International Investment Position, Australia: Supplementary Statistics methodology

1 The conceptual framework used in compiling Australia's international accounts statistics is based on the International Monetary Fund's Balance of Payments and International Investment Position Manual, Sixth Edition (BPM6). Descriptions of the underlying concepts and structure of the balance of payments and international investment position, the sources, methods and terms used in compiling estimates are presented in the publication Balance of Payments and International Investment Position, Australia: Concepts, Sources and Methods (cat. no. 5331.0) on BPM5 basis. The Concepts, Sources and Methods is currently being updated to reflect the changes introduced in the September quarter 2009 to implement BPM6 basis.

2 Balance of payments credit entries are shown with an implied positive sign and debit items are shown as negative entries. References to balance of payments debit items in the Analysis and Comments sections in the publication are made without regard to sign. The ABS does not follow the sign convention detailed in BPM6. The BPM5 approach for the financial account has been retained so that the total transactions of the BOP plus the errors and omissions add up to zero.

3 For foreign liabilities, position data and any transaction increase (BOP credits) or other flow increase in liabilities is shown without sign. A negative sign for transactions (BOP debits) and other flows in liabilities denotes a fall in liabilities. For foreign assets, position data and any transaction increase (BOP debits) or other flow increase in assets is shown with a negative sign. Transactions (BOP credits) and other flows in assets shown without sign denote a decrease in assets.

4 Movements over time are expressed as percentage changes. A minus sign means either a decrease in credit entries, a decrease in the magnitude of debit entries, a decrease in a surplus or an increase in the magnitude of a deficit. The absence of a sign means either an increase in credit entries, an increase in debit entries, an increase in a surplus or a decrease in a deficit. The percentage change is not applicable if there is a change from a surplus to a deficit, or vice versa, or from an asset to a liability, or vice versa.

5 On a balance of payments and international investment position basis, Australia’s economic territory is the area under the effective control of the Australian government. It includes the land area, airspace and territorial waters (including jurisdiction over fishing rights and rights to fuels and minerals). The Australian economic territory also includes territorial enclaves in the rest of the world. These are clearly demarcated areas of land, located in other countries, which are owned or rented by the Australian government for diplomatic, military, scientific or other purposes. Specifically, the economic territory of Australia consists of:

• Geographic Australia which includes Cocos (Keeling) Islands and Christmas Island
• Norfolk Island
• Australian Antarctic Territory
• Heard Island and McDonald Islands
• Territory of Ashmore Reef and Cartier Island
• Coral Sea Islands
• Australia's territorial enclaves overseas
• the Joint Petroleum Development Area (joint territory between Australia and Timor-Leste).

6 Because of administrative complexities and measurement difficulties, transactions between Norfolk Island and the rest of the world will not always be captured in all relevant balance of payments and international investment position statistics. Most of the transactions involving Norfolk Island are not material to Australia's trade performance and not capturing these transactions will not distort these statistics. However, any significant transactions will be identified and included in the relevant statistics.

7 An economic entity (person, organisation, or enterprise) has its centre of predominant economic interest (or residency) in Australia if it has closer association with the economic territory of Australia than any other economic territory. To have a centre of predominant economic interest in a territory is to have ownership of land or ownership of structures or to engage in production in a territory on a significant basis (generally interpreted as at least one year). An exception to this is made in determining the residency status of students as they are generally expected to return to their home economies upon completion of study. Medical patients abroad are also considered to be residents of their economies of origin regardless of the length of stay in the other economies in which they are receiving treatment.

8 In compiling the Australian balance of payments and international investment position, the Australian economy is conceived as comprising the economic entities that have a closer association with the territory of Australia than with any other territory. Each such economic entity is described as a resident of Australia. Any economic entity which is not regarded as a resident of Australia is described as a non-resident.

Resident entities include:

• Australian general government entities in Australia and abroad (e.g. embassies)
• businesses located in Australia
• individuals normally residing in Australia.

Non-resident entities include:

• overseas tourists in Australia for a limited period of time (less than 12 months)
• foreign embassies (including their diplomats) located in Australia.
   

9 Foreign direct investment statistics are presented according to the directional principle rather than asset/liability principle. Under the directional presentation, the direct investment flows and positions are organised according to the direction of the investment for the reporting economy—either outward or inward. So, for a particular country, all flows and positions of direct investors resident in that economy are shown under outward investment and all flows and positions for direct investment enterprises resident in that economy are shown under inward investment. The diagram below illustrate how outward and inward investment are compiled.

10 Reverse investment is when an affiliate invests in its parent. Under the directional presentation, reverse investment is subtracted to derive the amount of total outward or inward investment of the reporting country. So, if a resident parent borrows money from one of its foreign affiliates, this is subtracted in calculating the reporting country’s outward investment because it reduces the amount of money that the resident country’s parent entity have invested in their foreign affiliates on a net basis. Similarly, if a resident affiliate lends money to its foreign parent, this is subtracted when calculating inward investment because it reduced the amount of money that the foreign parent has invested in the resident country on a net basis. While reverse equity investment is to be treated the same way as reverse debt investment, it is so rare that most of the difference between the two presentations is due to differences in the treatment of reverse debt investment.

11 Total debt levels shown for foreign investment in Australia (table 2) and Australian investment abroad (table 5) are recorded on a gross basis for liabilities and assets. Total equity levels shown for foreign investment in Australia (table 2) and Australian investment abroad (table 5) are recorded net of any reverse investment by a direct investment enterprise (affiliate) in its direct investor (parent) (see paragraph 9 above). Hence, total debt levels for foreign investment in Australia (table 2) and Australian investment abroad (table 5) will differ from the sum of the debt instruments in table 2 and table 5 respectively, while the total equity levels are the sum of direct investment equity and portfolio investment equity in each case.

12 Most portfolio equity liabilities are measured through a different process to other instruments and portfolio equity assets. This process allows the ABS to determine the levels of portfolio equity liabilities by country (table 2). The process does not provide information on transactions in portfolio equity liabilities (table 1) or income accrued on these liabilities (table 3) and results in the unallocated category being a significant proportion of the total.

13 The industry categories shown are based on the Australian and New Zealand Standard Industrial Classification (ANZSIC), 2006 (cat. no. 1292.0). Industry statistics should be treated with some caution as they do not necessarily reflect the industry of the end use of the funds. First, the statistical unit (that is, the unit of observation and classification) generally consists of all enterprises in an enterprise group within a single resident institutional sector. The industry of this statistical unit, which may cover a broad range of activities, is determined on the basis of the predominant activity of the unit as a whole which may be quite different from the industry in which funds are used. Second, financial enterprises such as trading and merchant banks, may borrow funds as principals and then on-lend to clients in other industries.

14 Care should be exercised in interpreting country data. The country allocation of financial transactions and levels is based on the immediate country of residence of the creditor in the case of Australia's foreign liabilities, or of the debtor in the case of Australia's foreign assets. The country of residence of the ultimate beneficial owner/recipient is not identified.

15 Users may also wish to refer to the following publications which are available on the ABS web site:

• A Guide to Australian Balance of Payments and International Investment Position Statistics (cat. no. 5362.0.55.001)
• Balance of Payments and International Investment Position, Australia: Concepts, Sources and Methods (cat. no. 5331.0)
• Balance of Payments and International Investment Position, Australia (cat. no. 5302.0) – issued quarterly.