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Balance of Payments and International Investment Position: September 2011 quarter
Embargoed until 10:45am  –  21 December 2011
Definitions

About the Balance of Payments and International Investment Position

Balance of payments (BoP): New Zealand's BoP statements are records of the value of New Zealand’s transactions with the rest of the world in goods, services, income, and transfers. They also record changes in New Zealand’s financial claims on (assets), and liabilities to, the rest of the world.

International investment position (IIP): New Zealand’s IIP statement provides a snapshot of the country’s international financial assets and liabilities. It measures the stock (or level) of New Zealand's financial assets and liabilities with the rest of the world at a particular point in time.

This includes New Zealand's net international debt (lending to non-residents less borrowing from non-residents) and net international equity investment (investment in shares abroad less foreign investment in New Zealand company shares). A net international debtor position means that international liabilities exceed international assets.

The BoP and IIP statistics are closely related, with the former measuring transaction flows and the latter measuring stock positions. The difference in the level of international financial assets and liabilities between two points in time is due to: 

  • BoP financial account transactions
  • other (non-transactional) changes that occurred during the period (eg revaluations, changes in market prices, and other changes such as write-offs).

Definitions of terms

Capital account: has two components – capital transfers and the acquisition or disposal of non-produced, non-financial assets. Capital transfers involve the transfer of ownership of fixed assets, or the transfer of funds linked to them, without any counterpart transaction (eg migrants transfers).

Current account: records the value of New Zealand’s transactions with the rest of the world in goods, services, income, and transfers.

The credit side of this account shows the export of goods and services, income earned and, under current transfers, the offsetting entries to resources received by residents without payment required.

The debit side shows the import of goods and services, income paid and, under current transfers, the offsetting entries to resources supplied to foreign residents without payment required.

The current account balance is the sum of all current account credits less all current account debits. When the sum of debits is greater than the sum of credits we have a current account deficit.

Financial account: records financial transactions involving New Zealand claims on (assets), and liabilities to, non-residents.

The financial account is classified into assets and liabilities, which are broken down by type of investment (direct, portfolio, other investment, and reserve assets) and instrument of investment.

Financial account inflows reflect either increases in New Zealand liabilities or decreases in international financial assets. Correspondingly, outflows reflect either increases in New Zealand's international financial assets, or decreases in its international financial liabilities.

Note that the income generated/paid from holding an asset/liability is recorded in the investment income component of the BOP current account.

Net errors and omissions (residual): an item to ensure the BoP statement balances. It is equal and opposite to the sum of all current account, capital account, and financial account credit flows less the sum of all debit flows.

Balances: are usually in surplus or deficit and are calculated as credits (exports) minus debits (imports) – zero balances are unusual. For example, the balance on goods is goods exports (credits) less goods imports (debits).

Goods: physical, produced items over which ownership rights can be established and whose ownership can be passed from one person to another through transactions.

Services: products other than tangible goods. Services result from production activity that changes the conditions of the consuming units, or makes the exchange of products or financial assets possible.

Examples of services are:

  • a lawyer providing advice to an overseas client 
  • a client paying a company to perform some market research 
  • a passenger flying on an overseas airline 
  • a company paying to have a ship repaired abroad 
  • a New Zealand branch receiving management services from its head office overseas.

Exports of travel services: covers all expenditure on both goods and services by overseas visitors to New Zealand. This includes holidaymakers, business travellers, and international students. Excludes international airfares.

Imports of travel services: covers all expenditure on both goods and services by New Zealand-resident travellers while overseas. Excludes international airfares.

Income: earnings from providing capital (eg profits received from directly owning a company, dividends received from owning shares, interest received from lending money) or wages/salaries earned from providing labour (‘compensation of employees’).

Current transfers: offsetting entries to transactions where goods and services are supplied or received without there being an exchange of equal value in return (eg taxes or donations).

Capital transfers: involve the transfer of ownership of fixed assets or the transfer of funds linked to them, without any counterpart transaction (eg funds brought into the country by migrants).

Non-produced, non-financial assets: consist of natural resources; contracts, leases, and licenses; marketing assets and goodwill (eg the sale of a brand name).

Assets: a financial claim held by an entity on another entity (eg a New Zealand bank lending money to an overseas company would hold an asset equal to the value of the loan).

Liabilities: a financial claim owing to an entity by another entity (eg a New Zealand company borrowing from overseas would have a liability to overseas equal to the value of the loan).

Stocks: the value, at a set point in time, of a country’s financial assets or liabilities.

Flows: transactions that result in an increase or decrease in financial assets or liabilities (eg a New Zealand company purchases 50 percent of an overseas company – the transaction is recorded as a flow in the financial account, and the value of New Zealand’s stock of financial assets increases accordingly).

Direct investment: a situation where a single investor owns 10 percent or more of voting shares in a company (eg New Zealand-based subsidiaries of overseas companies represent direct investment from overseas).

Portfolio investment: investment of less than 10 percent of voting shares in a company by a single investor (eg a New Zealand fund manager buying 1 percent of shares in an overseas company).

Other investment: mainly loans between unrelated parties (eg a New Zealand subsidiary borrowing from an overseas bank).

Securities: financing or investment instruments bought and sold in financial markets, such as bonds, notes, options, and shares.

Financial derivatives: a security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates, and market indexes.

Net international debt: New Zealand's overseas lending less its overseas borrowing. Lending and borrowing include debt instruments only, and exclude equity (shares). Financial derivative asset and liability positions are included in lending and borrowing. See also 'external debt'.

Net external debt: New Zealand's net international debt excluding financial derivative asset and liability positions. The difference between international debt and external debt is explained in the General Information section. See also 'international debt'.

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