RDP 9405: External Debt and Liabilities of Industrial Countries 2. Data Construction

2.1 Basic Principles and Presentation of Data

International investment position statistics aim to measure the external financial assets and liabilities of a country. An asset is a claim by a resident of a country on a non-resident. Conversely, an external liability is any financial obligation that a resident of a country has to a non-resident.^[1],^[2] In principle, these statistics should include the full range of financial instruments identified in the System of National Accounts.^[3]

Most countries publish international investment position statistics in accordance with the guidelines set down by the IMF in its Balance of Payments Manual.^[4] In doing so, they classify assets and liabilities by function, focusing on the relationship between the provider and user of funds. Three major sub-categories of external assets are identified by the IMF; direct investment, portfolio and other investment, and reserve assets. Reserve assets include monetary gold, SDRs, reserve position in the IMF and foreign exchange assets. External liabilities are classified as direct or portfolio and other investment.

Both direct and portfolio investment can be further disaggregated into their debt and equity components. Any financial transaction between a resident and a non-resident, where the investor has at least 10 per cent of a firm's equity, is classified as a direct investment. This will include the equity investment, along with any borrowing between the two parties.^[5] All other investment is classified as portfolio or “other” where the same distinction by instrument can also be made.

In Australia, external financial assets and liabilities are classified (and published) both by the nature of the relationship between the provider and user of funds (by function) and by instrument, equity or debt. Equity instruments, which represent a claim on residual income and value, include shares and reinvested earnings of direct investment enterprises. Non-equity instruments cover all other assets and liabilities which includes a diverse range of instruments such as bank deposits, government bonds and inter-company lending. These all have some form of contractual obligation to the payment of interest and/or principal which is distinct from that of equity. In this paper we refer to non-equity liabilities as debt. This is slightly broader than the ABS definition, which excludes accounts payable.

In this paper, the data are presented using both of the above classifications. In presenting the data by function, the IMF's classification is simplified by including reserve assets with portfolio and other assets. A stylised presentation of this modified classification is shown in Table 1. Foreign direct and portfolio investment are further broken down into their debt and equity components. To make this distinction for a number of countries (enabling the construction of aggregate measures of external debt), previously unpublished statistics were obtained from national Statistical Bureaux or Central Banks.

By rearranging the items in Table 1 to provide a split between debt and equity, a classification by instrument can be derived (Table 2). Herein lies the main contribution of this paper. It has not been possible to derive external debt figures for many industrial countries from published statistics due to a lack of detail on external assets and liabilities by instrument. This is particularly so for direct investment. This results because most industrial countries present their data by function with fewer details on the type of instrument. However, once the distinction by instrument is obtained, the calculation is relatively straightforward.

Both classifications are used in the country summary tables in Appendix A. The format of the tables is shown in Table 3. The main classification is by function. Total direct investment assets and liabilities are shown along with portfolio and other investments. The latter is further split into its official, bank and non-bank components. The aggregate debt and equity split is shown separately as a memo item, with non-equity instruments decomposed into those held by or owed to the official and non-official sectors. The former comprises the central bank and general government while the latter comprises all other sectors, including public trading enterprises.

A positive sign indicates an excess of liabilities over assets. The third column in Table 3 presents the data in net terms, where the various asset measures are subtracted from the relevant category of external liabilities. There is also a measure entitled Gross Portfolio and Other Liabilities Net of Banks. This measure attempts to exclude the effect of international banking on gross external liabilities of countries such as the UK which have a large international banking presence. This tends to inflate the gross measures of these country's external liabilities because banks will fund part of their international business offshore. In calculating this measure, the gross liabilities of banks are subtracted from total gross portfolio and other liabilities.^[6] Bank net liabilities are then added back if they are positive. This is done as it gives an indication of bank liabilities incurred in excess of that needed to conduct international banking business. This series will make the comparison of gross external liabilities more relevant. (The net measures do not suffer from the effect of international banking as the assets and liabilities of banks net out).

Appendix B provides summary tables on external debt for a selected number of developing countries, using a layout similar to the memo item for the industrial countries.

All the data in the industrial country summary tables are expressed in billions of US dollars, converted from the domestic currency by the end period exchange rate. In most cases, they are also expressed as a per cent of both nominal GDP and the value of exports of goods and services^[7].

2.2 Country Details

Full international investment position statistics are available for eighteen industrial countries (Table 4). The data are in most cases based on official national sources. For a few countries, the sectoral disaggregation uses data sourced from the IMF. Appendix C provides full details on the sources for each country. In a number of cases, capital flows data have been used to estimate stocks in recent years when official estimates are not available.^[8]This is done by adding the flow to the most recently available stock estimate. In a few cases, flows are also used to decumulate the stock to derive a series back to 1984 if the official stock data start after this date^[9]. (See Appendix C for further details when this approach is used.) In accumulating flows, changes in exchange rates and other valuation effects since the last official stock estimate will only be captured in the flow data. No attempt is made to adjust the pre-existing stock by these valuation effects. The same applies when flows are decumulated. Table C1 in Appendix C provides information on which countries publish debt and equity components of external assets and liabilities. Unpublished data were obtained from national authorities in all other cases. A debt/equity split is available, for at least one year, for all eighteen countries except the United Kingdom.

Complete sets of international investment position statistics are not available for Iceland, Ireland, Greece and Portugal, although data are available on external debt and non-equity assets^[10].

The same situation exists for most developing countries. This paper, therefore, simply reports measures of external debt and non-equity assets. The debt data are sourced from the World Bank's World Tables, while the non-equity asset data are derived from the IMF's International Financial Statistics by adding together official reserves, foreign assets of banks and cross-border bank deposits by non-banks. This coverage of assets is only partial and thus a country's net external debt position is overstated.

Footnotes

Gold and IMF Special Drawing Rights are included as external assets even though they do not involve counter-parties. [1]

Holdings of land and other immovable assets such as buildings are also included by assuming that a resident has a claim on a notional non-resident enterprise which is regarded as owning the land or the building. This follows from the convention that only residents can own land and immovable assets. [2]

The System of National Accounts (SNA) identifies 7 categories of financial instruments. These are: 1-Monetary Gold and SDRs; 2-Currency and deposits; 3-Securities other than shares; 4-Loans; 5-Shares and other equity; 6-Insurance technical reserves; and 7-Other accounts receivable and payable. [3]

The most recent edition of the IMF Balance of Payments Manual was released late 1993. There have been some changes between this and the previous 1977 edition, but these should not have any major effect upon the international investment position statistics as presented in this paper. [4]

Direct investment is classified primarily on a directional basis. This means, for example, that, a direct investment debt liability is calculated by subtracting any lending to the parent company by the subsidiary from any borrowing it has received from the parent. This netting process applies to direct investment debt assets and liabilities as well as to direct investment equity assets and claims. [5]

This is used rather than total gross external liabilities as the sectorial decomposition is usually only available for portfolio and other liabilities, not for the former. [6]

The stock data are end-period while the nominal GDP and export data are for the full calendar year. Australian and New Zealand data are based on financial years. Australian external assets and liabilities data refer to stocks as at 30 June and for New Zealand at end-March. The GDP and export data are for the year to this date with the exchange rate as it prevailed on the last day of the financial year. [7]

Belgium-Luxembourg 1991–92; Denmark for direct investment 1992–93; France for portfolio equity 1993; Germany for direct investment 1992–93; Japan for portfolio equity 1993; and Sweden for portfolio shares and direct investment 1993. Another approach is taken for some countries when data on total direct investment exists but no split into equity and debt is available for the most recent years. The decomposition is estimated by assuming that the relative shares of debt and equity in direct investment in the most recent few years are the same as in the last official numbers. This technique is used for Canada 1993; Denmark 1992–93; and France 1992–93. [8]

Denmark for direct investment equity 1984–90; France 1984–88; and Switzerland 1984. [9]

For Ireland, the coverage is incomplete, as no data are available for the non-bank private sector. For Portugal and Greece, estimates by the World Bank and OECD, respectively, are used for external debt while the coverage of non-equity assets is estimated from IMF data. The asset data provide only a partial coverage since non-official non-bank assets held outside of a bank are excluded. [10]