tarun das lecture bop-3
TRANSCRIPT
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UNSIAP TARUN DAS SESSION 11-12 BOP 1
Accounting of Balance of PaymentsTarun Das, Economic Adviser, MOF, India
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UNSIAP TARUN DAS SESSION 11-12 BOP 2
Contents
1. BOP Standard Accounting Tables
2. Case Study for India3. Workout Session-2
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UNSIAP TARUN DAS SESSION 11-12 BOP 3
1.1 Balance of Payments Accounting
The standard components of BOP comprisetwo main groups of accounts:
The current account pertains to goods
and services, income, and currenttransfers.
The capital and financial account pertainsto (i) capital transfers and acquisition or
disposal of nonproduced, nonfinancialassets and (ii) financial assets and liabilities.
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UNSIAP TARUN DAS SESSION 11-12 BOP 4
1.2 Balance of Payments Accounting
A. Current Account Account is closed by theend of the year. These are non-assettransactions and have no future obligations.
B. Capital Account-Account is not closed withina year and have future obligations. It consists
of financial flows which can be grouped intodebt flows and non-debt creating financialflows. Debt has attendant obligations forrepayment of principal (amortization) andpayment of interest charges. Amortization
appears on capital account while interestcharges appear on current account. Similarlynon-debt financial flows appear on capitalaccount, while dividends, royalties etc. appearon current account.
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UNSIAP TARUN DAS SESSION 11-12 BOP 5
1.3 Goods and Services
A.
Goods andservicesa. Goods1. General
merchandise
2. Goods forprocessing3. Repairs on goods4. Goods procured in
ports by carriers
5. Nonmonetary gold5.1 Held as a store ofvalue
5.2 Others
b. Services1. Transportation1.1 Sea transport1.1.1 Passenger1.1.2 Freight1.1.3 Other
1.2 Air transport1.2.1 Passenger1.2.2 Freight1.2.3 Other1.3 Other transport
1.3.1 Passenger1.3.2 Freight1.3.3 Other
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UNSIAP TARUN DAS SESSION 11-12 BOP 6
1.4 Services
2. Travel2.1 Business2.2Personal3. Communications
services4. Construction
services5. Insurance services6. Financial services
7. Computer andinformation services
8. Royalties, license fees
9. Other business services9.1 Merchant and other
trade-related services9.2Operational leasing
services9.3 Misc. business,
professional, technicalservices
10. Personal, cultural, andrecreational services
10.1 Audiovisual and
related services10.2Other personal,cultural, and recreationalservices
11. Govt services n.i.e.
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UNSIAP TARUN DAS SESSION 11-12 BOP 7
1.5 Income andCurrent Transfers
B.
Income1. Compensation ofemployees
2. Investmentincome
2.1 Direct investment2.1.1 Income on equity2.1.1.1 Dividends and
distributed branchprofits
2.1.1.2 Reinvestedearnings andundistributed branchprofits
2.1.2 Income on debt(interest)
2.2 Portfolio investment
2.2.1 Income on equity(dividends)
2.2.2 Income on debt(interest)
2.2.2.1 Bonds and notes2.2.2.2 Money market
instruments and financialderivatives
2.3 Other investment
C.Current transfers
1. General government2. Other sectors2.1 Workers remittances2.2 Other transfers.
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UNSIAP TARUN DAS SESSION 11-12 BOP 8
1.6Capital and Financial Account
A.C
apital account1. Capital transfers1.1 General government1.1.1 Debt forgiveness1.1.2 Other1.2 Other sectors1.2.1 Migrants transfers1.2.2 Debt forgiveness1.2.3 Other2. Acquisition/disposal
of nonproduced,nonfinancial assets
B. Financial account
1. Direct investment1.1 Abroad1.1.1 Equity capital1.1.1.1 Claims on affiliated
enterprises1.1.1.2 Liabilities to affiliated
enterprises1.1.2 Reinvested earnings1.1.3 Other capital1.1.3.1 Claims on affiliated
enterprises
1.1.3.2 Liabilities to affiliatedenterprises
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UNSIAP TARUN DAS SESSION 11-12 BOP 9
1.7 Financial Account
1.2 In reportingeconomy1.2.1 Equity capital1.2.1.1 Claims on direct
investors1.2.1.2 Liabilities to
direct investors1.2.2 Reinvested
earnings1.2.3 Other capital1.2.3.1 Claims on direct
investors1.2.3.2 Liabilities to
direct investors
2. Portfolio investment2.1 Assets2.1.1 Equity securities2.1.1.1 Monetary
authorities2.1.1.2 General
government2.1.1.3 Banks2.1.1.4 Other sectors
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UNSIAP TARUN DAS SESSION 11-12 BOP 10
1.8 Financial Account
2.1.2 Debt securities2.1.2.1 Bonds andnotes
2.1.2.1.1 Monetaryauthorities
2.1.2.1.2 Generalgovernment
2.1.2.1.3 Banks2.1.2.1.4 Other
sectors
2.1.2.2 Money marketinstruments
2.1.2.2.1 Monetaryauthorities
2.1.2.2.2 Generalgovernment
2.1.2.2.3 Banks2.1.2.2.4 Other sectors
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UNSIAP TARUN DAS SESSION 11-12 BOP 11
1.9 Financial Account
2.1.2.3 Financialderivatives2.1.2.3.1 Monetary
authorities2.1.2.3.2 General govt2.1.2.3.3 Banks2.1.2.3.4 Other sectors2.2 Liabilities2.2.1 Equity securities2.2.1.1 Banks2.2.1.2 Other sectors
2.2.2 Debt securities
2.2.2.1 Bonds and notes2.2.2.1.1 Monetary
authorities2.2.2.1.2 General govt2.2.2.1.3 Banks2.2.2.1.4 Other sectors2.2.2.2 Money market
instruments2.2.2.2.1 Monetary
authorities2.2.2.2.2 General govt
2.2.2.2.3 Banks2.2.2.2.4 Other sectors2.2.2.3 Financial derivatives2.2.2.3.1 Banks2.2.2.3.2 Other sectors
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UNSIAP TARUN DAS SESSION 11-12 BOP 12
1.10 Financial Account
3. Other investment3.1 Assets3.1.1 Trade credits3.1.1.1 General govt3.1.1.1.1 Long-term3.1.1.1.2 Short-term3.1.1.2 Other sectors3.1.1.2.1 Long-term3.1.1.2.2 Short-term
3.1.2 Loans3.1.2.1 Monetary
authorities3.1.2.1.1 Long-term3.1.2.1.2 Short-term3.1.2.2 General govt3.1.2.2.1 Long-term3.1.2.2.2 Short-term3.1.2.3Banks3.1.2.3.1 Long-term3.1.2.3.2 Short -term3.1.2.4 Other sectors3.1.2.4.1 Long-term3.1.2.4.2 Short-term
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UNSIAP TARUN DAS SESSION 11-12 BOP 13
1.11Financial Account
3.1.3 Currency anddeposits3.1.3.1 Monetary
authorities3.1.3.2 General govt3.1.3.3 Banks3.1.3.4 Other sectors3.1.4 Other assets3.1.4.1 Monetary
authorities3.1.4.1.1 Long-term3.1.4.1.2 Short-term
3.1.4.2 General govt3.1.4.2.1 Long-term3.1.4.2.2 Short-term3.1.4.3 Banks credits3.1.4.3.1 Long-term3.1.4.3.2 Short-term3.1.4.4 Other sectors3.1.4.4.1 Long-term3.1.4.4.2 Short-term
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UNSIAP TARUN DAS SESSION 11-12 BOP 14
1.12 Financial Account
3.2 Liabilities3.2.1 Trade credits3.2.1.1 General govt3.2.1.1.1 Long-term3.2.1.1.2 Short-term3.2.1.2 Other sectors3.2.1.2.1 Long-term3.2.1.2.2 Short-term3.2.2 Loans3.2.2.1 Monetary authorities3.2.2.1.1 Use of Fund credit3.2.2.1.2 Other long-term3.2.2.1.3 Short-term3.2.2.2 General govt3.2.2.2.1 Long-term3.2.2.2.2 Short-term
3.2.2.3 Banks
3.2.2.3.1 Long-term3.2.2.3.2 Short-term3.2.2.4 Other sectors3.2.2.4.1 Long-term3.2.2.4.2 Short-term3.2.3 Currency and dep.3.2.3.1 Monetary auth.3.2.3.2 Banks3.2.4 Other liabilities3.2.4.1 Monetary auth.3.2.4.1.1 Long-term
3.2.4.1.2 Short-term3.2.4.2 General govt3.2.4.2.1 Long-term3.2.4.2.2 Short-term
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UNSIAP TARUN DAS SESSION 11-12 BOP 15
1.13 Financial Account
3.2.4.3 Banks3.2.4.3.1 Long-term3.2.4.3.2 Short-term3.2.4.4 Other sectors3.2.4.4.1 Long-term3.2.4.4.2 Short-term4. Reserve assets4.1 Monetary gold4.2 Special drawing
rights4.3 Reserve position in
the Fund
4.4 Foreign exchange4.4.1 Currency and
deposits4.4.1.1 With monetary
authorities4.4.1.2 With banks4.4.2 Securities4.4.2.1 Equities4.4.2.2 Bonds and
notes4.4.2.3 Money market
instruments/derivatives
4.5 Other claims
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UNSIAP TARUN DAS SESSION 11-12 BOP 16
1.14 Selected Supplementary Items
1. Liabilities for foreignauthorities reserves1.1 Bonds and other
securities1.2 Deposits
1.3 Other liabilities
2. Exceptionalfinancing trans.
2.1 Transfers2.1.1 Debt forgiveness2.1.2 Other inter-
governmental grants2.1.3 Grants from Fund
subsidy2.2 Direct investment2.2.1 Invest along with
debt2.2.2 Other2.3 Portfolio
investment:
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UNSIAP TARUN DAS SESSION 11-12 BOP 17
1.15 Selected Supplementary Items
2.4 Other investmentliabilities2.4.1 Drawings on new
loans by authorities2.4.2 Rescheduling of
existing debt2.4.3 Accumulation ofarrears
2.4.3.1 Principal on STdebt
2.4.3.2 Principal on LTdebt2.4.3.3 Original interest2.4.3.4 Penalty interest
2.4.4 Repayments ofarrears
2.4.4.1 Principal2.4.4.2 Interest2.4.5 Rescheduling of
arrears2.4.5.1 Principal2.4.5.2 Interest2.4.6 Cancellation of
arrears2.4.6.1 Principal2.4.6.2 Interest
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UNSIAP TARUN DAS SESSION 11-12 BOP 18
1.16 Selected Supplementary Items
3. Other transactions3.1 Portfolioinvestment income
3.1.1 Monetaryauthorities
3.1.2 General govt3.1.3Banks3.1.4 Other sectors3.2 Other (than direct
investment) income3.2.1 Monetary
authorities3.2.2 General govt
3.2.3Banks3.2.4 Other sectors3.3Other investment
(liabilities)3.3.1 Drawings on
long-term tradecredits
3.3.2 Repayments oflong-term tradecredits
3.3.3Drawings onlong-term loans
3.3.4 Repayments oflong-term loans
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UNSIAP TARUN DAS SESSION 11-12 BOP 19
1.16 Selected Supplementary Items
4. Services sub-items4.1 Travel (personal)4.1.1 Health-related4.1.2 Education-
related4.1.3 Other4.2 Misc. business,
professional, andtechnical services
4.2.1 Legal,accounting,managementconsulting, andpublic relations
4.2.2 Advertising,market research, andpublic opinion polling
4.2.3 R&D4.2.4Architectural,
engineering, andother technicalservices
4.2.5 Agricultural,mining, and on-siteprocessing
4.2.6 Other
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UNSIAP TARUN DAS SESSION 11-12 BOP 20
2.1 Derived Measures- Current A/C
A.1 Trade AccountTrade balance = Goods balance + services
balanceGoods Balance = Merchandise exports minus
merchandise importsServices Balance = Services exports minus
Services importsA.2 Invisibles Account- A.2.1 to A.2.4A.2.1 (Non-factor) Services = Travel +
Transportation + Insurance + Govt n.i.e +Miscellaneous business and professionalservices (including software, BPO etc.)
A.2.2 Factor incomes(interest,rent,dividend,wage)A.2.3 Private transfers (remittances)A.2.4 Official transfer (foreign grants)
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UNSIAP TARUN DAS SESSION 11-12 BOP 21
2.2Capital andFinancial Account
B.1 Non debt creating financial flows
B.1.1 Foreign Investment = Foreign DirectInvestment (FDI) + Portfolio Investment
B.2 Debt Flows- B.2.1 to B.2.5
B.2.1 External Assistance = Loans obtained frommultilateral organizations and bilateralcountries
B.2.2 External Commercial Borrowing
B.2.3 Short-term credits (trade credits)
B.2.4 Banking capital (deposits and others)
B.2.5 Other capital
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UNSIAP TARUN DAS SESSION 11-12 BOP 22
3.1 Case Study for India: The following datarelate to Indian BOP in 2005-06
Items US$ Billion1 Merchandise Exports f.o.b. 104.8
2 Merchandise Imports c.I.f. 156.3
3. Net travel services 1.4
4. Net transportation services -1.2
5.Net software and other non-factor services
22
6. Inward FDI flows 7.77. Outward FDI flows 2.0
8. Net Portfolio investment 12.5
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UNSIAP TARUN DAS SESSION 11-12 BOP 23
3.2 Case Study: The following data relate toIndian BOP in 2005-06
Items US$ Billion9.Factor incomes, net -5.6
10.Private transfers, net 24.1
11.Official transfers, net 0.2
12.External assistance, net 1.4
13. Ext. comm. borrowing, net 1.6
14. Short-term credit, net 1.7
15. Banking capital, net 1.4
16. Other capital flows, net 1.4
17. Foreign exchange reserves atthe beginning of the year
130.9
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UNSIAP TARUN DAS SESSION 11-12 BOP 24
3.3 Workout Session: Question on BOP
A. Given above data, estimate thefollowing for Indian BOP in 2005-06:1. Trade balance2. Non-factor services balance
3. Net invisibles4. Current account balance5. Total foreign investment6. Total capital flows
7. Overall balance of payments8. Foreign exchange reserves at the year-endB. Make a SWOT (Strength, Weakness,
Opportunities and Threat) Analysis onIndian BOP.
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UNSIAP TARUN DAS SESSION 11-12 BOP 25
3.4 Answer to Numerical Question on IndianBOP situation in 2005-06 (US$ Billion)
1. Trade balance = Merch. exports Merch.imports = 104.8 - 156.3 = (- ) 51.5
2. Non-factor services balance = Net travel +net transportation and other non-factorservices = 1.4 -1.2 + 22 = 22.2
3. Net invisibles = Non-factor services balance+ Net factor incomes + Net privatetransfers + Net official transfers =22.2 - 5.6+ 24.1 + 0.2 = 40.9
4. Current account balance = Trade balance +net invisibles = - 51.5 + 40.9= - 10.6
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UNSIAP TARUN DAS SESSION 11-12 BOP 26
3.5 Answer to Numerical Question onIndian BOP situation in 2005-06
5. Total foreign investment = Net FDI + Netportfolio=(Inward FDI Outward FDI) +Net portfolio =(7.7- 2.0)+ 12.5 = 5.7 + 12.5= 18.2
6. Total capital flows= Foreign investment +External assistance + ECB + Short-termcapital + Banking capital + other capital =18.2 + 1.4 + 1.6 + 1.7 + 1.4 + 1.4 = 25.7
7. Overall BOP = Current A/C balance + Total
capital flows = -10.6 + 25.7 = 15.18. Build up foreign exchange reserves = 15.1
Foreign exchange reserve at the year-end =Reserve at the beginning + build-up =
130.9+15.1 = 146
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UNSIAP TARUN DAS SESSION 11-12 BOP 27
3.6 SWOT (Strengths, Weakness, Opportunities,
Threats) analysis of the Indian BOP in 2005-06.
1. Indian BOP situation in 2005-06 wasdifficult but not unmanageable.
2. Strengths- (a) Buoyant exports andinvisibles, particularly remittances andsoftware exports (b) On the capital account,substantial inflows of non-debt creatingfinancial flows. (c) Short-term capital flowswere within manageable limits. (d) Build upof foreign exchange reserves to the extent
of US$15.1 billion3. Weakness Substantial trade deficit- needs
to be controlled by export promotion, andenhancing domestic petroleum production.
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UNSIAP TARUN DAS SESSION 11-12 BOP 28
3.7 SWOT (Strengths, Weakness, Opportunities,
Threats) analysis of the Indian BOP in 2005-06.
3. Opportunities (a) Indian exports of software,BPO services, and other IT and IT enabledservices (ITES) have high potentials. (b) Indiais also emerging as a favourable destinationfor foreign investment. India needs to maintai
its open door policy in production andinvestment.
4. Threats High international prices of crude oil,POL, metals and minerals may impose greater
burden on Indian imports leading to highinflation, interest rates, and pressure ofexchange rate.
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UNSIAP TARUN DAS SESSION 11-12 BOP 29
4.1 BOP Workout Session-2.
The following Excel FileUNSIAP Tarun Das Session-12 BOP Workshop-2
Provides BOP data for India for the year
2006-07. You are required to estimate somesummary measures and express these aspercentage of GDP
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