Method for the Compilation of the Balance of Payments Statistics in St. Kitts and Nevis

Transcription

1 Method for the Compilation of the Balance of Payments Statistics in St. Kitts and Nevis The Balance of Payments (BOP) of a country provides a systematic record of the economic transactions between residents of that country and those of the rest of the world during a given period, usually one year. It is also a measure of changes in a country s foreign assets and foreign liabilities over a specific period of time, usually one year. Its main purpose is to furnish information that can be used to assess the effects of the international economic transactions of the country on its domestic affairs. The Federation of St.Kitts and Nevis, like the rest of the countries of the Organization of Eastern Caribbean States (OECS), has been following the method of compiling BOP statistics based on the 1993 edition of the Balance of Payments international standards coordinated by the International Monetary Fund (IMF) and set out in its BOP Manual, and Compilation Guide. The fifth edition (1993), is the latest revised version published by the IMF, and it replaces the fourth edition (1977). While the basic definitions and concepts of residence, economic transactions, valuation and time of recording have remained the same; the fifth edition reflects changes in the classification and standard components of the BOP. This edition attempts to harmonize concepts of the BOP with those of the Revised United Nations System of National Accounts 1993 (SNA 1993). It also seeks to adapt the compilation and presentation of statistics to reflect new economic and financial developments, which have occurred since the publication of the fourth edition. For example, with the international interest in the trade in services, the new system of BOP facilitates the analysis of that sector and provides for the classification of new services of importance. History of Balance of Payments Accounts in St.Kitts and Nevis. Since the 1970 s, Balance of Payments have been prepared for the Federation. It was part of the work program of the then Eastern Caribbean Currency Authority, and appeared in its annual reports. There was some discontinuity in the preparation of the Balance of Payments, but the exercise was revived in the early 1980 s. The next series ran from 1981 to 1986, and was prepared by the newly established Eastern Caribbean Central Bank. This set of BOP tables was later revised and followed the format of the 4 th Edition of the BPM. The present series of statistics is based on the BPM5 and the back years were revised in an effort to make them comparable. The Eastern Caribbean Central Bank (ECCB) was solely responsible for the preparation of the BOP statistics until the mid 1990 s. The Statistics Department was involved in facilitating the data collection process by sending out the questionnaires, since it had legislative power to collect data from providers. In addition, the shortage of staff trained at the Statistics Department in the preparation of BOP statistics, had made the transition more difficult. However, after a number of training sessions put on by the International Monetary Fund and the Central Bank for the OECS region, capacity began to be built. 1

2 As part of the capacity building, a computer aided data entry program, called CEBOPS, was designed to facilitate the double entry system, as required in the BOP statistics compilation. This project, developed by ECCB and funded by Canadian International Development Agency (CIDA), was built on the Lotus 2.2 platform. It used links and macros to post the entries from the survey forms to the appropriate accounts and side (credit or debit). Also, provisions were made in the program for the direct entry of estimated data, where the reported data was inadequate or missing. Since then, the programme has been revised and upgraded making it more stable and user friendly. The enhanced CEBOPS v 3.0, now built on Microsoft Excel platform, is owned by the ECCB, and distributed annually to the Statistics Departments in the OECS region. Presently, the Statistics Division is responsible for the BOP, but utilizes the assistance of the Central Bank. The ECCB assists with the collection of data of technical assistance from International donor agencies, for many countries. Also, since the ECCB is responsible for the supervision of banks and other financial institutions in the OECS region, and it gathers data, some of which is used in the preparation of BOP statistics. Additionally, the ECCB monitors the compilation process and the projection of estimates to ensure reliability, and comparability of data in the OECS region. The partnership is valued, as both institutions seek to build capacity and also increase the scope of work presently undertaken. Reasons for the differences in presentation of BOP tables using BPM5 The main changes in BOP presentation based on the revised BPM5 include: 1. The exclusion of capital transfers from the current account and the inclusion of such transfers in the renamed and expanded capital and financial account. 2. Redesigning the capital account (used in accordance with the 1977 format) as the capital and financial account, with capital, and financial transactions recorded as separate components. 3. The making of clear distinctions among goods, services, income and current transfers in the current account. 4. The introduction of new classifications for the different types of services as part of trade in services. 5. Recording interest in the current account in accordance with the accrual principle rather than the due for payment concept. 6. Expanding and restructuring the coverage of financial flows to take account of Financial innovation. 7. Expanding the coverage of non-equity portfolio investment to include money market instruments and marketable financial derivatives. 2

3 8. Broadening the conceptual framework to incorporate stocks of external financial assets and liabilities. Transactions and other changes (valuation, reclassification, etc.) are contrasted and only transactional changes are reflected in the accounts. Source of Data The main source of data for the preparation of the BOP is the annual survey forms. A set of 21 forms is used covering all types of transactions and flows involving residents and non-residents as follows: Type of establishment BOP Form Type of establishment BOP Form Accommodation 1 Foreign Airline Co. 10 Establishment Domestically Incorp. 2A Airport 11 Insurance Co. Insurance agents and 2B Development Bank 12 Branch Offices Airline Agencies 3A Port Authority 13 Express Deliver 3B International Direct 14A Services Investment Enterprise. Shipping Agencies 4 International Direct 14B Investment under Construction Oil Importing Co. 5 Funding and Technical 15 Assistance Agencies Statutory Bodies and 6 Embassies of Foreign 16 Public Corp Gov. Central Government 7 Charitable and Non 17 Profit Organisations LIAT Island Office 8A LIAT Headquarters 8B Domestic Airline Co. 9 BOP data is also collected from the following sources-- Data on the sale of land and property is obtained from the Inland Revenue, and from personal interviews with real estate agents and investors selling to nonresidents. Information on technical assistance or transfers to government is obtained through enquiry at the Department level or through analysis of the Public Sector Investment Programme information. The ECCB BANK supervision section provides the commercial banks statistics. The Labour Department supplies wage data for Kittitian and Nevisian temporary workers in the Canadian Farm Scheme. 3

4 The St.Kitts Sugar Manufacturing Corporation (SSMC) and other companies that import short-term workers in large numbers give data on the compensation of employees. Interviews with Department of Tourism marketing staff provide information on future direct investments in that industry. Interviews with direct investors engaged in construction or with proposals for the construction and sale of condos to non-residents, provide information on direct investment in land and property. The Frigate Bay Development Corporation, a statutory body responsible for the development of the Frigate Bay area, provides data information on proposed investments in that area, sale of land to non-residents and sale of services from the Golf Course Club, to non-residents. Architects and engineers are interviewed about services rendered to non-resident clients in this or another economy. Data is collected on Offshore Financial Services, such as fees and taxes collected and other related information, from the Financial Services Depts. on both islands. Statistics are obtained from the Post Office and other international money transfer agencies such as Western Union and Money Gram, on the movement of money transfers into and out of the Federation. Statistics on Imports and Exports are extracted from the trade programme at the Statistics Division. Data downloaded of export of manufactured products from St.Kitts and Nevis to the United States from the Internet, is used to correct the value of export of assembled electronic parts and other manufactured items from the companies on the industrial parks. Tourism data by type Tourists/Stay-over, Excursionists and Yacht and Cruise ship passengers, are extracted from Tourism statistics produced by the Statistics Division. The Central Bank provides average annual exchange rates of some foreign currencies. These are used to convert the value of Official transfers. Visits to direct investment enterprises, when requested, are done to complete the BOP survey form. Statistics on work permits are obtained from the Ministry of National Security or Labour Department. 4

5 Information on Government and Government Guaranteed Debt is obtained from Debt Recording and Management system (DRMS) at the Ministry of Finance. Methodology According to the fifth edition of the Balance of Payment Manual, the BOP statistics consists of two main accounts. These are: 1. The Current Account; and 2. The Capital and Financial Account The Current Account The Current Account is further sub-divided into four main categories: 1. Goods; 2. Services or Non-Factor Income; 3. Income or Factor Income; and 4. Current Transfers Goods cover Exports and Imports of goods (merchandise), goods for processing, repairs of goods, goods procured in ports by carriers and non-monetary gold. Services are divided into eleven broad categories: 1. Transportation 2. Travel 3. Communication services 4. Construction services 5. Insurance services 6. Financial services 7. Computer and Information services 8. Royalties and license fees 9. Other business services 10. Personal, cultural and recreational services 11. Government services not included elsewhere. Income encompasses compensation of employees, and investment income. The former includes employment income, plus other benefits of seasonal and other non-resident workers. The latter includes profits, dividends, reinvested earnings, and interest on debts and portfolio income. Current Transfers, now distinguished from capital transfers with whom they were previously grouped, incorporate transactions such as worker s remittances, taxes on income, premiums and claims on non-life insurance. Capital and Financial Account The Capital and Financial account has two major components: 1. The Capital Account; and 2. The Financial Account. 5

6 The Capital Account comprises (a) capital transfers, and (b) acquisition/disposal of non-produced, non-financial assets. Capital Transfers cover a range of transactions, such as the transfer of ownership of fixed assets, transfer of funds linked to acquisition/disposal of fixed assets and the forgiveness of debt/liability by creditors. Acquisition/disposal of non-produced, non-financial assets are, for the most part, comprised of transaction involving intangibles such as patents, copyrights, trademarks, franchises, leases, and purchases and sales of land by foreign embassies. The Financial Account covers: 1. Direct investment; 2. Portfolio investment; 3. Other investment (including Public Sector Capital); and 4. Reserve assets. Direct Investment refers to an investment in which the investor has some kind of permanent interest in an enterprise located in a foreign country, and exercises some control over its management. Portfolio Investment refers to an investment in which the investor has little or no interest in playing a major role in the management of the foreign enterprise. Rather the investor is motivated by the yields from his/her investment. Other Investment includes transactions not accounted for under direct or portfolio investment. It consists of trade credits, and loans and deposits in financial institutions. Reserve Assets indicate the foreign exchange that the monetary authorities have available for BOP financing. The reserves comprise foreign exchange holdings of the Central Bank, monetary gold, special drawing rights (SDRs) in the IMF, reserve position in the IMF and existing claims on non-residents. Notably, a BOP deficit implies a draw down on reserves (recorded as a credit entry, with a positive sign), while a surplus indicates a build up of the reserves (recorded as a debit entry, with a negative sign). Residence Since the BOP is concerned with transactions between residents and non-residents of an economy, it is necessary to give a brief outline as to the categories of persons or institutions that are considered to be residents. The residents of an economy fall within four groups households and individuals who make up households; enterprises, which are corporations or quasi-corporations; non profit institutions and the government of that economy; all of who have their center of economic interest in that economy. The concept of residence as it relates to individuals is 6

7 an economic rather than a legal one, such as citizenship. Here a resident individual is not necessarily a citizen of that country. There are certain individuals who may reside within an economy for a year or more and not be considered residents. These include students, persons seeking medical attention, diplomatic representatives, and members of the armed forces. Seasonal workers, such as the cane cutters and construction workers, who come to the Federation with the sole intention of doing a specific task for a season, are considered resident of their home economy. Agencies of foreign owned business enterprises, such as airline, shipping and insurance agencies are residents of the economy in which they are located. However, when they undertake business on behalf of their principals with residents, that activity becomes a BOP transaction. COMPILATION OF THE CURRENT ACCOUNT As mentioned above, most of the data for the compilation of BOP statistics is entered from survey forms; however, the CEBOPS program also uses supplementary input sheets and Intermediate worksheets to record data not collected by survey forms. This information may be collected in an informal manner, or might be calculated to be a proxy for unreported data. When an estimate is entered or an adjustment is made to reported data, it is possible to write short explanatory notes in the Intermediate Worksheet. Remarkably, the program is quite versatile, in that each entry can be traced to its source of entry i.e. (BOP 5.B.1. (a)), the BOP form number, section and question number, and is shown either as a credit or debit entry, making it possible to assess if it was correctly entered. The earlier version of CEBOPS required all data to be entered in thousands of dollars; which sometimes led to errors if the data entry clerk was not careful. The new edition requires that the information be entered in dollars on most of the forms. Only on BOP forms 7,12,15 and 16 are thousands of dollars used. It is important to understand BOP concepts and practices to be able to know what items to omit from entering or when to move entries to more appropriate places, to avoid double counting or misclassification of transactions e.g. some expenditure overseas are actually for imports, which were already captured under Goods. The new CEBOPS is capable of handling some of these matters, as it allows for corrections if necessary, by allowing direct entry for adjustments in the Intermediate Worksheets or Input Worksheet as they are called. Below is a list of the Supplemental tables and Input Worksheets that are the core of the CEBOPS Programme. The first set is the Supplemental worksheets in which data not collected by BOP forms are entered and calculations done to obtain data that is then posted into the relevant sides of the Intermediate worksheets. 7

8 Supplementary Tables Supplement 1 Commercial Bank Profits Supplement 5 Foreign Direct Investment Projects Supplement 2 Net foreign Assets of Supplement 6 Merchandise Exports Commercial Banks Supplement 3 Investment Income of Supplement 7 Merchandise Imports Commercial Banks Supplement 4 Official Financing Supplement 8 Gross Visitor Expenditure (Travel Credit) Intermediate Worksheets WS1 Merchandise Trade (f.o.b.) WS18 Capital and Financial Account- Capital Account- Capital Transfers WS2 Goods WS19 Capital Transfers- Other Sectors WS3 Sea Transport WS20 Capital and Financial Account WS4 Air Transport WS21 Reinvested Earnings and Land Sales WS5 Other Transport WS22 Direct Investment-Inward- Other Capital WS6 Travel WS23 Portfolio Investments- Assets WS7 Insurance Services WS24 Portfolio Investment-Assets- (Debt Securities) WS8 Services WS25 Portfolio Investment- Liabilities WS9` Other Business Services WS26 Portfolio Investment- Liabilities- Debt Securities WS10 Government Services WS27 Other Investment- Assets WS11 Income WS28 Other Investment-Assets-Loans WS12 Income Direct Investment Income on Debt WS29 Other investment-assets- Currency and Deposits WS13 Portfolio Investment- Income on Equity WS30 Other Investments- Assets- Other Investments WS14 Portfolio Investment- WS31 Other Investments- Liabilities Income on Debt WS15 Investment Income- WS32 Other Investment- Liabilities-Loans Other Investment Income WS16 Current Transfers WS33 Other Investment-Liabilities[ WS17 Current Transfers Other Sectors WS34 WS35 Currency and deposits Other Investment-Liabilities- Other Investment Other Investment- Liabilities- Other Liabilities 8

9 Accounting Conventions The Balance of Payment is based on the double entry system, i.e. there is a Credit and Debit entry for every transaction, including transfers. The final tables are usually published showing both credit and debit entries for each category in both the Current and Capital and Financial Account, allowing for analysis of transactions between residents and non-residents. The rules for using the Credit and Debit entries in BOP by the compiling economy are as follows- Credit (CR) entries! Exports of goods and services! Income receivable! Offsets to real or financial resources received without a quid-pro-quo (transfers)! Increases in liabilities! Decreases in financial assets Debit (DR)entries! Imports of goods and services! Income payable! Offsets to real or financial resources provided without a quid-pro-quo (transfers)! Increases in financial assets! Decreases in liabilities The two offsetting entries are not made explicitly, but are implicit in the figures that result from this method. However, because some inaccuracies in the data may occur, or entries may not match in their timing, statistical discrepancies arise and it becomes necessary to include an item Errors and Omissions which acts as a balancing item to bring the sum total credits and debits to zero. The discussion of procedures used will therefore involve the calculation of the Credit and Debit entries as they relate to the different subgroups of the Current and Capital and Financial Accounts. CURRENT ACCOUNT GOODS: According to the BPM5, goods include general merchandise, goods for processing, repairs on goods, goods procured in ports by carriers and non-monetary gold. A change in ownership is the principle for determining the coverage and time of recording of international transaction in goods. Merchandise (Free on board- f.o.b.) General merchandise refers to moveable goods for which change in ownership, actual or imputed occurs between residents and non-residents. These goods are valued at f.o.b. Exports- The final Export figure to be used for BOP purposes is calculated after some adjustments are made for omission from the processed trade. The value of the Exports is extracted according to the Sections classification of the SITC rev 3, and then it is reclassified to 9

10 separate the value of Sugar. This figure is then adjusted by the difference in value given by the St Kitts Sugar Manufacturing Corporation. Next the domestic export-value of manufactured products (mainly electronic components) such as those exported from the enclave enterprises is compared against the value submitted by those same companies on their quarterly Industrial Survey forms. Additionally, the value of those products is also extracted from the United States trade with St.Kitts Nevis for the period under review. Differences in the data are noted and adjustments made. Finally, adding the differences in value of exports of sugar, and electronic components to the processed trade value, the BOP value of exports of goods is derived. This information is entered in Supplement worksheet 6 and recorded as a Credit under Merchandise. Imports- The trade value for imports is c.i.f. and must be adjusted to obtain f.o.b. Unlike the exports, no adjustments are usually made for underreporting, though in past years, some allowances were made for smuggling and hurricane related losses. A random sample of custom forms and invoices revealed that about 88.0 percent of the value of trade is f.o.b, 10.0 and 2.0 percent go towards freight and insurance respectively. The value of imports c.i.f is therefore adjusted downwards by 12 percent, and then recorded as the Debit entry in the merchandise section. This information is entered in Supplement 7. Repairs on Goods- This information is obtained from the BOP forms 4 and 5. The Credit entry covers the provision of repairs and maintenance services to ships, and is usually reported by the shipping agents and Oil importing companies. The value is not significant in the Federation. Debit entries are often nil. However, the resident ferries go to foreign ports for maintenance on an annual basis. Apart from the government ferry, financial accounts are not easily accessed. Attempts will be made to sensitize the parties involved of the need to provide the data, and where possible access other avenues to obtain the required information. Goods Procured in Ports by Carriers- Information on Credit entries involve the purchase of fuel, stores, and provisions by travel agencies, shipping agents and the oil importing companies for their representatives. It also includes the sale of water and fuel by the Port Authorities directly to the nonresident carriers. This information is taken from BOP forms 4, 5, 8A, 10, 11, and 13. The Debit entries cover the purchase of fuel and stores bought overseas by Domestic airline companies. 10

11 Information is taken from BOP form 8 and 9. Formerly this item covered the provision of fuel and oil to LIAT Headquarters, but government is no longer a share holder in that company. SERVICES: Transportation- Transportation covers all transportation related-services (using sea, air, and others including land,) that are performed by residents of one economy for those of another. It involves the carriage of passengers, the movement of goods (freight), rentals (charters) of carriers with crew, and related supporting and auxiliary services. Sea Transport- Passenger services There are no entries in either the Credit or Debit side for provision of international transport of passengers. This is not the normal means of transportation to or from this country. Freight There is no entry under the Credit side of the account as the country does not provide the transportation of goods in resident ships for non-residents. The Debit entry is the 10% deducted from the value of the Trade CIF. The source of the Data is Supplement 7. Other services The Credit entries cover the receipts from abroad for payments of long shoring and stevedoring, the provision of telecommunication services for their representatives, commissions received from abroad on imports or exports, payments for packaging and delivery services for ships, and commissions agent fees to shipping agents. It also covers the receipts by the Port Authorities for Pilotage services, Port Dues, Cargo Handling charges, and all other sea transport-related receipts not classified elsewhere. This information is obtained from BOP forms 4 and 13. Presently, there is nothing on the Debit side of this account either as reported or estimated. Limitation: Sometimes some resident ferries travel to take residents on same day shopping trips to neighbouring islands. No estimate is made in the BOP for any Port fees paid in those foreign ports. Air Transport- Passenger Services Domestic airlines are surveyed for information on revenue collected for transporting nonresidents. This data is entered on BOP 8B and 9 and forms the basis for the Credit entry. The Debit entry covers passenger revenues of foreign airlines for scheduled, charter and unscheduled flights. The information is reported on BOP forms 3A, 8A and 10 by airline agencies, and foreign airlines operating in the Federation. 11

12 Freight Credit entries cover freight on outgoing cargo on domestic airlines. However, since the Domestic Airlines do not customarily transport cargo, the value is usually nil. The Debit item covers the freight on incoming cargo and mail, and is reported on BOP forms 3A, 8A and 10 Other Services The auxiliary transport services covers a range of services offered at airports and other services by airline agencies for their principals. In St.Kitts and Nevis, the Credit entry covers commissions received from overseas tour operators, and commissions deducted from passenger fares from foreign airlines by airline agencies, commissions for arranging tour packages by Domestic airlines, and landing, parking, navigational and telecommunication fees collected by the Airport Authority from Non resident airlines. This information is taken from BOP forms 3A, 9 and 11. Debit entries cover, mail fees paid to airline agencies for their principals. It also includes commissions paid to foreign airlines and airport fees and airport service charges paid overseas by domestic airlines. This information is obtained from BOP forms 3a, 8A, 8B, 9 and 10. Travel - Travel covers the goods and services acquired from an economy by travelers during visits of less than one year in that economy. The traveler may purchase the goods and services or have them provided without a quid pro quo. Travelers are split into two broad groups: tourists; those who spend at least 24 hours (one night) in the country visited, and same day travelers or excursionists, those who spend less than twenty-four hours. The one-year rule does not apply to students and medical patients. They remain residents of their economies of origin even if the length of stay in another economy is one year or more. The Credit entry covers the goods and services procured by visitors when they visit the Federation. For the purpose of calculating tourism receipts, visitors are broken into different categories: stopovers in hotels, other paid accommodations, and private residences, plus excursionists, cruise ship and yacht passengers. Each category is assigned an average length of stay based on tourism survey data. For example, hotel and other paid accommodation guests are assigned a 7 day length of stay, tourists staying in private homes are assigned a 12.5 days stay, and excursionists, cruise ship and yacht passengers are assigned a 1-day length of stay. Additionally, the different categories are assigned a daily expenditure estimate. This is based on the 1994 Visitor Expenditure Survey, and adjusted annually by the change in the Retail Price Index. The Gross Visitor Expenditure is then obtained by multiplying the number of each category of visitors by average length of stay, by average daily expenditure. The summation of the categories gives the total visitor expenditure. 12

13 This information is set out in a table that is in Supplement 8. The table has the length of stay and daily average expenditure built into it. Once the number of visitors by type is entered, the Gross Visitor Expenditure is calculated. The result is then posted to the Intermediate worksheet. The Debit entry is comprised of the expenditure of Kittitians and Nevisians when they travel overseas for business, vacation or medical purposes. It also covers expenditure on training and student maintenance by government; expenditure on overseas travel and conferences by government officials, overseas expenditure of Domestic airline crew, and loan disbursements by the Development Bank of St.Kitts and Nevis to students overseas. Data on training and students maintenance is obtained from the Establishment Division or the Treasury Department, and is summarized and entered on BOP form 7. This information relates to students studying abroad, who are either fully paid or are financed in some way from the public finances. Data on Overseas travel and conferences for Government business that are financed by the public finances, are collected from the individual government ministries and summarized and entered on BOP form 7. Loan disbursements to students overseas from the Development Bank of St.Kitts and Nevis are collected on BOP form 12. Overseas expenditure by airline crew is extracted from BOP form 9. The estimate for resident travelers is obtained as a residual after the Travel Debit of the previous year is adjusted by the index of GDP at market price for the current year and the items above are subtracted from the total. Limitations An updated or continuous Visitor Expenditure survey is needed to give current estimates of the daily expenditure pattern for the different category of visitors. The last such survey was held in 1993/94. Since the deregulation of the foreign exchange market and the discontinuation of the use of foreign exchange forms, it is almost impossible to identify the use of foreign exchange bought and sold at the Commercial banks. Other measures instituted to capture data by the Commercial Bank have proved unsuccessful. Innovative ways have to be found to calculate the Debit travel value. Insurance Services- This covers the provision of various types of insurance to nonresidents by resident enterprises and vice versa. Such services cover insurance on goods that are in the process of being exported or imported, and insurance on life, including pensions and annuity services, other casualty or accident, health and reinsurance. International insurance services are estimated, or valued service charges are included in total premiums earned rather than total premiums. 13

14 Freight Insurance- For goods, insurance service charges for resident issuers providing insurance services to non-residents (Credit) are the difference between premiums earned and claims payable on goods lost or destroyed in transit. The service charge for non-resident issuers providing services to residents (Debit) can be estimated by taking the ratio of estimated service charges to total premiums for exports of insurance services and applying the ratio to total premiums paid to non-residents insurers. The Credit entries cover premiums collected on shipments of exports and the payment of claims on goods shipped to the Federation. This information is taken from BOP forms 2A and 2B The Debit entry covers the payment of premiums to foreign insurance companies on imports. This value is obtained by deducting 2.0 percent of the value of imports c.i.f. This data is also found in Supplement 7. Life Insurance- The service charge for life insurance and pension funds and annuities for non resident insurers providing services to residents can be estimated by applying the ratio of estimated service charges to total premiums for resident insurers or to contributions received by resident pension funds. The ratio should be based on a medium to long-term period. There is usually no entry in the Credit side since the Domestic Insurance companies have not collected premiums for Life Insurance from non-residents. The Debit entry is comprised of an insurance service charge, which is estimated to be 5.0 percent of Life premiums collected by foreign insurance companies, and premiums collected from Premiums and Annuities. There is also an imputed service charge, which is 5.0 percent of the total premiums collected for Pensions and Annuities. This information is extracted from BOP form 2B Non-Life Insurance- The service charge of non life insurance, for non-resident insurers providing services to residents can be estimated by applying the ratio of estimated service charges to total premiums for resident insurers or to contributions received by resident pension funds. The ratio should be based on a medium to long-term period. The Credit entries cover an insurance service charge of 5.0 percent of total premiums collected from non-residents by Domestic Insurance Companies. The Debit entry represents the service charge collected by resident agents for foreign insurance companies. This rate is equal to 5.0 percent of total non-life premiums collected by agents. The information needed is taken from BOP forms 2A and 2B 14

15 Reinsurance- Exports of services (credit) are in principle estimated as the balance between of all flows occurring between resident reinsurers and non-resident insurers. Imports (debit) are estimated as the balance of all flows occurring between resident insurers and non-resident reinsurers. The Credit entry covers the amount of claims recovered from Reinsurers, while the Debit entry covers the premiums paid for reinsurance by Domestic insurance to non-resident insurance companies. This information is extracted from BOP form 2A. Insurance Services- The Credit entry covers commissions received by resident insurance agents for services performed on behalf of their principals. It also covers commissions received by Domestic insurance companies from non-resident insurance companies. The Debit entry represents commissions paid by Domestic Insurance Companies to nonresidents for receipt of insurance services. BOP forms 2A and 2B are the sources of this data. Other Business Services- Communications- Communications services cover two main categories of international communications transactions between residents and nonresidents. (1) Telecommunications, which includes the transmission of sound, images or other information by telephone, telex, telegram, cable, broadcasting, satellite, electronic, mail, facsimile services etc, and include business network services, teleconferencing and support services and; (2) Postal and courier services which encompass the pickup, transport and delivery of letters, newspapers, periodicals, brochures, and other printed matter, parcels and packages by national postages and administrations and other operators. Also included are post office counters and mailbox rental services. The Credit entry covers the receipt of revenue from abroad for the use of telecommunication services. The Debit entry is the payment abroad for the use of telecommunication services. This data is obtained from the sole provider of telecommunication services and is extracted from BOP 14A. Construction Services- Construction Services covers the work performed on construction projects and installations by employees of an enterprise in a location outside of its economic territory. The work is often performed on a short-term basis, but the one-year rule is applied flexibly to include large projects such as roads, hotels, housing, etc. The Credit entry is usually the value of work performed by resident architects, engineers and a dredging company, in other countries. The information is obtained from face to face interviews with the persons and entity involved, and is entered directly into the 15

16 Intermediate Worksheet 8. Since the data is neither reported nor estimated, it is placed in the Adjusted column. The Debit entry is approximately 10.0 percent of the value of the Foreign Direct Investment Inwards, which is listed in Supplementary table 5. The data for Foreign Direct investment is usually obtained by direct interviews with foreign construction companies operation in the Federation, or from information in the PSIP (Public Sector Investment Programme), as well as BOP14A. Like the Credit entry, the Debit entry is entered as an Adjustment in the Intermediate Worksheet 8. Financial Services- Financial Services cover financial intermediary and auxiliary services (except those of insurance enterprises and pension funds) conducted between residents and non-residents. For St. Kitts-Nevis, the Credit side covers the receipts by resident lawyers and accountants for registration and retainer services for offshore companies, it is estimated that 20.0 percent of total active companies pay retainer fees. Information on the number of registered active companies and the registration fees collected from Offshore Companies is received from the Financial Services Departments on both St. Kitts and Nevis. (Supplementary data on registration fees collected is also obtained from the Government accounts of both St. Kitts and Nevis.) In addition, a survey of legal advisers/solicitors and accountants provide information on the average rate of legal and retainer fees charged to Offshore Companies. These fees are multiplied by the number of Offshore Companies, and then added to the registration fees to derive the credit value for financial services. The calculation is done and the result is entered directly into Intermediate Worksheet 8 in the adjustment column. On the debit side, the entry is usually nil, as there are no known companies operating in an offshore banking situation. Management Fees- Computer and Information Services- This covers computer data and news-related service transactions between residents and nonresidents. No entry is made in this category for St. Kitts and Nevis. Royalties and Licenses Fees- Herein, the payments and receipts between residents and nonresidents for the authorized use of intangible, non-produced, non-financial assets, and proprietary rights (such as patents, copyrights, trademarks, industrial processes, franchises etc.) are recorded. On the Credit side, no entry is made. However, on the Debit side, data on royalties and license fees paid overseas by direct investment enterprises is entered. The sources of this data are mainly from manufacturing companies, hotels and subsidiaries, and are collected from BOP Forms 1 and 14A. Some data is also collected from interviews with direct investment enterprises. 16

17 Other Business Services- This covers various resident/nonresident transactions, which were not defined earlier. Such include services of merchanting or other trade-related in the nature, operational leasing without operators, professional, technical, and other miscellaneous business. -Management Fees The Credit entry is usually nil as no information is available on the export of these services by residents. The Debit entry covers the payment of Actuarial fees by Domestic Insurance companies, and the payment of Management fees by Hotels, and other branch or subsidiaries. This information is collected from BOP Forms 1A, 2A, 5 and 14A. -Miscellaneous Business Services The Credit entry covers the receipt of salaries, other office and operating expenses and other payments to Insurance agencies, Airline agencies, Shipping Agencies and other receipts from overseas by Express Delivery agencies. Local wages and salaries paid and other Domestic expenditure by Foreign Airline companies and other receipts from abroad by Direct Investment entities are also included. The Debit entry covers the payment for services by the Accommodation, Insurance, Shipping, Airlines, Express Delivery service, Port Authority, Non profit organization and foreign subsidiary sectors of the economy. The payment was for advertisement, marketing, promotion, rental of Telecommunication equipment, payment of credit card and other commissions and other miscellaneous payment overseas The data for this category is taken from BOP forms 1A, 2B, 3B, 4,5,8B, 9B, 11,13,14, and 17. A direct input is made in Intermediate 9, to adjust the marketing figure for information captured during interviews. Personal, Cultural & Recreational Services- This category covers transactions between residents and nonresidents related to the production of motion pictures, radio and television programs, theatrical and musical productions, and recreational services such as sports and entertainment, and educational services. In St. Kitts-Nevis, no data is captured in this category. Government Services n.i.e.- This involves government services transactions including those of international organizations which are not included elsewhere. Government Services is separated into the categories- Resident, Foreign and Other. The information is shown in Intermediate Worksheet 10. Resident Government- This category covers registration and licensing fees paid by new offshore companies on the Credit side (source: Financial Services Department). The Debit side is made up of Government remittances to embassies and agency offices abroad- BOP Forms 6 & 7. 17

18 Foreign Government- The Credit entry contains the expenditure (compensation of employees, rent, and purchases of commodities- personal and office) of foreign embassies in the country where they are located. The Debit entry is nil. BOP form 16 is the data source. Other Government Services- This category has a nil entry on the Credit side. The Debit side entry represents the technical assistance received from international funding agencies to embassies, Statutory Bodies, and the Central Government. BOP form 6, 7, 12, 15 and 16 provide the necessary data. INCOME- Income covers two types of transactions between residents and non-residents: (1) those involving compensation of employees, which is paid to non-resident workers (i.e. seasonal and other short-term workers), and (2) investments income receipts and payments on external financial assets and liabilities. Included in the latter are receipts and payments on direct investment, portfolio investment and other investment and receipts on reserve assets. Compensation of Employees- This category comprises of wages, salaries, and other benefits (whether in cash or kind) earned by individuals in economies other than that in which they are residents. Included are contributions paid by employers on behalf of employees to social security schemes or to private insurance or pension funds whether funded or not. Expenditures made by seasonal workers are deducted from total compensation and are included in the category Travel. Offshore financial companies, by law, are forbidden to conduct any business with the local economy. As such they are treated as non-resident entities since their center or economic interest lies in another economy. As such, the wages paid to resident workers are treated as compensation of employees. The Credit figure of the BOP statistics comprises of two items (i) the earnings of residents of St. Kitts-Nevis involved in the US/Canadian farm work program and (ii) residents working for Offshore companies. Information on the Canadian Farm Workers Scheme is obtained from the Labor Department, while an estimate for the wages and salaries for workers in offshore companies is obtained as a percentage of the inward transfer of funds of the International Money Transfer Agencies. Twenty five percent is deducted from total earnings of farm workers as personal maintenance expenditure in Canada. On the Debit side, the wages and salaries, social security contribution by employers, and other allowances of foreign seasonal workers in the sugar industry, and other short-term workers particularly in the Construction field are covered. Different rates for local expenditure are deducted according to the country of origin of the workers. These rates are obtained from employers during discussions. These figures range from 15.0 percent for the Guyanese cane cutters to 40.0 percent for the Trinidadian construction workers. 18

19 The information is derived from the accounts of the Sugar Company, and interviews with foreign construction companies. The compensation of employees for the Canadian workers on the hotel site is more difficult to obtain and has to be deduced. The number of workers is obtained from the company and verified from work permit data at the office. Canadian wage rates were obtained via the Internet, from the Canada Stats- Toronto website. Medium to Low rates are used and the workers are categorized by type of occupation. Using the average exchange rate from the ECCB total wages are calculated by multiplying the number of workers by the wage rate by the year or half year as the work permit data indicates. All information on compensation of employees is entered directly into Input or Intermediate Worksheet 11 in the Adjustment column. Investment Income- Investment income or property income comprises of income derived from a resident enterprise s ownership of foreign financial assets or vice versa. This income usually takes the form of interest on debt, dividends, and distributed and reinvested earnings. The above-mentioned category is divided into three broad groups- Direct, Portfolio, and Other Investments. Direct Investment- This category covers income on equity (distributed and reinvested), and income on debt (interest payable on inter company debt) to or from direct investors from or to associated enterprises abroad. -Dividends and Distributed Branch Profits On the credit side, no entry is made as no resident company reported receiving dividends from abroad. However, the debit side entries represent the distributed earnings, and other investment income paid by some hotels, branches of International Direct Enterprises and Profits repatriated by the Oil companies and foreign owned commercial banks. The data sources are the BOP forms 1, 5 & 14A, Supplement 1 line A1 (j), A2(f). -Reinvested profits by residents with Foreign Direct Investment Many foreign owned companies are allowed by their head office to keep their profits in the country where they were generated. This information is captured on the BOP forms on the Debit side of this account. The Credit side of this account is generally nil. Reinvested earnings are usually reported for the Oil companies, foreign owned hotels, and branches of International Direct Enterprises. The information is reported in BOP 1, 5, 14a., and displayed in Intermediate Worksheet 11. Income on Debt (Interest)- The Credit entry records the receipt of interest from overseas by International Direct Investment enterprises, while the Debit side covers the payment of interests by the same type of enterprises and foreign owned hotels. The information is captured from the BOP forms 1 and 14a. The output is shown on Intermediate Worksheet

20 Portfolio Investment Income- Portfolio Investment covers transactions between residents and nonresidents, and is derived from the holding of stocks, bonds, notes and other money market instruments. Portfolio investment income is comprised of dividends (income on equity) and interest(income on debt). -Income on Equity- Central Government Presently there is one entry on the Credit side, which is the St. Kitts and Nevis share of the ECCB profits. Even though the Central bank is located in St.Kitts, it is a regional bank so the member countries have equity in it, based on the size of their deposits with the bank. Further, prior to the suspension of the country s share in LIAT, an entry was made here to represent its portion of interest. There is no entry on the Debit side. The information was captured from the BOP form 7. With the listing of local companies on the Eastern Caribbean Stock Exchange, a positive entry may soon become a possibility. -Income on Equity Other The Credit side shows investment income earned overseas by Statutory Bodies, generally the Social Security Board or the Sea and Air Ports. There is no entry on the Debit side. The information is captured on the BOP Form 6 and displayed in Intermediate Worksheet 13. -Income on Debt Bonds and Notes Central Government, Banks and Other Sectors Presently there are no entries in either the Credit or Debit side for any of the 3 categories given above. However, since the Nevis Island Administration has floated some Bonds in the Trinidad market, it is expected that entries will be made in the near future. This information is displayed on Intermediate Worksheet 14. Other Investment Income This covers all other interest payments and receipts related to claims on assets and liabilities from international perspective. Herein, the Government and non-government related transactions are recorded. -Interest Central Government The credit side includes estimates of the interest received from investments made overseas. This information is obtained from the Treasury and reported in BOP&. The Debit side gives the actual interest payments made by the Central Government on its own debt. This information is obtained from the Debt Monitoring System in the Ministry of Finance and entered on BOP form 7. The same information is obtained from the Treasury and Debt Monitoring system in Nevis for the Island Administration Debt. -Interest Arrears- Central Government The Credit entry is usually nil as no interest arrears are expected. On the Debit side, however, the amount of interest arrears owing by the Central Government is derived from information taken from the Debt monitoring system. The amount of interest paid is deducted from the amount of interest due. If the answer is 20