the Commercial Interest Reference Rate,CIRR, from the OECD). So for concessional lending,the calculation results in a present value of debt lessthan its nominal value, because the interest rate on theloan is less than the market rate. The calculation ofthe external debt position at the decision point usesthe latest actual end-of-period data available, mea-sured after assuming a hypothetical Paris Club stock-of-debt operation on Naples terms (67 percentreduction on eligible debt) and comparable treatmenton other official bilateral and commercial claims.

Burden-Sharing Among Creditorsand Delivery of Assistance

8. One of the Initiative’s guiding principles is broadand equitable participation of all creditors (multilat-eral, official bilateral, and commercial) in providingassistance sufficient for the country to achieve debtsustainability. For the Paris Club, this generallyinvolves a stock-of-debt operation with a reductionof up to 90 percent in the present value of eligibleclaims. The country is required to seek at least com-parable treatment from its other official bilateral andcommercial creditors.

9. Multilateral creditors take action proportional tobilateral creditors to reduce the present value of theirclaims on the country. Each multilateral institutionchooses the vehicle to deliver its share of assistance(derived in proportion to its share in the presentvalue of multilateral claims at the decision point).The IMF’s contribution is made in the form of grantsfinanced from Poverty Reduction and Growth Facil-ity (PRGF) resources7 and is used only to meet debt-

288

3The export denominator is derived as the “backward-looking”three-year average of exports of goods and services (BPM5 defini-tion) over the latest actual data that will be available at the deci-sion point. The fiscal revenue denominator, if used, is the latestactual end-of-period figure, and is defined as central governmentrevenue (excluding grants).

4Bilateral and commercial creditors are generally expected toreschedule obligations coming due. There are limits to the maxi-mum assistance that the IMF and World Bank can provide duringthe interim period.

5A number of key elements or triggers are identified that wouldadequately represent overall progress in macroeconomic, struc-tural, and social areas, and that would eventually translate intodurable growth, debt sustainability, and poverty reduction.

6While the term NPV is commonly used, frequently it would bemore accurate to describe the calculation as present value—discounting future interest and principal payments by an interestrate—and this is the approach taken in the Guide.

7The PRGF is available to those countries that are facing pro-tracted balance of payments problems and are eligible to borrowon concessional terms under the International Development Asso-ciation (IDA). Previous to November 1999, the PRGF was knownas the Enhanced Structural Adjustment Facility (ESAF).

Appendix V • HIPC Initiative and Debt Sustainability Analysis

289

Figure A5.1. Enhanced HIPC Initiative Flow Chart

• Country establishes three-year track record of good performance and develops together with civil society a Poverty Reduc-tion Strategy Paper (PRSP); in early cases, an Interim PRSP may be sufficient to reach the decision point.

• Paris Club provides flow rescheduling on Naples terms, i.e., rescheduling of debt service on eligible debt falling due (up to 67percent reduction on a net present value (NPV) basis).

• Other bilateral and commercial creditors provide at least comparable treatment.1

• Multilateral institutions continue to provide adjustment support in the framework of World Bank- and IMF-supported adjust-ment programs.

Paris Club stock-of-debt operation under Naples terms andcomparable treatment by other bilateral and commercialcreditors

is adequatefor the country to reach external debt sustainability.========> Exit(Country does not qualify for HIPC Initiative assistance.)

• Country establishes a second track record by implementing the policies determined at the decision point (which are triggersto reaching the floating completion point) and linked to the (Interim) PRSP.

• World Bank and IMF provide interim assistance.• Paris Club provides flow rescheduling on Cologne Terms (90 percent debt reduction on NPV basis or higher if needed).• Other bilateral and commercial creditors provide debt relief on comparable terms.1

• Other multilateral creditors provide interim debt relief at their discretion.• All creditors and donors continue to provide support within the framework of a comprehensive poverty reduction strategy

designed by governments, with broad participation of civil society and donor community.

• Timing of completion point for nonretroactive HIPCs (i.e., those countries that did not qualify for treatment under the originalHIPC Initiative) is tied to at least one full year of implementation of a comprehensive poverty reduction strategy, includingmacroeconomic stabilization policies and structural adjustment. For retroactive HIPCs (those countries that did qualify underthe original HIPC Initiative), the timing of the completion point is tied to the adoption of a comprehensive PRSP.

• All creditors provide the assistance determined at the decision point; interim debt relief provided between decision and com-pletion points counts toward this assistance.

• All groups of creditors provide equal reduction (in NPV terms) on their claims as determined by the sustainability target.Thisdebt relief is provided with no further policy conditionality.– Paris Club provides stock-of-debt reduction on Cologne terms (90 percent NPV reduction or higher if needed) on eligible debt.– Other bilateral and commercial creditors provide at least comparable treatment on stock of debt.1

– Multilateral institutions provide debt relief, each choosing from a menu of options, and ensuring broad and equitable partici-pation by all creditors involved.

All creditors (multilateral, bilateral, and commercial) commit debt relief to be delivered at the floatingcompletion point.The amount of assistance depends on the need to bring the debt to a sustainable level.This is calculated based on latest available data at the decision point.

Paris Club stock-of-debt operation under Naples terms and comparable treatment by other bilateral andcommercial creditors

is not sufficientfor the country to reach external debt sustainability.========> World Bank and IMF Boardsdetermine eligibility for assistance.

Decision Point

Second Stage

“Floating Completion Point”

Either Or

First Stage

1Recognizing the need for flexibility in exceptional cases.


service obligations to the IMF. The European Unionprovides grants.

10. The World Bank is committed to take actionafter the decision point—through the selective use ofIDA grants and allocations—and at the completionpoint. The principal vehicle for the Bank’s participa-tion, together with some other multilateral creditors,is the HIPC Trust Fund. This Trust Fund providesrelief to eligible countries on debt owed to partici-pating multilaterals and is administered by IDA,with contributions from participating multilateralcreditors and bilateral donors. To provide relief ondebt owed to IDA, the Bank made transfers from itsIBRD net income and surplus to the HIPC TrustFund.

11. The debt contracted with multilateral and bilat-eral creditors, covered by the HIPC Initiative, is lim-ited to public and publicly guaranteed debt—that is,external obligations of a public debtor includingnational government and autonomous public bodiesand external obligations of a private debtor that areguaranteed for repayment by a public entity. Thedebt comprises:• All medium- and long-term government and gov-

ernment-guaranteed external debt;• Short-term debt8 only if it has long been in arrears;• Debt of public enterprises defined as “at least 50

percent owned by the government”; and• Debt of public enterprises being privatized, if the

debt remains with the government.

Treatment of Arrears

12. Countries seeking assistance under the HIPCInitiative need to work toward elimination or reduc-tion of existing arrears and the nonaccumulation ofnew external payments arrears. All arrears to multi-lateral creditors are expected to be cleared, orincluded in an agreement on a schedule for theirclearance before the decision point is reached. How-ever, clearance of such arrears needs to be consistentwith a country’s financing constraint. In addition,concessionality that is granted in arrears-clearanceoperations by multilateral banks can count towardassistance required under the Initiative, on a case-by-case basis.

Debt Sustainability Analysis (DSA)

13. DSAs are central to the work of the HIPC Initia-tive. DSAs are prepared, on a tripartite basis, jointlyby the country authorities, the World Bank, and theIMF and, where appropriate, by the relevant regionaldevelopment banks, such as the African Develop-ment Bank and the Inter-American DevelopmentBank. Figure A5.2 sets out the DSA process in dia-grammatical form.

DSA Process

14. In preparation for the decision point discussion,a DSA is carried out to determine the current exter-nal debt situation of the country. This is essentially amedium-term balance of payments projection thatassesses the debt burden of the country and itscapacity to service those obligations. If external debtratios for that country fall above applicable targetsafter application of traditional debt-relief mecha-nisms, HIPC Initiative assistance is considered.

15. The DSA is undertaken on the basis of debtstock and flow projections. All the informationneeds to be obtained on a loan-by-loan basis, disag-gregated by creditor and currency. The stock of debtis the amount outstanding at the end of the latestavailable fiscal or calendar year, depending onwhether the country operated on a fiscal or calendaryear basis. Projections of financial flows consist ofexpected amortization payments, disbursements onexisting debt, and new loans.

16. Countries seeking assistance under the HIPC Ini-tiative are expected to fully reconcile all debt data ona loan-by-loan basis with the creditor billing recordsbefore the decision point.9 The reconciliation processrefers to the position and flows. If a loan is amortizedaccording to its original schedule (if there are noadjustments such as rescheduling, forgiveness, can-cellations, supplemental commitments, arrears, orprepayments), the periodic flows depend mainly onthe original terms of the loan. Any adjustments to theloan amount, such as write-offs or rescheduling, haveto be taken into account, so that a reconciled debt ser-vice is agreed (and, by extension, the present value ofthe debt). The information needed by a HIPC countrycompiler is set out in Table A5.1.

290

8Debt that has an original maturity of one year or less.9The preliminary HIPC document data might be on the basis of

partially reconciled data.


17. The consistency of stock and flow data onexisting debt needs to be assessed. Simple equationscan help the data compiler to complete this task,such as:• The sum of future repayments of loan principal

equals the outstanding debt (assuming no accrualof interest costs);

• The sum of future disbursements of loan principalequals the undisbursed balance; and

• For interest projections, egregious errors could bechecked by calculating the implied interest rate(interest t/stock of debt t – 1) for a reference yearand comparing it to the interest rate recorded in theoriginal terms. For each loan there is a declining

291

Figure A5.2. Steps Toward a Debt Sustainability Analysis (DSA)

Stock reconciliationLoan terms and basic informationDebt outstanding and disbursedUndisbursed balance

Output TablesDebt outstanding in nominal and in present-value terms at the end of a reference year per creditor. Projected present-value terms and debt service after rescheduling per creditor or loan type.

Debt-Management StrategySustainability indicators are used in a dynamic manner so as to prescribe long-term debt-management strategy.

Prorating Debt ServiceFor present-value calculations, the projected principal repayment is prorated downward if the loan is not fully disbursed in the year for which present value is being calculated.

Sustainability IndicatorsPresent value of debt-to-exports ratio and debt-to-revenues ratio: Prorated present-value debt, including new borrowing for the balance of payments gap.Ratio of debt service to exports: Nominal, rather than the prorated, debt service is used currently.

Balance of PaymentsDebt-service requirement anddisbursement plans, together with other balance of payments items, to determine the overall gap.

Debt reschedulingApply a prospective stock-of-debt (debt outstanding + arrears) on pre-cutoff-date bilateral debt on Naples terms. Assume all multilateral and post-cutoff-date bilateral debt arrears to be repaid the following year or reschedule them on nonconcessional terms. Assume all likely debt restructuring; for example, commercial debt buyback, cancellation of ODA loans, debt swap, etc.

Flows reconciliationDisbursement projectionsPrincipal repayment projectionsInterest charges projections


interest charge as the years progress and the debtstock is being reduced with each amortization.

18. Regarding new loans, given certain underlyingassumptions, the expected financing gap on the bal-ance of payments is projected. This is the baselinescenario. Assumptions have to be made about howthe gap is to be filled—by grants, concessional loans,or commercial borrowing. The terms of any gap-fill-ing loans can be assumed to be the same as theassumptions on new disbursement terms, or they canvary according to the assessment of willingness to fillthe financing gap—if this is possible to assess. Forinstance, new borrowing to finance the gap can be

introduced into the DSA framework as two separateloans for each year. The first might be assumed to beavailable on IDA terms, while the remainder issecured at less concessional terms, but still at a con-cessional rate.

19. Interest charges on new borrowing enter thedebt-service stream six months to one year after theyare assumed to be committed, and the repayments ofthe principal become due after the grace periodended. So, for each year, the balance of paymentsfinancing gap is established, with any resultant newborrowing being fed back into DSA as a new loan.Hence, the balance of payments and the DSA dataare obtained interactively over the projection period,and the new debt-service flows taken into account incalculating the present value10 and debt-service indi-cators that are presented in the decision point docu-ment. This document is the basis for the Bank andIMF Boards’ decisions on the eligibility and amountof assistance for the country.

20. Furthermore, sensitivity analysis is undertaken—the decision point document includes the results ofalternative macroeconomic scenarios, thus providinga quantitative assessment of the impact of downsiderisks of the baseline balance of payments scenario.Modified assumptions are applied to external sectorvariables, such as international prices and trade vol-umes, and availability and terms of the financingitems in the balance of payments. A modification toan assumption may have numerous direct and sec-ondary effects on the balance of payments projectionsand the whole macroframework. In principle there aretwo ways for reflecting the impact of the envisagedshock. The first would be to capture only the immedi-ate direct effect of any adverse shock on the balanceof payments, which is reflected in lower credit entriesor higher debit entries along with a higher additionalfinancing gap. The additional financing gap wouldthen be covered by new borrowing, which in turnwould raise the debt ratios. This is normally the pre-ferred approach for HIPC alternative scenarios.

21. The alternative approach takes into account sec-ondary effects, such as slower economic growth,which would typically dampen the initial increase inthe financing gap. For example, a significant short-

292

Table A5.1. Data Needed by a HIPCCountry Compiler

General information— Debtor— Debtor type (central bank, public enterprises, etc.)— Creditor— Creditor type (official, bilateral, commercial banks)— Debtor loan identification— Creditor loan identification— Project title— Loan type (supplier’s credit, export credit, etc.)— Date of signature— Committed amount and currency of the loan— Disbursed amount— First and last date of amortization— Grace period— Maturity— Interest rate and other charges (fixed or variable

interest rate)— Penalty on arrears— Repayment schedule (equal installments, annuity, etc.)— Cutoff date— Grant element— Identification of ODA loans

At the end of a period— Stock of debt— Arrears on principal (on a loan-by-loan basis)— Arrears on interest— Exchange rates at the end-of-period and average

exchange rate of the year— Average six-month CIRR rates

Disbursements— On “pipeline” debt— New debt

Macroeconomic data— Gross domestic product— Balance of payments— Government finance statistics

Note: ODA, official development assistance; CIRR, CommercialInterest Reference Rate (OECD).

10Debt service on new borrowing did not affect the external debtposition in the reference year used for decision point calculationof assistance.


fall in coffee exports would, in the first instance,cause a higher balance of payments financing gap. Inaddition, however, it would also lead to slower GDPgrowth and lower import demand, which would par-tially compensate for the initial increase in thefinancing gap. However, this approach is appliedonly in cases where the first approach implies highlyunrealistic outcomes.

Interest Rate and Currency AssumptionsUnder the DSA

22. The currency-specific CIRR discount rates usedin DSAs to calculate the present value of externaldebt are averages over the six-month period up to thereference date. For those currencies for which noCIRR rates are available but that are pegged toanother currency, such as the U.S. dollar, the CIRRfor the latter is used. In the absence of an exchangerate arrangement, as well as for the units of accountused by various multilateral institutions, the SDRrate should be applied.

23. The present value of external debt is convertedfrom its currency components into U.S. dollars usingthe actual end-of-period exchange rates—the samedate as the reference date for the gross external debtposition. These rates are applied to base-year calcu-lations, as well as to projections. The conversion ofdebt-service payments in the numerator of the debt-service ratio is performed on the basis of averageexchange rates using actual rates for the past andprojections for the future taken from the IMF’sWorld Economic Outlook.

24. For the purpose of determining a country’s eligi-bility for the fiscal/openness criteria, central govern-ment revenue and GDP used in the revenue-to-GDPratio (the three-year average) at the decision point areconverted into U.S. dollars on the basis of actual aver-age exchange rates in each of the three years. Pro-jected central government revenue used to determinethe NPV of the debt-to-revenue ratio at the comple-tion point are converted by applying the latest end-of-period exchange rate available at the decision point.

293

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Accrual of interest costs, defined, 2.5, App. III. See alsoInterest cost accrual

Accrual recording, Box 2.1Active portfolio management, 11.24ADR. See American depository receiptAffiliated enterprises, defined, App. IIIAgreed minute, defined, App. IIIAmerican depository receipt, App. I (Part 1)Amortization schedules, defined, App. IIIArbitrage, defined, App. IIIArrangement on Guidelines for Officially Supported

Export Credits, App. IIIArrears

classification of, App. I (Part 1)creation of, 2.29debt servicing, 16.19defined, 3.36gross external debt position, 4.4interest cost accrual, 2.81nominal value, 2.40OECD data reporting, 17.32recording dates, App. I (Part 2)third party guarantees, 2.30time of recording, 2.29–2.30traded debt instruments, 2.44valuation, 2.40

Asset-backed securities, classification of, App. I (Part 1)Association of National Numbering Agencies, Box 13.1Australia

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Austria, country case study, 14.17–14.41Average interest rates, 6.18, 7.38–7.39

Balance of paymentscapital account, App. IIIcomparison with OECD data, 17.23–17.38comparison with World Bank data, 17.51–17.62current account, App. IIIdefined, App. IIIfinancial account, App. III

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Balance sheets, App. IV:9–App. IV:14, Fig. A4.1–Fig. A4.3Bank deposits, classification of, App. I (Part 1)Bank for International Settlements

consolidated banking statistics, 17.4, 17.6database of international debt securities, Box 13.1function of, App. IIIInternational Banking Statistics, 17.1–17.9International Securities Statistics, 17.3, 17.10–17.12locational banking statistics, 17.4, 17.6semiannual derivatives data, 12.31–12.32

Banker’s acceptances, 6.11, App. I (Part 1)Banking sector, defined, 3.7Banks

debt guarantees, 12.8–12.10debt statistics compilation, 12.1–12.3external debt, 16.6offshore banks, 12.7reporting debt, 12.4–12.6residency of, 2.21

Barter arrangements, 2.38Basel Committee on Banking Supervision, 9.19BDR. See Bearer depository receiptBearer depository receipt, App. I (Part 1)Berne Union, App. IIIBilateral deadline, defined, App. IIIBilateral debt, defined, App. IIIBilateral rescheduling agreements, defined, App. IIIBIS. See Bank for International SettlementsBlended payments, defined, App. IIIBonds

Brady bonds, App. I (Part 1)classification of, 3.20, App. I (Part 1)commodity-linked, App. I (Part 1)convertible, App. I (Part 1)currency-linked, App. I (Part 1)deep-discount, App. I (Part 1)dual-currency, App. I (Part 1)with embedded call options, App. I (Part 1)with embedded put options, App. I (Part 1)equity-linked, App. I (Part 1)equity-warrant, App. I (Part 1)fixed-rate, App. I (Part 1)foreign, App. I (Part 1)interest cost accrual, 2.28sovereign bond restructuring, Box 8.1structured, App. I (Part 1)

Index

Numbers in references refer to paragraphs in chapters, boxes, or appendices.

297

Index

variable-rate, App. I (Part 1)zero-coupon, App. I (Part 1)

Bonds and notes, 3.20BOPSY. See Balance of Payments Statistics YearbookBorrowing agreements, 11.8–11.9Borrowing sectors, 16.3BPM5. See Balance of Payments ManualBrady bonds, Box 8.1, App. I (Part 1)Brady Plan, Box 8.2Brass plate companies, residency of, 2.18Bullet repayment, defined, App. IIIBuybacks, debt reorganization and, 8.31Buyer’s credit, defined, App. III

Canada, country case study, 14.42–14.63Capital account, defined, App. IIICapital goods, part-payments, App. I (Part 2)Capital transfers, defined, App. IIICapitalized interest, defined, App. IIICash recording, Box 2.1CBDMS. See Computer-based debt-management

systemCDOs. See Collateralized debt obligationsCD. See Certificate of depositCensus data, debt statistics compilation, 12.14Center of economic interest, defined, 2.15Certificate of deposit, classification of, App. I (Part 1)Chile, country case study, 14.64–14.79CIRRs. See Commercial Interest Reference RatesClaim payments, defined, App. IIIClaims-waiting period, defined, App. IIICMFB. See Committee on Monetary, Financial and

Balance of Payments StatisticsCofinancing, defined, App. IIICollateralized debt obligations, classification of, App. I

(Part 1)Collateralized external debt, App. I (Part 2)Collateralized loan approach, 3.31Commercial banks, debt relief, Box 8.2Commercial contracts, penalties, App. I (Part 2)Commercial credit, defined, App. IIICommercial Interest Reference Rates, 8.18, App. IIICommercial paper, classification of, App. I (Part 1)Commercial risk, defined, App. IIICommitment, defined, App. IIICommitment, date of, defined, App. IIICommitment charge, defined, App. IIICommittee on Monetary, Financial and Balance of

Payments Statistics, Box 14.1Commodities, as debt repayment, 2.37–2.38Commodity-linked bonds, classification of, App. I

(Part 1)Commodity-linked derivatives, classification of, App. I

(Part 1)Commonwealth Secretariat, technical assistance,

19.2–19.4

Commonwealth Secretariat Debt Recording andManagement System. See Debt Recording andManagement System (Commonwealth Secretariat;CS-DRMS)

Comparable treatment, defined, App. IIIComplete market, defined, 9.18, App. IIICompletion point, defined, App. IIICompound interest, interest cost accrual, 2.68–2.69Computer-based debt-management system, 11.17Computer systems, traded securities debt statistics

compilation, 13.6Concessional debt, defined, 6.22Concessional loans, defined, App. IIIConcessional restructuring, defined, App. IIIConcessionality level, defined, App. IIIConsensus. See Arrangement on Guidelines for Officially

Supported Export CreditsConsignment trade, App. I (Part 2)Consolidated amount, defined, App. IIIConsolidated banking statistics, 17.4, 17.6Consolidated debt, defined, App. IIIConsolidated reporting, defined, App. IIIConsolidation, value of debt, App. I (Part 2)Consolidation period, defined, App. IIIContingent assets, defined, App. IIIContingent liabilities

credit conversion factors, 9.19defined, 2.10, 9.3, App. IIIexplicit, 9.4–9.8implicit, 9.9–9.10market value measures, 9.20maximum potential loss measurement method, 9.14,

9.16measuring, 9.11–9.23option-pricing measurement methods, 9.21–9.22present value measurement method, 9.17public sector guarantees, 9.24ultimate risk, 9.25–9.29

Convertible bonds, classification of, App. I (Part 1)Coordinated Portfolio Investment Survey, 13.35–13.36Cover, defined, App. IIICover limits, defined, App. IIICoverage of rescheduling agreements, defined, App. IIICP. See Commercial paperCPIS. See Coordinated Portfolio Investment SurveyCredit, defined, App. IIICredit availability guarantees, 9.7–9.8Credit conversion factors, 9.19Credit derivatives, classification of, App. I (Part 1)Credit guarantees, 9.6, App. IIICredit insurance, defined, App. IIICredit-linked external debt, projected payments, 6.34Credit-linked notes, classification of, App. I (Part 1)Creditor, defined, App. IIICreditor country, defined, App. IIICreditor Reporting System (OECD)

defined, App. III

298

Bonds (continued)

Index

dissemination of external debt statistics, 17.1–17.2,17.17–17.22

Creditor sectorsexternal debt by, 7.40–7.43information concerning, 16.37–16.39multilateral organizations, 6.4official creditors, 6.5types of, 6.3

Cross-border activity, debt statistics compilation, 12.12Cross-border positions, defined, App. IIICross-border trade-related credit, 7.55–7.56Currency

classification of, 3.34, App. I (Part 1)composition of external debt, 16.14issued by a monetary authority of another economy,

7.20Currency and deposits, defined, 3.34Currency composition

domestic, 6.12foreign currency debt, 6.13

Currency-linked bonds, classification of, App. I (Part 1)Currency of reporting, defined, App. IIICurrency of transaction, defined, App. IIICurrency pool loans, classification of, 6.26, App. I

(Part 1)Currency swaps, 7.27Current account, defined, App. IIICurrent liabilities, 2.10Current maturities, defined, App. IIICurrent transfers, defined, App. IIICutoff date

for debt reorganization, Box 8.2defined, App. III

DAC. See Development Assistance CommitteeData collection, 11.4–11.7Data compilation, 10.1–10.3, 11.4–11.7, Fig 10.1. See

also StatisticsData Template on International Reserves and Foreign

Currency Liquidity, 7.31DDSR. See Debt- and debt-service-reduction

operationsDe minimis creditors, defined, App. IIIDebt- and debt-service-reduction operations, defined,

App. IIIDebt assumption

for debt reorganization, 8.45–8.49defined, 8.45, App. III

Debt buyback, defined, 8.31, App. IIIDebt conversion

for debt reorganization, 8.7, 8.29–8.30debt swaps, 8.6defined, 8.29, App. IIIexternal debt position, 8.32OECD data reporting, 17.38

Debt-conversion bonds, App. I (Part 1)Debt default, defined, App. III

Debt exchanges, 8.7Debt-for-charity swaps, defined, App. IIIDebt-for-commodity swaps, defined, App. IIIDebt-for-development swaps, defined, App. IIIDebt-for-equity swaps

debt conversion, 8.30defined, 8.30, App. III

Debt-for-nature swaps, defined, App. IIIDebt forgiveness

for debt reorganization, 8.7, 8.23–8.24defined, 8.23, App. IIIexternal debt position, 8.25–8.28OECD data reporting, 17.34–17.35

Debt instrumentsclassification of, 16.9–16.10data collection, 11.15defined, App. IIInontraded, 2.35–2.41traded, 2.42–2.44

Debt liabilities, 2.4Debt Management and Financial Analysis System

(UNCTAD; DMFAS)analytical functions, 18.27–18.40executive management, 18.41operating, controlling, and monitoring, 18.20–18.26operational management, 18.12reporting facilities, 18.27–18.36technical characteristics, 18.42–18.49

Debt-monitoring systems, Box 7.1Debt office

active portfolio management, 11.24analytical function, 11.22collection and compilation of data, 11.4–11.16controlling and coordinating functions, 11.23data validation, 11.18–11.19executive debt management, 11.20–11.21functions of, 11.20–11.26information storage, 11.17monitoring function, 11.23operations function, 11.22organizational structure, 11.25–11.26, Fig. 11.1recording function, 11.22

Debt operations, defined, App. IIIDebt prepayments, 8.29, 8.31, 8.32Debt ratios, 15.10–15.29

debt service to exports, 15.21–15.25debt to exports, 15.14–15.16debt to GDP, 15.17–15.19internal reserves to short-term debt, 15.26–15.29present value of debt to exports, 15.14–15.16present value of debt to fiscal revenue, 15.20present value of debt to GDP, 15.17–15.19

Debt Recording and Management System(Commonwealth Secretariat; CS-DRMS)

coverage, 18.3domestic debt module function, 18.4external debt module function, 18.4

299

Index

management tools manual function, 18.5technical characteristics, 18.7–18.8

Debt reductionfor debt reorganization, 8.17–8.22, 8.34–8.44defined, 8.5external debt position, 8.25–8.28

Debt reduction in present value terms, defined, 8.5Debt-reduction option

for debt reorganization, 8.19defined, App. III

Debt refinancing, defined, 8.11, App. IIIDebt relief, defined, 8.4, App. IIIDebt reorganization

borrowing for balance of payments support, 8.50buybacks, 8.31commercial bank debt relief, Box 8.2cutoff date, Box 8.2debt assumption, 8.45–8.49debt conversion, 8.7, 8.29–8.30debt forgiveness, 8.7, 8.23–8.28debt reduction, 8.5, 8.17–8.22, 8.25–8.27, 8.34–8.44debt relief, 8.4debt rescheduling, 8.7, 8.10–8.12debt swaps, 8.6defined, 8.3, App. IIIexternal debt position, 8.13–8.15, 8.25–8.27, 8.32flow data, 8.16, 8.28, 8.33function of, 8.1new money facilities, 8.51packages, 8.8prepayments, 8.29, 8.31statistical treatment of, 8.9types of, 8.7

Debt reschedulingfor debt reorganization, 8.7, 8.10–8.12defined, 8.10, App. IIIOECD data reporting, 17.36–17.37

Debt restructuringdata collection, 11.15defined, App. III

Debt securities, classification of, 3.29. See also SecuritiesDebt service, defined, App. IIIDebt-service ratio, defined, App. IIIDebt-service-reduction option

for debt reorganization, 8.19defined, App. III

Debt-service schedules, 1.10, 6.23, 7.2, 7.8–7.16Debt-service-to-exports ratio

for debt sustainability, 15.22–15.25defined, 15.21, App. III

Debt servicing, 16.18–16.19Debt statistics. See StatisticsDebt sustainability

creation of debt, 15.1–15.3debt ratios, 15.10–15.13debt-service-to-exports ratio, 15.21–15.25

debt-to-exports ratio, 15.14–15.16debt-to-GDP ratio, 15.17–15.19international reserves-to-short-term debt ratio,

15.26–15.29liquidity, 15.6medium-term debt scenarios, 15.7–15.9present value of debt-to-exports ratio, 15.14–15.16present value of debt-to-fiscal revenue ratio, 15.20present value of debt-to-GDP ratio, 15.17–15.19solvency, 15.4–15.5

Debt sustainability analysiscurrency assumptions, App. V:22–App. V:24defined, App. IIIfunction of, App. V:1interest rate assumptions, App. V:22–App. V:24process, App. V:14–App. V:21tools for, 15.3

Debt swapsdebt-for-development, 8.6debt-for-domestic currency, 8.6, App. IIIdebt-for-equity, 8.6, App. IIIdebt-for-exports, 8.6, App. IIIdebt-to-debt, 8.6, App. IIIdefined, 8.6, App. III

Debt-to-exports ratio, 15.14–15.16Debt-to-GDP ratio, 15.17–15.19Debt-with-equity warrants, App. I (Part 1)Debt workout, defined, App. IIIDebt write-offs, 8.3Debtor country, defined, App. IIIDebtor Reporting System (World Bank)

comparison with IIP data, 17.51–17.62comparison with OECD data, 17.63–17.69concepts, 17.55–17.62defined, App. IIIfunction of, 8.2, 17.1–17.2, 17.39–17.50presentation of data, 17.51–17.54

Decision point, defined, App. IIIDeep-discount bonds, classification of, App. I (Part 1)Defeasement, App. I (Part 2)Deferred payments, defined, App. IIIDefined-benefit pensions, debt liabilities, 2.39Depository receipts

American, App. I (Part 1)bearer, App. I (Part 1)classification of, App. I (Part 1)

Depositsclassification of, 3.34, App. I (Part 1)interest cost accrual, 2.71–2.72projected interest payments, 6.28–6.29

Deposits in mutual associations, App. I (Part 1)Derivatives. See Financial derivativesDevelopment Assistance Committee

annual questionnaire, 17.17, 17.22defined, App. IIIfunction of, 8.2List of Aid Recipients, 17.24

300

Debt Recording and Management System (continued)

Index

Development Co-operation Report (OECD), 17.17Direct investment, 3.14–3.18, 12.33Direct reporting companies, 12.21Disbursed and outstanding debt, 1.3–1.5Disbursed loans, defined, App. IIIDisbursements, defined, App. IIIDiscount bonds, App. I (Part 1)Discounted instruments, interest cost accrual,

2.74–2.76Discounted principal, interest cost accrual, 2.64–2.65DMFAS, See Debt Management and Financial Analysis

System (UNCTAD) DOD. See Disbursed and outstanding debtDomestic currency

defined, 6.12, App. IIIexternal debt composition, 6.12, 7.19–7.21

Domestic currency debt, 6.12Domestic-currency-linked debt, 6.13Domestic currency unit, 2.51Domestically issued securities

classification of, 6.21nonresident investment, 13.10–13.25

DRCs. See Direct reporting companiesDRS. See Debtor Reporting SystemDSA. See Debt sustainability analysisDual-currency bonds, classification of, App. I (Part 1)Due-for-payment recording, Box 2.1Duration, defined, App. III

Early repayment provisions, projected payments, 6.33ECB. See European Central BankEconomic territory, defined, 2.14EFF. See Extended fund facilityEligible debt, defined, App. IIIEligible debt service, defined, App. IIIEmbedded derivatives, instruments with, 2.89Enhanced concessions, defined, App. IIIEnhanced Structural Adjustment Facility, defined,

App. IIIEnhanced Toronto terms, defined, App. IIIEnterprise surveys

agency coordination, 12.13census data, 12.14confirming data reliability, 12.20cross-border activity, 12.12debt statistics compilation, 12.11encouraging participation, 12.19form testing, 12.18group level approach, 12.15partial coverage collections, 12.14random samples, 12.14stratified random samples, 12.14survey development, 12.16–12.18

Equity, classification of, App. I (Part 1)Equity capital

defined, 3.16valuation, 2.49

Equity liabilitiesand external debt, 1.7memorandum tables, 4.12–4.13

Equity-linked bonds, classification of, App. I (Part 1)Equity-linked derivatives, classification of, App. I (Part 1)Equity securities

defined, 3.23valuation, 2.48

Equity-warrant bonds, classification of, App. I (Part 1)ESA95. See European System of Accounts: ESA 1995ESAF. See Enhanced Structural Adjustment FacilityESAF-HIPC Trust, defined, App. IIIESCB. See European System of Central BanksEscrow accounts, defined, App. IIIEU. See European UnionEurobonds, restructuring, Box 8.1European Central Bank, 19.5–19.8European Commission, Box 14.1European System of Accounts: ESA 1995, Box 14.1European System of Central Banks, 19.5European Union, statistics on the excessive deficit

procedure, Box 14.1Eurostat. See European CommissionEurosystem, 19.5Exceptional financing, defined, App. IIIExchange rate conversion, 2.52Exchange rates, data collection, 11.14Executive debt management, 11.20–11.21Explicit contingent liabilities

credit availability guarantees, 9.7–9.8credit guarantees, 9.6defined, 9.4loan guarantees, 9.5payment guarantees, 9.5

Export credit, defined, App. IIIExport credit agencies

defined, App. IIIreinsurance by, App. III

Exportsdebt-service-to-exports ratio, 15.21–15.25debt-to-exports ratio, 15.14–15.16present value of debt-to-exports ratio, App. III

Extended Fund Facility, defined, App. IIIExternal debt

accounting principles, 2.12–2.53, 6.1–6.36analysis of, 1.6–1.8, 16.1–16.39compatibility of data, 2.2composition of, 16.1–16.19creditor information, 16.37–16.39by creditor sectors, 7.40–7.43current liabilities, 2.10defined, 2.1, 2.3, App. IIIfinancial derivatives, 16.30–16.34foreign currency composition, 1.10gross external debt, 2.3, 4.1–4.15interest rate composition, 7.35–7.37loan drawings, 2.23

301

Index

net external debt, 1.10, 7.44–7.47outstanding liabilities, 2.4principal, 2.5–2.8public sector, 5.1–5.10reconciliation of positions and flows, 7.48–7.49relationship with financial instruments in the 1993 SNA,

2.11repurchase agreements, 16.35–16.36residence determination, 2.9role of assets, 16.22–16.29role of income, 16.20–16.21by short-term remaining maturity, 7.5–7.7See also Gross external debt

External Debt Statistics (OECD), 17.17–17.18

Face valuedefined, 2.33, App. IIInominal value and, 2.33

Financial accountsbalance sheets, App. IV:9–App. IV:14, Fig. A4.1–Fig. A4.3features of, App. IV:3–App. IV:4financial assets, App. IV:5–App. IV:6institutional sectors, App. IV:7

Financial asset, defined, App. IIIFinancial claims, defined, App. IIIFinancial derivatives contracts

foreign currency and, 6.27paying or receiving foreign currency, 6.27, 7.25, 7.29

Financial derivativesdata collection from transactions, 11.16debt statistics compilation, 12.28–12.32defined, 2.11, App. IIIexternal debt and, 1.7, 16.30–16.34function of, 3.24, 3.25market value, 2.46memorandum table, 4.10–4.11notional amount, 7.27, 7.29

Financial instrumentsclassification of, 3.1, 3.3, App. I (Part 1)direct investment, 3.14–3.18financial derivatives, 3.24–3.25other investment, 3.26–3.37portfolio investment, 3.19–3.23reserve assets, 3.38

Financial leasesdefined, 3.33projected payments, 6.36residual value, App. I (Part 2)

Financial liability, defined, App. IIIFiscal revenue, present value of debt-to-fiscal revenue

ratio, 15.20Fixed-rate bonds, classification of, App. I (Part 1)Fixed-rate external debt instruments, 6.15–6.17Fixed-rate instruments

interest cost accrual, 2.70–2.81nominal value, 2.32

Flag-of-convenience countries, defined, App. IIIFlow rescheduling, defined, 8.12, App. IIIForeign bonds, classification of, App. I (Part 1)Foreign currency

defined, App. IIIexternal debt composition, 1.10, 7.17–7.21financial derivative contracts and, 6.27gross external debt, 7.22–7.29projected payments and nonresidents, 7.30–7.34revaluing end-period positions, 12.43–12.45

Foreign currency debtdefined, 6.13forex swaps, 7.27forwards and options contracts and, 7.28projected payments, 6.25–6.26by type of currency, 6.14

Foreign currency instruments, interest cost accrual, 2.90Foreign-currency-linked debt, 6.13, 7.19, 12.39–12.45Foreign-currency-linked derivatives, classification of,

App. I (Part 1)Foreign issued securities, 6.21Foreign markets, issues of securities by residents,

13.26–13.28Forfaiting, defined, App. IIIForward-type derivatives

defined, 3.25classification of, App. I (Part 1)

Forwards, 7.28Front-loaded interest reduction bonds, App. I (Part 1)Fund credit. See Use of IMF credit and loansFungible bonds, interest cost accrual, 2.76

GDDS. See General Data Dissemination SystemGDF. See Global Development FinanceGDP. See Gross domestic productGDRCs. See General direct reporting companiesGeneral Data Dissemination System, Box 4.1General direct reporting companies, 12.21General government sector, defined, 3.6. See also

Government sectorGeographical Distribution of Financial Flows to Aid

Recipients (OECD), 17.17, App. IIIGlobal Development Finance, 17.39Global note facilities, 9.8GNFs. See Global note facilitiesGNP. See Gross national productGold swaps, 3.31, App. I (Part 1)Goods

as debt repayment, 2.37–2.38prepayments, App. I (Part 2)processing, App. I (Part 2)

Goodwill clause, defined, App. IIIGovernment debt office. See Debt officeGovernment sector

debt statistics, 11.1–11.26defined, 3.6

302

External debt (continued)

Index

Grace periodsdefined, App. IIIinterest cost accrual and, 2.88

Graduated payments, defined, App. IIIGrant elements, defined, App. IIIGrant-like flows, defined, App. IIIGrey Book, 1.2, 1.5, 1.8Gross domestic product

debt-to-GDP ratio, 15.17–15.19defined, App. III

Gross external debtdefined, 2.3foreign currency, 7.22–7.29Grey Book definition, 1.2outstanding liabilities, 4.8–4.9presentation table, 4.3–4.6reverse security transactions, 4.14–4.15See also External debt

Gross national product, defined, App. IIIGuaranteed export credit, defined, App. IIIGuaranteed external debt, 16.8, App. I (Part 2)Guaranteed payments, 2.30

Heavily indebted poor countriesdebt reorganization, Box 8.2debt sustainability analysis, App. V:1, App. V:13–App.

V:24, Fig. A5.2defined, App. IIISee also HIPC Initiative

Helsinki Package, defined, App. IIIHigh-frequency debt-monitoring systems, Box 7.1High-income countries, defined, App. IIIHIPC. See Heavily indebted poor countriesHIPC Initiative

defined, App. IIIdescription of, App. V:2–App. V:3eligibility criteria, App. V:4–App. V:11origin of, App. V:2–App. V:3Paris Club and, Box 8.2structure of, App. V:4–App. V:12, Fig. A5.1See also Heavily indebted poor countries

HIPC Trust Fund, defined, App. IIIHome country, defined, App. IIIHost country, defined, App. IIIHousehold sector, debt statistics compilation,

12.34–12.35Households and nonprofit institutions serving households

sector, 3.11Houston terms. See Lower-middle-income-country terms

IBRD. See International Bank for Reconstruction andDevelopment

IBS. See International Banking StatisticsIDA. See International Development AssociationIFMS. See Integrated Financial Management SystemIFS. See International Financial StatisticsIIP. See International investment position

IMF. See International Monetary FundIMF adjustment program, defined, App. IIIIMF arrangement, defined, App. IIIImplicit contingent liabilities, 9.9–9.10Importers, trade-related credit, 6.10–6.11Index-linked instruments

interest cost accrual, 2.84–2.87projected payments, 6.30

Index-linked securities, classification of, App. I (Part 1)India

contingent liabilities measurement, 9.15country case studies, 14.80–14.107

Industrial concentration of debt, 16.17Initial margins, App. II:10Institutional sectors

banking, 3.7defined, App. IIIfinancial accounts, App. IV:7general government, 3.6households and nonprofit institutions serving

households, 3.11intercompany lending liabilities, 3.12monetary authorities, 3.5nonbank financial corporations, 3.9nonfinancial corporations, 3.10other sectors category, 3.8

Institutional unitsclassification of, 3.1–3.2defined, App. IIIresidency of, 2.15–2.16

Insurance companies, debt liabilities, 2.39Insured export credit, defined, App. IIIIntegrated Financial Management System, 11.13Inter-Agency Task Force on Finance Statistics, 17.70Interbank positions, defined, App. IIIIntercompany lending

gross external debt position, 3.15, 4.4liabilities, 3.12

Interestdefined, 2.5, App. IIIfixed rate, 2.32late, 2.81late charges, App. IIIpayments, 2.5, 2.7periodical payments, 2.6predetermined, 2.83projected payments on deposits, 6.28–6.29schedule of payments, 2.8variable rate, 2.32See also Interest cost accrual

Interest cost accrualarrears, 2.81compound interest, 2.68–2.69costs not yet payable, 2.26–2.28, 2.54–2.55, 4.9defined, 2.5, App. IIIdeposits, 2.71–2.72discounted principal, 2.64–2.65

303

Index

fixed-rate instruments, 2.70–2.81foreign currency instruments, 2.90fungible bonds, 2.76implementation of, 2.25, 2.54–2.56index-linked instruments, 2.84–2.87instruments issued at a discount, 2.74–2.76instruments with embedded derivatives, 2.89instruments with grace periods, 2.88interest-rate-linked instruments, 2.82–2.83loans, 2.70present value, 2.59–2.66securities, 2.73straightline approach, 2.67, 2.69stripped securities, 2.77–2.80theoretical framework, 2.57–2.58variable-rate instruments, 2.82–2.87zero-coupon instruments, 2.66

Interest-rate-linked derivativesclassification of, App. I (Part 1)external debt and, 7.36–7.37

Interest-rate-linked instruments, interest cost accrual,2.82–2.83

Interest ratesaverage interest rates, 6.18, 7.38–7.39composition of external debt, 7.35–7.37, 16.16data collection, 11.14fixed-rate external debt instruments, 6.15–6.17interest rate level, 6.19moratorium interest, Box 8.2risk-neutral rates, 8.18variable-rate external debt instruments, 6.15–6.17weighted average interest rates, 6.20, 7.39

International Bank for Reconstruction and Development,App. III

International banking business, defined, App. IIIInternational Banking Statistics (BIS), 17.1–17.9International Development Association, 11.25, App. IIIInternational Financial Statistics (IMF), 17.13International interbank market, defined, App. IIIInternational investment position

comparison with OECD data, 17.23–17.38comparison with World Bank data, 17.51–17.62core principles, App. IV:28–App. IV:30coverage of financial instruments, App. IV:15–App.

IV:36, Fig. A4.4data reporting, 17.13–17.16defined, 17.14, App. IIIrelationship with national accounts, App. IV:1–App. IV:2

International Monetary Fundfunction of, 17.1–17.2, 17.13–17.16, App. IIItechnical assistance, 19.9–19.14

International reserve assets, 16.23International reserves-to-short-term debt ratio, 15.26–15.29International Securities Statistics (BIS), 17.3, 17.10–17.12International security identification number, 6.21, Box

13.1, App. III

ISIN. See International security identification numberIslamic banking, App. I (Part 2)Israel, country case study, 14.108–14.114

Joint BIS-IMF-OECD-World Bank Statistics on ExternalDebt, 17.17, 17.39, 17.70–17.74, Box 17.1

Joint venture, defined, App. III

Land ownership, classification of, App. I (Part 1)Late interest, 2.81Late interest charges, defined, App. IIILearning and Innovation Loan, 19.28Letters of credit

classification of, App. I (Part 1)defined, 9.6

Leverage, defined, App. IIILiabilities

contingent, 2.10, 9.1–9.29current, 2.10equity, 4.12–4.13outstanding, 2.4

Liberalization, statistics collection techniques at differentstages of, 10.16–10.22

LIBOR. See London interbank offered rateLife insurance, debt liabilities, 2.39LIL. See Learning and Innovation LoanLine of credit, defined, 9.6, App. IIILinear bonds, interest cost accrual, 2.76Liquidity, 15.6Loan agreement, defined, App. IIILoan commitments, defined, 9.6Loan guarantees, 9.5, App. IIILoans

classification of, App. I (Part 1)defined, 3.28interest cost accrual, 2.70

Loans not fully disbursed, projected payments, 6.31Locational banking statistics, 17.4, 17.6London Club, Box 8.2, App. IIILondon interbank offered rate, defined, App. IIILondon terms. See Concessional restructuringLong-maturities option, defined, App. IIILong-term debt, defined, 2.53Long-term external debt, 6.7–6.8, App. IIILow-income countries, defined, App. IIILower-middle-income-country terms, defined, App. IIILyon terms. See Concessional restructuring

Margin payments, App. II:10Market rate, exchange rate conversion, 2.52Market valuation, defined, App. IIIMarket value

arrears, 2.44composition of external debt, 16.13determination of, 2.31estimation of, 2.31, Box 2.2interest cost accrual, 2.56

304

Interest cost accrual (continued)

Index

305

nondebt instruments, 2.45–2.46traded debt instruments, 2.34, 2.42–2.43, 7.50–7.51

Maturitycomposition of external debt, 16.11–16.12defined, 2.53long-term/short-term, 2.53“open,” 6.35remaining maturity measures, 6.6–6.8short-term remaining maturity, 6.7, 7.5–7.7

Maturity date (final), defined, App. IIIMaturity structure, defined, App. IIIMedium-term debt scenarios, 15.7–15.9Medium-term notes, classification of, App. I (Part 1)Memorandum items, 4.7–4.15Mexico, country case study, 14.115–14.135Military debt, classification of, App. I (Part 1)Miscellaneous accounts payable and receivable. See Other

accounts payable and receivableMixed credits, defined, App. IIIMOFs. See Multiple options facilitiesMonetary authorities sector, 3.5Money market instruments

classification of, App. I (Part 1)defined, 3.21

Monitoring systems. See Debt-monitoring systemsMoratorium interest, App. III, Box 8.2Mortgage-backed securities, classification of, App. I

(Part 1)MTNs. See Medium-term notesMultilateral creditors, defined, App. IIIMultilateral organizations, 6.4Multiple options facilities, 9.8Multiyear rescheduling agreement, defined, App. IIIMutual fund shares, classification of, App. I (Part 1)MYRA. See Multiyear rescheduling agreement

Naples terms. See Concessional restructuringNational accounts, relationship with IIP, App. IV:1–App.

IV:2, App. IV:8National numbering agencies, Box 13.1, App. IIINationality, defined, App. IIINDFs. See Nondeliverable forward contractsNegotiable financial instruments, interest cost accrual, 2.75Net external debt, 1.10, 7.44–7.47Net flow, defined, App. IIINet present value of debt, defined, App. IIINet resource transfer, defined, App. IIINew Zealand

contingent liabilities measurement, 9.14country case study, 14.136–14.155

NIFs. See Note issuance facilities1993 SNA. See System of National Accounts 1993NNAs. See National numbering agenciesNominal amount, 2.46, App. IIINominal value

arrears, 2.40composition of external debt, 16.13

debt statistics compilation, 12.31defined, 2.32, App. IIIestablishment of, 2.31–2.32face value and, 2.33interest cost accrual, 2.56nontraded debt instruments, 2.35–2.36, 2.41traded debt instruments, 2.42, 7.50–7.51

Nonbank financial corporations sector, 3.9Nonconsolidated debt, defined, App. IIINondebt instruments, 2.45–2.49Nondeliverable forward contracts, classification of, App. I

(Part 1)Nonfinancial corporations sector, 3.10, 16.7Nonguaranteed private sector external debt, defined, 5.6Nonlife insurance, App. I (Part 2)Nonparticipating preferred shares, classification of, App. I

(Part 1)Nonprofit institutions serving households, defined, 3.11Nonresident agencies, 2.20Nonresident deposits, App. I (Part 2)Nonresidents

determination of, 2.13–2.21 investment in domestically issued securities,

13.10–13.25location of debt securities issuance, 7.52–7.54projected payments in foreign currencies, 7.30–7.34

Nontraded debtclassification of, App. I (Part 1)estimating position data and, 12.37valuation of, 2.35–2.41

Nostro accounts, App. I (Part 1)Note issuance facilities

classification of, App. I (Part 1)credit availability guarantees, 9.7defined, 9.7

Notesclassification of, 3.20, App. I (Part 1)credit-linked, App. I (Part 1)medium-term, App. I (Part 1)perpetual floating-rate, App. I (Part 1)promissory, App. I (Part 1)structured floating-rate, App. I (Part 1)variable-rate, App. I (Part 1)

Notional amount, 2.46, 7.27, 7.29, App. IIINotional value

debt statistics compilation, 12.31gross external debt interest rate composition, 7.36gross external foreign currency debt, 7.25

NPISH See Nonprofit institutions serving householdsNPV. See Net present value of debt

ODA. See Official development assistanceODF. See Official development financeOECD. See Organisation for Economic Co-operation and

DevelopmentOECD Consensus. See Arrangement on Guidelines for


Index

OECD Working Party on Export Credits and CreditGuarantees, function of, App. III

Official bilateral creditors, 6.5Official creditors, 6.5Official development assistance, defined, App. IIIOfficial development assistance loans, defined, App. IIIOfficial development bank, function of, App. IIIOfficial development finance, defined, App. IIIOfficial multilateral creditors, 6.4Officially supported export credits, defined, App. IIIOffshore banks

reporting debt, 12.7residency of, 2.17

Offshore enterprises, residency of, 2.17, 2.19Offshore financial center, defined, App. IIIOn-lending of borrowed funds, App. I (Part 2)OOFs. See Other official flowsOperational leases, classification of, App. I (Part 1)Option pricing, 9.21–9.22Options

classification of, App. I (Part 1)defined, 3.25foreign currency options, 7.28valuation, 2.47

ORACLE, 18.11, 18.44–18.45Organisation for Economic Co-operation and Development

Commercial Interest Reference Rates, 8.18comparison with balance of payments/IIP data,

17.23–17.38comparison with World Bank data, 17.63–17.69Creditor Reporting System, 17.1–17.2, 17.17–17.22Development Assistance Committee, 8.2, 17.11, 17.22,

17.24, App. IIIfunction of, App. IIIreporting systems, 17.19–17.22technical assistance, 19.15–19.16

Original maturity, defined, 2.53, App. IIIOther accounts payable and receivable, classification of,

App. I (Part 1)Other assets/other liabilities, defined, 3.25Other debt liabilities, defined, 3.35Other official flows, defined, App. IIIOther sectors category, 3.8Outstanding liabilities, 2.4, 4.8–4.9Own offices, defined, App. IIIOwnership change date, 2.23

Par bonds, App. I (Part 1)PARIS21. See Partnerships in Statistics for Development

in the 21st CenturyParis Club

debt rescheduling, 8.19, Box 8.2function of, App. IIIas official bilateral creditor, 6.5

Part-payments, for capital goods, App. I (Part 2)Partial coverage collections, debt statistics compilation,

12.14

Partial direct reporting companies, 12.21Participating preferred shares, classification of, App. I

(Part 1)Partnerships in Statistics for Development in the 21st

Century, 19.16Payment guarantees, 9.5Payment schedules

credit-linked external debt, 6.34debt-service, 1.10, 6.23, 7.2, 7.8–7.16early repayment provisions, 6.33financial leases, 6.36foreign currencies and nonresidents, 7.30–7.34foreign currency external debt, projected, 6.25–6.26index-linked external debt, projected, 6.30interest on deposits, projected, 6.28–6.29loans not fully disbursed, projected, 6.31projecting payments, 6.24reverse transactions, projected, 6.35securities with embedded options, 7.13–7.15service-related debts, projected, 6.32time periods, 7.10–7.12

PDRCs. See Partial direct reporting companiesPenalties, commercial contracts and, App. I (Part 2)Pension funds, debt liabilities, 2.39Periodic interest costs, memorandum table, 4.8–4.9Periodical interest payments, 2.6Permanent interest-bearing shares, classification of, App. I

(Part 1)Perpetual floating-rate notes, classification of, App. I

(Part 1)Philippines, country case study, 14.156–14.175PIBS. See Permanent interest-bearing sharesPolitical risk, defined, App. IIIPortfolio investment, 3.19–3.23Portfolio management, 11.24Post-cutoff-date debt. See Cutoff datePoverty Reduction and Growth Facility, defined, App. IIIPredetermined interest, 2.83Preferred shares

classification of, App. I (Part 1)participating, App. I (Part 1)

Premiums, defined, App. IIIPrepayments

debt reorganization, 8.29, 8.31, 8.32defined, App. IIIfor goods and services, App. I (Part 2)

Present valuedefined, App. IIIinterest cost accrual, 2.59–2.66

Present value of debt-to-exports ratiodebt sustainability and, 15.14–15.16defined, App. III

Present value of debt-to-fiscal revenue ratio, 15.20Present value of debt-to-GDP ratio, 15.17–15.19Previously rescheduled debt, defined, App. IIIPRGF. See Poverty Reduction and Growth Facility

306

Index

Principaldefined, 2.5, App. IIIdiscounted, 2.64–2.65payments, 2.5, 2.7schedule of payments, 2.8, 7.9

Principal repayment schedule, defined, App. IIIPrivate creditors, defined, App. IIIPrivate sector, defined, 5.5Project loan disbursements, App. I (Part 2)Projected payments. See Payment schedulesPromissory notes, classification of, App. I (Part 1)Provisioning, defined, App. IIIPSRL. See Public Sector Reform LoanPublic corporation, defined, 5.5Public debt, defined, App. IIIPublic external debt, defined, 5.10, App. IIIPublic investment projects, App. I (Part 2)Public sector

contingent liabilities guarantees, 9.24debt statistics, 11.1–11.26defined, 5.5external debt, 5.1–5.10, 16.4

Public Sector Reform Loans, 19.29Publicly guaranteed private sector external debt, defined, 5.6

Quantitative limits, defined, App. IIIQuasi-corporations, 3.6

Random samples, debt statistics compilation, 12.14RDBMS. See Relational Database Management SystemRecording, time of, 2.22–2.25Recording basis, Box 2.1Recoveries, defined, App. IIIReference units of account, 2.50Refinancing, 8.7. See also Debt refinancing; Debt

reschedulingRegional central banks, residency of, 2.21Registers of external loans, 12.22Reinsurance, App. I (Part 2)Reinsurance by export credit agencies, defined, App. IIIReinvested earnings on foreign direct investments, 2.49Relational Database Management System, 18.11Remaining maturity

defined, 6.6–6.8, App. IIImeasures, 7.5–7.7

Reorganization. See Debt reorganizationRepayment period, defined, App. IIIRephasing, defined, App. IIIReporting banks, defined, App. IIIRepos. See Repurchase agreementsRepudiation of debt

defined, App. IIInonrecognition, 2.22

Repurchase agreementsdefined, 3.31, App. IIdelay in returning security, App. I (Part 2)function of, App. II:4–App. II:12

Rescheduling. See Debt reschedulingRescheduling agreement, defined, App. IIIReserve assets, 3.38Residence

brass plate companies, 2.18center of economic interest, 2.15defined, 2.13determination of, 2.9economic territory, 2.14institutional units, 2.15–2.16nonresident agencies, 2.20offshore banks, 2.17, 2.19offshore enterprises, 2.17, 2.19regional central banks, 2.21shell companies, 2.18special purpose entities, 2.18See also Nonresidents

Residual maturity, defined, 6.6, App. IIIResidual values, treatment of, App. I (Part 2)Reverse security transactions

debt statistics compilation, 13.29–13.30defined, 3.31, App. II:1memorandum table, 4.14–4.15recording, App. II:20sale of, 3.32securities lending, App. II:13–App. II:19See also Repurchase agreements

Reverse transactions, projected payments, 6.35Revolving underwriting facilities, 9.8, App. I (Part 1)Rights accumulation program, defined, App. IIIRisk, contingent liabilities and, 9.21–9.22RUFs. See Revolving underwriting facilities

SAF. See Structural Adjustment FacilitySDDS. See Special Data Dissemination StandardSector classification, defined, 3.2, App. IIISecurities

asset-backed, App. I (Part 1)index-linked, App. I (Part 1)interest cost accrual, 2.73location of issuance, 6.21, 7.52–7.54mortgage-backed, App. I (Part 1)stripped, App. I (Part 1)with embedded options, payment schedules for, 7.13–7.15See also Traded securities

Securities lending, 3.31, App. II:13–App. II:19Security identification code, Box 13.1Sell-/buybacks, 3.31, App. II:1Service-related debts, projected payments, 6.32Services

as debt repayment, 2.38prepayments, App. I (Part 2)

Shell companies, residency of, 2.18Short-term commitments, defined, App. IIIShort-term debt

defined, 2.53, App. IIIexternal debt, 6.7–6.8

307

Index

international reserves-to-short-term debt ratio,15.26–15.29

monitoring, 12.23–12.27Short-term remaining maturity, 6.7, 7.5–7.7SIL. See Specific Investment LoanSolvency, 15.4–15.5Sovereign bonds, restructuring, Box 8.1Special accounts, defined, App. IIISpecial Data Dissemination Standard, Box 4.1Special purpose entities, residency of, 2.18Specific Investment Loans, 19.28SPEs. See Special purpose entitiesSpot rate, exchange rate conversion, 2.52Stand-By Arrangement (IMF), defined, App. IIIStand-by credit, defined, App. IIIStandstill, defined, App. IIIStatistics

coordination among official agencies, 10.4–10.10debt-service payments, 11.12–11.13disbursements data, 11.10–11.11dissemination of external debt statistics,

10.23–10.25, 17.1estimating position data with transactions

information, 12.36legal backing for data collection, 10.12–10.15resource allocation, 10.11technical assistance, 19.1–19.29See also specific countries

Stock figures, defined, App. IIIStock-of-debt operation, defined, App. IIIStock rescheduling, 8.12Straightline interest, interest cost accrual, 2.67, 2.69Stratified random samples, debt statistics compilation, 12.14Stress test, defined, App. IIIStripped securities

classification of, App. I (Part 1)interest cost accrual, 2.77–2.80measurement, 2.61

Structural Adjustment Facility, defined, App. IIIStructured bonds, classification of, App. I (Part 1)Structured floating-rate notes, classification of, App. I (Part 1)Subordination strategy, defined, App. IIISupplier’s credit, defined, App. IIISwap contracts, 3.25Swaps

classification of, App. I (Part 1)cross-currency, 7.32debt, App. IIIdebt-for-charity, App. IIIdebt-for-development, App. IIIdebt-for-equity, App. IIIdebt-for-nature, App. IIIdefined, 3.25gold, 3.31, App. I (Part 1)total return, App. I (Part 1)

System of National Accounts 1993, 1.7, 2.11

TAL. See Technical Assistance LoansTechnical arrears, 3.37Technical assistance in external debt statistics,

19.1–19.29Technical Assistance Loans, 19.29Technical cooperation grants, defined, App. IIITerms-of-reference rescheduling, defined, App. IIITFFS. See Inter-Agency Task Force on Finance StatisticsThird-party guarantees, 2.30Tied-aid loans, defined, App. IIITime of recording, 2.22–2.29Toronto terms. See Concessional restructuringTotal official flows, defined, App. IIITotal return swaps, classification of, App. I (Part 1)Trade credits

classification of, App. I (Part 1)defined, 3.27liabilities, 2.38OECD data reporting, 17.31

Trade finance, monitoring debt, 12.24, 12.27Trade-related credit

defined, 6.9–6.11cross-border, 7.55–7.56

Traded debt instrumentsdata model for calculating debt statistics,

12.46–12.56location of debt securities issuance, 7.52–7.54market valuation, 2.42–2.44reconciliation of nominal and market value, 7.50–7.51

Traded securitiesCoordinated Portfolio Investment Survey, 13.35–13.36debt statistics compilation, 13.1–13.9issues of securities by residents in foreign markets,

13.26–13.28mismeasurement, 13.31–13.33nonresident investment in domestically issued

securities, 13.10–13.25periodic position surveys, 13.34securities involved in reverse security transactions,

13.29–13.30security databases, Box 13.1

Tranches, 2.76, 18.18–18.19, App. IIITransfer arrears, 3.37Transfer clause, defined, App. IIITransfer risk, defined, App. IIITransfers, defined, App. IIITreasury bills, classification of, App. I (Part 1)Treaty on Monetary Union, Box 14.1Turkey, country case study, 14.176–14.185

Uganda, country case study, 14.186–14.207Ultimate risk concept, 9.25–9.29UNCTAD. See United Nations Conference on Trade and

DevelopmentUndisbursed

defined, App. IIIloan commitments, 9.6

308

Short-term debt (continued)

Index

Unit-of-account-linked debt, 12.38United Nations Conference on Trade and Development

Debt Management and Financial Analysis System,18.1, 18.9–18.49

technical assistance, 19.17–19.20Unrecovered claims. See Claim paymentsUpper-middle-income countries, defined, App. IIIUse of IMF credit and loans, classification of, App. I (Part 1)

Valuation, 2.31–2.49face value, 2.33market value, 2.34nominal value, 2.32nondebt instruments, 2.45–2.49nontraded debt instruments, 2.35–2.41traded debt instruments, 2.42–2.44

Value date, 2.23Variable-rate bonds, classification of, App. I (Part 1)Variable-rate external debt instruments, 6.15–6.17Variable-rate instruments, 2.32, 2.82–2.87

Variable-rate notes, classification of, App. I (Part 1)Variation margins, App. II:10Vostro accounts, App. I (Part 1)VRNs. See Variable-rate notes

Warrants, classification of, App. I (Part 1)World Bank

comparison with balance of payments/IIP data,17.51–17.62

comparison with OECD data, 17.63–17.69Debtor Reporting System, 8.2, 17.1–17.2, 17.39–17.69technical assistance, 19.21–19.29, Fig. 19.1

World Bank Group, function of, App. IIIWorld Development Indicators, 17.39Write-offs

defined, App. IIIOECD data reporting, 17.33

Zero-coupon bonds, classification of, App. I (Part 1)Zero-coupon instruments, interest cost accrual, 2.66

309

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