BALANCE OF PAYMENTS & INTERNATIONAL INVESTMENT POSITION

Transcription

1 BALANCE OF PAYMENTS & INTERNATIONAL INVESTMENT POSITION FOR THE QUARTER ENDED DECEMBER 2012 QUARTERLY FAST FACTS Current Account The Bermuda current account recorded a surplus of $189 million in the fourth quarter of This represented an $89 million increase year-over-year The deficit on the goods account decreased by $8 million to $213 million. Services transactions realised a surplus of $74 million in the fourth quarter of The surplus on Bermuda s primary income account grew to $363 million in the last quarter of CURRENT ACCOUNT BALANCES (BD$) million Q4 Q1 Q2 Q3 Q Receipts Payments Current Account Balance Financial, Capital, and Reserve Assets Accounts Transactions on Bermuda s asset accounts resulted in a net lending position of $5 million. Factors influencing this performance include: Bermuda s net acquisition of financial assets resulted in an accumulation of $344 million compared to a reduction of $83 million in Bermuda increased its net incurrence of financial liabilities by $338 million this quarter compared to a decrease of $47 million in QUARTERLY CURRENT ACCOUNT Current account surplus = $189 million The current account surplus stood at $189 million for the fourth quarter of This represented an $89 million increase from the $100 million surplus in the fourth quarter of The growth in the current account surplus mostly reflected changes in the primary income account, where the balance grew by $90 million due to a reduction in investment income paid to non-residents. Government 1.7% Q CURRENT ACCOUNT RECEIPTS Business 28.8% Employee Comp. 40.7% Travel 9.8% Investment 11.2% Other 4.0% Secondary 3.4% Exports 0.4% Transport 1.4% The goods account recorded a deficit of $213 million The value of goods imported fell by 3.6 per cent to $216 million during the quarter. Imported goods from the Island s largest trading partner the United States remained stable at $141 million during the quarter, while the value of imports from Canada increased by $6 million over the same period. Imports of finished equipment and fuel recorded the largest declines, falling by $7 million each. Other spending decreases were recorded in the transport equipment and semi-manufactured goods categories which declined by $3 million and $2 million, respectively. In contrast, imports of food, beverages and tobacco grew by $8 million. Revenue from exports remained unchanged at $3 million during the quarter.

2 The Services account surplus fell $9 million Receipts from services transactions stood at $322 million during the quarter. Among the services categories, revenue from business services transactions grew $6 million. This was due partly to a $7 million increase in insurance services related to inflows of reinsurance premiums and auxiliary insurance service revenue. In contrast, travel inflows fell $8 million on account of lower expenditure by cruise and air visitors. Revenue received from government services amounted to $13 million, equalling the previous year s total TRAVEL SERVICES RECEIPTS $BD million Q1 Q2 Q3 Q Payments for services received from non-residents totalled $248 million in the fourth quarter, $11 million above the level recorded in This outcome reflected an $8 million increase in insurance services, specifically reinsurance premiums paid by resident firms to non-resident entities. Payments by residents for travel (including overseas training and conferences) grew by $4 million. In contrast transportation outflows declined and mostly reflected lower freight payments for imported goods. Primary Surplus grew $90 million The primary income account reflects balances on compensation earned/paid to non-residents, and income from investments and payroll tax paid by non-resident companies to the government. The surplus on the primary income account increased to $363 million from $273 million in receipts advanced only $2 million as an increase in employee compensation was mostly offset by a reduction in investment income from dividends. payments to non-residents fell by $88 million to $58 million. This decrease was due to a sharp decline in direct investment income paid overseas on equity and investment fund shares. Secondary income recorded a $34 million deficit The secondary income account reflects the balances on donations, insurance claims and other transfers between residents and non-residents. The deficit on the secondary income account remained unchanged from a year ago. The $34 million deficit reflected primarily an excess of personal transfers paid versus received related to workers remittances. INTERNATIONAL INVESTMENT POSITION (IIP) Bermuda s net IIP increased to $1,980 million At the end of the 4 th quarter 2012, the stock of foreign assets held by Bermuda residents registered above its stock of foreign liabilities by an estimated $1,980 million. This net IIP increased by $79 million over the third quarter of Foreign assets increased with growth in currency and deposits Bermuda residents net acquisition position of financial assets increased $407 million, due mostly to residents increasing their holdings of currency and deposits by $610 million during the quarter. This increase was partly offset by the $384 million decline in the value of overseas bonds, notes and money market instruments held by residents. Bermuda s net liability position increased Bermuda residents increased their stock of foreign liabilities by $328 million. This increase was mostly associated with an expansion of loans received from non-residents. The positive net incurrence of financial liabilities pushed the stock of liabilities up to $11,915 million. Non-financial corporations and general government held a net liability position Two resident institutional sectors held a net liability position with the rest of the world at the end of the fourth quarter. The general government sector s net external debt stood at $1,501 million while nonfinancial corporations owed $930 million. Financial corporations held a net asset position of $4,389 million on the strength of portfolio investment holdings such as bonds, notes and money market instruments. Non-profit institutions serving households also recorded a net asset position of $21 million at the end of the fourth quarter.

3 TABLE 1 QUARTERLY ESTIMATES BY MAJOR ACCOUNTS, (BD$) MILLIONS Components Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 CURRENT ACCOUNT PAYMENTS GOODS IMPORTS SERVICES Transportation Travel Business Services: Insurance services Financial services ICT services Other services Government services PRIMARY INCOME Employee Compensation Investment Other SECONDARY INCOME TOTAL PAYMENTS CURRENT ACCOUNT RECEIPTS GOODS EXPORTS SERVICES Transportation Travel Business Services: Insurance services Financial services ICT services Other services Government services PRIMARY INCOME Employee Compensation Investment Other SECONDARY INCOME TOTAL RECEIPTS CURRENT ACCOUNT BALANCES GOODS SERVICES Transportation Travel Business Services: Insurance services Financial services ICT services Other services Government services PRIMARY INCOME Employee Compensation Investment Other SECONDARY INCOME CURRENT ACCOUNT BALANCE FINANCIAL ACCOUNT Direct investment Portfolio investment , Financial Derivatives Other investment Reserve assets NET ACQUISITION OF FINANCIAL ASSETS , Direct investment Portfolio investment Financial Derivatives Other investment , NET INCURRENCE OF FINANCIAL LIABILITIES TOTAL NET FINANCIAL ACCOUNT TOTAL NET CAPITAL ACCOUNT TOTAL NET LENDING (+)/NET BORROWING (-) BALANCING ITEM R revised, P provisional Numbers may not add due to rounding

4 1 Data are estimates only and subject to revision 2. Series does not include stock of household foreign assets and liabilities 3. NPISH: Non-profit institutions serving households. R revised, P provisional Table 2 - INTERNATIONAL INVESTMENT POSITION (IIP) 1,2 (BD$) MILLIONS Components Q4 Q1 Q2 Q3 Q4 ASSETS BY FUNCTIONAL CATEGORY Direct investment Portfolio investment 10,582 9,211 9,218 9,991 9,606 Financial Derivatives (other than reserves) and ESOs Other investment 3,107 3,111 2,372 2,483 3,257 Reserve Assets BY INSTRUMENT Equity and investment fund share/units Debt instruments: 13,868 12,498 11,749 12,607 12,998 Special drawing rights Currency and deposits 1,298 1, ,202 1,812 Debt securities 10,761 9,387 9,376 10,125 9,741 Loans 1,242 1,281 1,286 1,220 1,370 Insurance, pension, standardized guarantee schemes Other accounts receivable/payable Other financial assets and liabilities TOTAL ASSETS 14,526 13,269 12,573 13,488 13,895 LIABILITIES BY FUNCTIONAL CATEGORY Direct investment 1,736 1,834 1,878 1,881 1,870 Portfolio investment 10,146 10,201 9,339 9,670 10,014 Financial Derivatives (other than reserves) and ESOs n.a. n.a. n.a. n.a. n.a. Other investment 8,572 7,361 6,660 6,563 6,908 BY INSTRUMENT 1,304 1,541 1,380 1,534 1,540 Equity and investment fund share/units 251 1,280 1,280 1,553 1,553 Debt instruments: Special drawing rights Currency and deposits Debt securities 1,736 1,834 1,878 1,881 1,870 Loans 10,146 10,201 9,339 9,670 10,014 Insurance, pension, standardized guarantee schemes n.a. n.a. n.a. n.a. n.a. Other accounts receivable/payable 8,572 7,361 6,660 6,563 6,908 Other financial assets and liabilities 1,304 1,541 1,380 1,534 1,540 TOTAL LIABILITIES 11,898 12,049 11,245 11,587 11,915 NET IIP 2,629 1,220 1,327 1,901 1,980 IIP By Resident Institutional Sector (BD$) MILLIONS 2012 Q4 Households and NPISHs 2,3 General government Non Financial financial corporations corporations Total economy ASSETS , ,895 Direct investment Portfolio investment 13-9, ,606 Financial Derivatives (other than reserves) and ESOs Other investment 8 4 3, ,257 Reserve Assets LIABILITIES - 1,505 9, ,915 Direct investment ,494 Portfolio investment - - 1, ,916 Financial Derivatives (other than reserves) and ESOs Other investment - 1,505 6, ,474 NET IIP 21 (1,501) 4,389 (930) 1,980 Numbers may not add due to rounding

5 ANNUAL CURRENT ACCOUNT Current account surplus = $719 million The current account surplus stood at $719 million in 2012, increasing $124 million. The growth in the surplus reflected both a decline in payments and revenue, with payments falling by a greater magnitude. Government 1.9% Business 26.7% 2012 CURRENT ACCOUNT RECEIPTS Employee Comp. 40.7% Travel 13.9% Investment 12.2% Other 4.4% Secondary 3.2% Exports 0.4% Transport 1.4% Net payments for goods recorded minimal change Residents paid the same for imported goods and earned less in export revenue compared to last year. Total payments amounted to $900 million. With export earnings recording a marginal $1 million decline in 2011, the goods trade deficit widened to $889 million. The services account surplus decreased $36 million The surplus on the services account fell to $415 million in This outcome reflected a decline in receipts which exceeded the decrease in payments. Receipts from travel fell $29 million due to lower expenditure by air and cruise visitors. Revenue from business services abated $15 million due to declines in financial services and other services such as legal and accounting. Payments for services totalled $974 million in 2012, a decrease of $9 million. Residents paid significantly less for transportation, financial services, ICT services and other services, offsetting increased expenditure on travel and insurance services. The primary income account surplus increased $165 million The surplus on primary income transactions grew $165 million to $1,327 million in The larger surplus on the primary income account was partly attributed to a $196 million increase in the investment income account balance, which offset declines in employee compensation and other income. Primary income payments decreased $165 million compared to Payments of secondary income exceeded receipts by $134 million The secondary income account recorded a deficit of $134 million in This reflected a $3 million increase in the deficit balance on this account largely driven by an increase in nonlife insurance claims paid on insurance policies held by non-residents. INTERNATIONAL INVESTMENT POSITION (IIP) Bermuda s net IIP decreased $649 million year over year. Transactions on the financial account resulted in a decrease in Bermuda s net IIP from $2,629 million at the end of 2011 to $1,980 million at the end of 2012 (see Table 2). Bermuda residents acquired $631 million less in financial assets in 2012 compared to the previous year, primarily in portfolio investment instruments such as bonds and money market instruments. In contrast, residents incurrence of financial liabilities grew by $17 million. Bermuda decreased their holdings of reserve assets by 6 million in Capital Account No transactions were recorded on the capital account in 2012.

6 TABLE 3 ANNUAL ESTIMATES BY MAJOR ACCOUNTS, WITH CHANGES, (BD$) MILLIONS Components / / /2011 ($) Change ($) Change ($) Change CURRENT ACCOUNT PAYMENTS GOODS IMPORTS 1, SERVICES 981 1, Transportation Travel Business Services: Insurance services Financial services ICT services Other services Government services PRIMARY INCOME Employee Compensation Investment Other SECONDARY INCOME TOTAL PAYMENTS 2,605 2,503 2,605 2, CURRENT ACCOUNT RECEIPTS GOODS EXPORTS SERVICES 1,325 1,399 1,435 1, Transportation Travel Business Services: Insurance services Financial services ICT services Other services Government services PRIMARY INCOME 1,774 1,735 1,665 1, Employee Compensation 1,345 1,260 1,159 1, Investment Other SECONDARY INCOME TOTAL RECEIPTS 3,217 3,226 3,200 3, CURRENT ACCOUNT BALANCES GOODS -1, SERVICES Transportation Travel Business Services: Insurance services Financial services ICT services Other services Government services PRIMARY INCOME 1,402 1,438 1,162 1, Employee Compensation 1,275 1,193 1,095 1, Investment Other SECONDARY INCOME CURRENT ACCOUNT BALANCE FINANCIAL ACCOUNT Direct investment Portfolio investment 1,574 1, , ,015-1,419 Financial Derivatives Other investment -2, , Reserve assets NET ACQUISITION OF FINANCIAL ASSETS , ,784-1, Direct investment Portfolio investment Financial Derivatives Other investment , ,343 NET INCURRENCE OF FINANCIAL LIABILITIES , ,778-1, TOTAL NET FINANCIAL ACCOUNT , TOTAL NET CAPITAL ACCOUNT TOTAL NET LENDING (+)/NET BORROWING (-) , BALANCING ITEM R revised, P provisional Numbers may not add due to rounding

7 TABLE /2011 CURRENT ACCOUNT YEAR OVER YEAR PERCENTAGE CHANGE (%) Components Q1 Q2 Q3 Q4 YEAR CURRENT ACCOUNT PAYMENTS GOODS IMPORTS SERVICES Transportation Travel Business Services: Insurance services Financial services ICT services Other services Government services PRIMARY INCOME Employee Compensation Investment Other SECONDARY INCOME TOTAL PAYMENTS CURRENT ACCOUNT RECEIPTS GOODS EXPORTS SERVICES Transportation Travel Business Services: Insurance services Financial services ICT services Other services Government services PRIMARY INCOME Employee Compensation Investment Other SECONDARY INCOME TOTAL RECEIPTS CURRENT ACCOUNT BALANCES GOODS SERVICES Transportation Travel Business Services: Insurance services Financial services ICT services Other services Government services PRIMARY INCOME Employee Compensation Investment Other SECONDARY INCOME CURRENT ACCOUNT BALANCE (SURPLUS/DEFICIT) * value is unusable R revised, P provisional Numbers may not add due to rounding

8 WHAT IS THE BALANCE OF PAYMENTS? The balance of payments (BOP) is a statistical statement that systematically summarizes, for a specific time period, the economic transactions of an economy (resident) with the rest of the world (non-resident). Quite simply, the balance of payments covers all economic transactions between Bermuda and the rest of the world. It includes the current account and the capital and financial account. In principle, the current account and capital and financial account should balance each other out. If Bermuda sells more goods and services than it buys (i.e., if it has a current account surplus), it has to lend money abroad to finance its exports (i.e., run a capital and financial account deficit). In theory, therefore, the balance of payments is always zero. Example: Every dollar spent by a tourist in Bermuda earns the economy $1 in foreign currency which can be used to purchase goods and services from overseas. DEFINITIONS AND NOTES Capital Account The capital account details transactions that involve the receipt or payment of capital transfers and acquisitions and disposal of non-produced, non-financial assets. Financial Account All transactions associated with changes of ownership in foreign financial assets and liabilities of the economy are included in the financial account. Such changes include the creation and liquidation of claims on, or by, the rest of the world. Reserve Assets Reserve Assets are those external assets that are readily available to and controlled by monetary authorities for meeting balance of payments financing needs, for intervention in exchange markets to affect the currency exchange rate, and for other related purposes (such as maintaining confidence in the currency and the economy, and serving as a basis for foreign borrowing). Resident The concept of residency is very important in the BOP because the BOP is in fact a statement of transactions between residents and non-residents. A unit must have a centre of predominant economic interest within an economic territory for at least one year or more to be considered resident of that territory. Seasonal workers Workers from overseas who come to Bermuda to work for a few months in the year or every year are considered seasonal workers. Their expenditure on living expenses in Bermuda is included as travel receipts. Similarly, their income received from employers in Bermuda is a BOP outflow under compensation of employees. Current Account Transactions on goods, services, income, and current transfers are allocated to the current account. Transactions in exports and interest income are examples of receipts, while imports and interest expenses are payments. The difference between payments and receipts determines if Bermuda s current account is in surplus or deficit. Payments All monies that are paid by residents to non-residents are considered payments. Receipts All monies that are received by residents from nonresidents are considered receipts. Balancing Item (Net Errors & Omissions) A current account surplus or deficit should correspond to an equivalent outflow or inflow in the capital and financial account. In other words, the two accounts should add to zero. In fact, as data are compiled from multiple sources, the two balance of payments accounts rarely equate. As a result, the balancing item is the net unobserved inflow or outflow needed to balance the accounts.

9 WHAT IS THE INTERNATIONAL INVESTMENT POSITION (IIP)?* The international investment position (IIP) is a record of Bermuda residents investment abroad and nonresidents investment in Bermuda. The IIP shows the balance sheet position of financial claims on nonresidents as assets and non-residents claims on Bermuda as liabilities. The balance between these two positions represents the IIP; that is, an excess of assets over liabilities indicates a positive contribution to the nation s net wealth and the reverse signifies a negative contribution. WHY IS THE IIP IMPORTANT TO MEASURE?* The composition of the IIP allows financial analysts to assess the vulnerability of the economy to changes in external market conditions. Details from the IIP can highlight mismatches in maturity of instruments and currency that can affect an economy s ability to service debt in the face of shock; financial structure problems; solvency problems and dependency problems where overreliance on another economy can present contagion concerns. Therefore, the IIP allows for a more in depth analysis behind balance sheet weaknesses that can lead to a modern-day financial crisis. DEFINITIONS AND NOTES Direct Investment Direct investment represents the value of long-term capital owned in subsidiaries, affiliates and branches by investors in a position to exercise control or a significant degree of influence on the management of the enterprise. A measure of total investment controlled in Bermuda by foreign direct investors, or abroad by Bermudian direct investors, indicates the leverage type impact of ownership. Portfolio Investment Portfolio investment abroad by Bermuda residents and in Bermuda by non-residents is defined as the holding of debt or equity securities other than those included in direct investment or reserve assets. Financial Derivatives A financial derivative contract is a financial instrument whose value is based on the value of an underlying security such as a stock or bond, commodity or other financial instrument. Other investment Other investment is a residual category that includes positions and transactions other than those included in direct investment, portfolio investment, financial derivatives and employee stock options (ESO), and reserve assets. Currency and deposits Currency consists of notes and coins that are of fixed nominal values and are issued or authorized by central banks, monetary authorities such as the BMA or governments. Deposits include all claims that are (a) on the central bank and other deposit-taking corporations; and (b) represented by evidence of deposit. Debt securities Debt securities are negotiable instruments serving as evidence of a debt. Loans Loans represent the extension of money from Bermuda residents to non-residents and vice versa, with an agreement that the money will be repaid. Insurance, pension, standardized guarantee schemes Insurance, pension, and standardized guarantee schemes all function as a form of redistribution of income and wealth mediated by financial institutions. Other accounts receivable/payable Other accounts receivable/payable consists of trade credit and advances between Bermuda and non-residents and, other miscellaneous receivables/payables. * Source: IMF Balance of Payments and International Investment Position Manual, Sixth Edition (BPM6) Published by the Government of Bermuda April 2013 The Cabinet Office Department of Statistics Cedar Park Centre, 48 Cedar Avenue, Hamilton HM 11 P.O. Box HM 3015 Hamilton HM MX, Bermuda Tel: (441) , Fax: (441) statistics@gov.bm Website: