Recording of international students in the balance of payments

The number of international students studying in Australia has increased more than threefold over the past 20 years, from 182,137 to 566,006 students[1].

This article explains how the range of economic activities international students engage in are recorded in Australia’s balance of payments. It focuses on the Current account (exports, imports and net income flows), and how the economic activities of international students contribute to the broader measurement of Australia’s economy. 

Australia’s balance of payments provides a comprehensive summary of the economic transactions between Australian residents and the rest of the world. These transactions include international trade of goods and services (export and imports), income flows between residents and non-residents, transfer payments (like foreign aid), and changes in ownership of Australia’s assets or liabilities.  The high-level structure of Australia’s balance of payments is shown in Table 1. 

To ensure international comparability of key macro-economic indicators (e.g. Exports, Imports and Current account balances) the ABS compiles balance of payments and international trade statistics in accordance with international statistical standards, including:

• The International Monetary Fund’s Sixth Edition of the Balance of Payments and International Investment Position Manual (BPM6). 
• The United Nation’s Manual on Statistics of International Trade in Services 2010 (MSITS2010).
• The United Nation’s International Merchandise Trade Statistics: Concepts and Definitions 2010 (IMTS2010).
• The United Nation’s System of National Accounts 2008 (2008 SNA).

For balance of payments, adhering to international standards is important to ensure consistency in the treatment of trade flows, e.g. so that an export of one country will be recorded as an import of another country. 

The balance of payments is an accounting framework in which any economic transaction between Australia and the rest of the world has two sides recorded (double-entry accounting). For most transactions recorded in the Current account, the other side of the transaction will be recorded in the Capital or Financial account. 

This article focuses on the recording of international student transactions within the Current account section of the balance of payments. For further information on the broader balance of payments framework, refer to the Methodology section of the quarterly Balance of Payments publication. 

The concept of residency is fundamental in determining which transactions are in scope of the balance of payments. 

In economic statistics, residency is not based on location, nationality, or legal status (e.g. citizenship). Instead, the residence of individuals, businesses, governments and other organisations is determined by the economic territory to which they have the strongest connection. This is expressed as their ‘centre of predominant economic interest’ [2]. This is generally based on significant economic activity and transactions within a country’s economic territory, and the intent to engage with these activities. 

To apply this ‘centre of predominant economic interest’, the actual or intended location for one year or more is used as an operational definition to determine residency. However, there are exceptions where applying this operational definition would not align with the concept of ‘centre of predominant economic interest’. 

For example, Australian employees working on ships and aircraft may spend more than 12 months outside Australia. If the one-year-or-more definition was applied, they would be classified as non-resident. However, since their ‘centre of predominant economic interest’ remains in Australia, they are treated as Australian residents for economic statistics. 

International students are another example for which the one-year-or-more definition is not applied. The BPM explicitly deals with this case: “People who go abroad for full-time study generally continue to be resident in the territory in which they were resident prior to studying abroad. This treatment is adopted even though their course of study may exceed a year" [3].

Consistent with this standard, the ABS classifies international students as non-residents for the entire duration of their studies with the move to a different country considered a temporary motivation, with their centre of predominant economic interest remaining in their home country. This means the economic transactions of international students with their host economy are in scope of the balance of payments.

In economic statistics, international students only change to being residents of the territory they are studying in if they develop an intention to stay after the completion of their studies. In practice, the ABS determines this intention through visa status, i.e., once a student transitions from a student visa to another type of visa, such as a permanent skilled migrant visa. This also applies for Australian students studying overseas. 

Population statistics use a different residency definition to economic statistics. These statistics are based on the United Nations Recommendations on Statistics of International Migration, Revision 1 (1998) which define an international migrant as "any person who changes his or her country of usual residence", and state that "the change of country of usual residence necessary to become an international migrant must involve a period of stay in the country of destination of at least a year."

International students are included in Australia’s Estimated Resident Population (ERP), provided they meet the ERP residency rules. The method used for estimating overseas migration employs the '12/16 month rule'. Under this rule, a person who is not already counted in the population is added to ERP if they travel to Australia and remain in Australia for 12 months or more over a 16-month period.

The ABS Tourism Satellite Account (TSA) is produced in line with the Manuals on Tourism Statistics and Tourism Satellite Accounts which provides the internationally recognised conceptual framework for constructing a TSA. The TSA has specific criteria for international students. International students enrolled in short-term courses are considered visitors if their stay is less than 12 months within a 16-month period. In these cases, expenditure by international students is included in the TSA. However, students who stay longer than a year (regardless of short breaks) are considered residents of their educational institution’s location and are excluded from the TSA.

In the balance of payments, the economic activities of international students are recorded according to the type of transaction and represented in the relevant account.

International trade in services statistics measure the value of services transactions between Australian residents and non-residents. Travel services exports (credits) includes the value of goods and services bought by non-residents during visits to the host economy. Travel service imports (debits) includes the value of goods and services bought by residents when visiting other economies. 

The classification of international students as non-residents means that:

• Expenditure on goods and services (including tuition fees, food, accommodation, local transport, health services, and so on) by international students studying in Australia is included in the education-related category of Travel services exports (credits). In the 2023-24 Financial Year, the value of Australia’s Education-related Travel services exports was $50,492 million (current prices). 
• Expenditure on goods and services (including tuition fees, food, accommodation, local transport, health services, and so on) by Australian students studying abroad is included in the education-related category of Travel services imports (debits). In the 2023-24 Financial Year, the value of Australia’s Education-related Travel services imports was $500 million (current prices). 

Economic transactions between Australian resident universities and non-residents are also counted in Australia’s balance of payments. For example, any services bought by Australian universities from the rest of the world are included in trade in services imports (debits) in the relevant trade service category. 

For further information on the data sources and methods used by the ABS to compile education-related Travel service estimates, and all other Trade in services estimates, refer to the International Trade in Services; Concepts, Sources and Methods.

If an international student is employed in Australia while studying, payments from their Australian employer to the international student will be recorded in the primary income account as an outflow of income from Australia (debit entry) as Compensation of Employees (COE). In the 2023-24 Financial Year, the total value of Australia’s Compensation of Employees to non-residents was $14,867 million [4]. For the June quarter 2024, international students in Australia comprised 87.9% of non-residents eligible to work in Australia [5].

For Australian students studying abroad and employed by a non-Australian resident employer, payments will be recorded as an inflow of income to Australia (credit entry). In the 2023-24 Financial Year, the total value of Compensation of Employees earnt by Australians from non-resident employers was $2,728 million.

Personal transfers of cash or in-kind (sometimes referred to as workers remittances) between residents and non-residents are recorded under secondary income. However, if an international student receives funds from their non-resident parents who live overseas, or if the student transfers funds back to their home economy, both of these transactions would be out of scope of Australia's balance of payments as they are transactions between non-residents. 

As shown in Table 1, the Current account balance is the sum of the trade balance, and primary and secondary income balances. The Current account balance is a comprehensive summary statistic, which accounts for the value of all transactions (export, imports and income) of international students in a given time period. 

International students historically have been a net positive to Australia’s Current account balance, with their spending on education-related travel (inflows) greater than all non-resident earnings from COE (outflows), see chart 1 below.

The following examples demonstrate how the economic transactions related to international students and the international education sector are recorded in Australia’s balance of payments:

1. Sam, an international student studying at an Australian university, spends $100,000 on goods and services from Australian businesses (for tuition fees, food, accommodation, transport, and so on). Sam also has a part-time job while studying in Australia and earns $20,000 in wages from an Australian employer.

   The $100,000 Sam spent is an export of education-related Travel services and recorded as a ‘service export’ (credit) in the trade balance. The $20,000 Sam earnt in wages is recorded as compensation of employees debits in the primary income balance. Sam’s net impact on the Current account is $80,000.  

2. Jane, an Australian resident, goes overseas to study abroad and spends $30,000 on goods and services from the host economy (for tuition fees, food, accommodation, transport, and so on). 

   The $30,000 Jane spent is an import of education-related Travel services and recorded as a ‘service import’ (debit) in the trade balance. Jane’s net impact on the Current account is -$30,000. 

3. An Australian university pays $10,000 to a non-resident business to advertise their courses to potential international students. 

   The $10,000 the Australian university spent is an import of ‘Other business services: professional and management consulting services’ and is recorded as a ‘service import’ (debit) in the trade balance. The net impact of this transaction on the Current account is -$10,000. 

Table 2 shows how the transactions of Sam, Jane and the Australian university would be recorded within Australia’s Current account. 

Table 3 demonstrates how the same economic transactions for international students and the international education sector are recorded in estimates of GDP and GNI.  Gross National Income is lower than GDP in this example, reflecting the COE paid to international students, which is an outflow of income to non-residents.

For GDP (expenditure), Jane’s spending on education-related Travel services of $30,000 is recorded as both an import and household final consumption expenditure, as Jane is a resident of Australia. 

For GDP (income), there is an additional item (4), which is the Gross Operating Surplus (GOS). This represents the profits accruing from production of the goods and services which were consumed by Sam (education services, transport, food, rent and so on) [6].

1. These are average student numbers over the three months of the June quarters in 2004 and 2024, sourced from visa data from the Department of Home Affairs.
2. BPM6 paragraphs 4.113 to 4.115 provide more detail.
3. As per BPM6 paragraph 4.120. 
4. Compensation of employee (COE) estimates in the balance of payments include the value of income earned by all non-residents, including seasonal workers and visitors to Australia with an intention to stay less than 12 months. The ABS cannot accurately disaggregate non-resident COE between that earned by international students and by other temporary workers.
5. Source: These are average student numbers over the three months of the June quarters in 2024, sourced from visa data from the Department of Home Affairs, and averages over the three months of the June quarters in 2024 across different visa types of temporary workers derived from Overseas Arrivals and Departures, ABS. The total number of non-residents eligible to work in Australia in June quarter 2024 was 644,173, made up of international students (566,006) and other temporary workers (78,167).
6. Gross Operating Surplus = $100,000 (Production of education, transport, food, rent) - $10,000 (University advertising) -$20,000 (COE) = $70,000.

24/10/2024 - A post release correction was applied to footnote 5 to update the source data. This has now been corrected.