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 2012. 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 2012. The surplus on Bermuda s primary income account grew to $363 million in the last quarter of 2012. 900 750 600 450 300 150 - CURRENT ACCOUNT BALANCES (BD$) million Q4 Q1 Q2 Q3 Q4 2011 2012 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 2011. Bermuda increased its net incurrence of financial liabilities by $338 million this quarter compared to a decrease of $47 million in 2011. QUARTERLY CURRENT ACCOUNT Current account surplus = $189 million The current account surplus stood at $189 million for the fourth quarter of 2012. This represented an $89 million increase from the $100 million surplus in the fourth quarter of 2011. 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% Q4 2012 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.
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. 225 150 75 - TRAVEL SERVICES RECEIPTS $BD million Q1 Q2 Q3 Q4 2010 2011 2012 Payments for services received from non-residents totalled $248 million in the fourth quarter, $11 million above the level recorded in 2011. 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 2011. 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 2012. 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 $21 million at the end of the fourth quarter.
TABLE 1 QUARTERLY ESTIMATES BY MAJOR ACCOUNTS, 2011-2012 (BD$) MILLIONS Components 2011 2011 2011 2011 2012 2012 2012 2012 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 CURRENT ACCOUNT PAYMENTS GOODS IMPORTS 217 220 239 224 218 231 235 216 SERVICES 239 253 254 237 222 250 254 248 Transportation 58 65 65 60 60 65 61 57 Travel 62 72 88 81 61 71 88 85 Business Services: 115 112 96 92 96 110 99 102 Insurance services 29 33 27 28 27 43 35 36 Financial services 14 8 7 6 9 8 6 7 ICT services 22 21 19 20 19 21 19 21 Other services 49 50 43 38 41 38 39 38 Government services 5 5 5 5 4 4 4 4 PRIMARY INCOME 189 45 122 146 163 50 66 58 Employee Compensation 16 16 16 16 16 17 17 16 Investment 173 29 106 131 147 33 49 42 Other 0 0 0 0 0 0 0 0 SECONDARY INCOME 55 54 54 55 54 61 59 60 TOTAL PAYMENTS 700 572 670 663 658 593 615 582 CURRENT ACCOUNT RECEIPTS GOODS EXPORTS 3 3 3 3 3 3 3 3 SERVICES 324 398 393 320 302 373 393 322 Transportation 8 10 14 8 12 11 11 11 Travel 50 170 166 84 46 150 169 76 Business Services: 216 216 212 216 201 211 211 222 Insurance services 13 13 11 12 11 20 20 19 Financial services 44 49 55 64 38 45 52 59 ICT services 21 19 19 19 22 21 20 20 Other services 138 136 127 120 130 126 119 123 Government services 50 2 1 13 44 1 1 13 PRIMARY INCOME 444 403 399 419 425 408 410 421 Employee Compensation 289 290 290 290 272 275 287 303 Investment 99 78 81 99 107 98 95 86 Other 55 35 28 30 46 34 28 31 SECONDARY INCOME 20 22 25 22 21 26 27 26 TOTAL RECEIPTS 791 825 820 764 751 810 833 772 CURRENT ACCOUNT BALANCES GOODS -214-216 -236-221 -215-228 -233-213 SERVICES 85 145 139 83 80 123 139 74 Transportation -49-55 -51-52 -48-54 -50-46 Travel -12 98 78 3-16 79 81-9 Business Services: 101 104 116 124 104 101 112 120 Insurance services -16-20 -16-16 -16-24 -15-16 Financial services 29 40 48 58 28 38 46 52 ICT services -1-2 -1-1 3 0 1-1 Other services 89 86 84 83 89 88 80 85 Government services 45-3 -4 8 39-3 -3 9 PRIMARY INCOME 255 358 277 273 262 358 344 363 Employee Compensation 273 274 273 274 256 258 270 288 Investment -73 49-25 -31-40 66 46 44 Other 55 35 28 30 46 34 28 31 SECONDARY INCOME -35-33 -30-34 -33-35 -32-34 CURRENT ACCOUNT BALANCE 91 253 150 100 94 218 218 189 FINANCIAL ACCOUNT Direct investment 0 0 0 0 193 27 29-27 Portfolio investment 100-3 378-83 -1,359-7 777-440 Financial Derivatives 0 0 0 0 28 16 22 27 Other investment 0 0 0 0 4-739 109 779 Reserve assets 0 0 0 0 0 3-13 5 NET ACQUISITION OF FINANCIAL ASSETS 100-4 378-83 -1,134-700 924 344 Direct investment 0 0 0 0 113 40 26-51 Portfolio investment 0 0 46-46 230-157 138 56 Financial Derivatives 0 0 0 0-3 15 7-4 Other investment 0 0 0-1 -1,156-703 178 338 NET INCURRENCE OF FINANCIAL LIABILITIES 0 0 46-47 -816-805 348 338 TOTAL NET FINANCIAL ACCOUNT -99 3-331 36 318-105 -576-5 TOTAL NET CAPITAL ACCOUNT 0 0 0 0 0 0 0 0 TOTAL NET LENDING (+)/NET BORROWING (-) 99-3 331-36 -318 105 576 5 BALANCING ITEM 8-256 181-137 -412-113 358-184 R revised, P provisional Numbers may not add due to rounding
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$) MILLIONS Components 2011 2012 2012 2012 2012 Q4 Q1 Q2 Q3 Q4 ASSETS BY FUNCTIONAL CATEGORY Direct investment 575 759 776 799 784 Portfolio investment 10,582 9,211 9,218 9,991 9,606 Financial Derivatives (other than reserves) and ESOs 115 42 58 80 107 Other investment 3,107 3,111 2,372 2,483 3,257 Reserve Assets 147 146 149 136 141 BY INSTRUMENT Equity and investment fund share/units 543 729 766 801 790 Debt instruments: 13,868 12,498 11,749 12,607 12,998 Special drawing rights - - - - - Currency and deposits 1,298 1,760 970 1,202 1,812 Debt securities 10,761 9,387 9,376 10,125 9,741 Loans 1,242 1,281 1,286 1,220 1,370 Insurance, pension, standardized guarantee schemes - - - - - Other accounts receivable/payable 567 70 117 62 75 Other financial assets and liabilities 115 42 58 80 107 TOTAL ASSETS 14,526 13,269 12,573 13,488 13,895 LIABILITIES BY FUNCTIONAL CATEGORY Direct investment 1,736 1,834 1,878 1,881 1,870 Portfolio investment 10,146 10,201 9,339 9,670 10,014 Financial Derivatives (other than reserves) and ESOs n.a. n.a. n.a. n.a. n.a. Other investment 8,572 7,361 6,660 6,563 6,908 BY INSTRUMENT 1,304 1,541 1,380 1,534 1,540 Equity and investment fund share/units 251 1,280 1,280 1,553 1,553 Debt instruments: - - - - - Special drawing rights 18 19 19 21 13 Currency and deposits 16 14 29 35 31 Debt securities 1,736 1,834 1,878 1,881 1,870 Loans 10,146 10,201 9,339 9,670 10,014 Insurance, pension, standardized guarantee schemes n.a. n.a. n.a. n.a. n.a. Other accounts receivable/payable 8,572 7,361 6,660 6,563 6,908 Other financial assets and liabilities 1,304 1,541 1,380 1,534 1,540 TOTAL LIABILITIES 11,898 12,049 11,245 11,587 11,915 NET IIP 2,629 1,220 1,327 1,901 1,980 IIP By Resident Institutional Sector (BD$) MILLIONS 2012 Q4 Households and NPISHs 2,3 General government Non Financial financial corporations corporations Total economy ASSETS 21 4 13,823 47 13,895 Direct investment - - 779 5 784 Portfolio investment 13-9,573 20 9,606 Financial Derivatives (other than reserves) and ESOs - - 107-107 Other investment 8 4 3,222 22 3,257 Reserve Assets 141 141 LIABILITIES - 1,505 9,433 977 11,915 Direct investment 566 928 1,494 Portfolio investment - - 1,909 7 1,916 Financial Derivatives (other than reserves) and ESOs - - 31 0 31 Other investment - 1,505 6,928 41 8,474 NET IIP 21 (1,501) 4,389 (930) 1,980 Numbers may not add due to rounding
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 2012. 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 2012. 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 2011. Payments of secondary income exceeded receipts by $134 million The secondary income account recorded a deficit of $134 million in 2012. 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 $17 million. Bermuda decreased their holdings of reserve assets by 6 million in 2012. Capital Account No transactions were recorded on the capital account in 2012.
TABLE 3 ANNUAL ESTIMATES BY MAJOR ACCOUNTS, WITH CHANGES, 2009-2012 (BD$) MILLIONS Components 2009 2010 2011 2012 2010/2009 2011/2010 2012/2011 ($) Change ($) Change ($) Change CURRENT ACCOUNT PAYMENTS GOODS IMPORTS 1,035 972 900 900-63 -72 0 SERVICES 981 1,015 983 974 35-32 -9 Transportation 272 275 247 243 4-28 -4 Travel 295 301 303 305 6 2 3 Business Services: 397 421 415 408 24-6 -7 Insurance services 116 93 117 142-23 25 24 Financial services 31 45 36 30 14-9 -6 ICT services 84 97 83 81 13-14 -2 Other services 167 186 179 155 19-7 -24 Government services 18 19 18 18 1 0 0 PRIMARY INCOME 371 297 502 338-74 206-165 Employee Compensation 71 67 64 66-4 -3 2 Investment 300 230 438 271-70 208-167 Other 0 0 0 0 0 0 0 SECONDARY INCOME 218 219 219 235 1 1 15 TOTAL PAYMENTS 2,605 2,503 2,605 2,447-102 102-159 CURRENT ACCOUNT RECEIPTS GOODS EXPORTS 29 15 13 12-14 -2-1 SERVICES 1,325 1,399 1,435 1,389 74 36-45 Transportation 53 42 40 44-11 -2 4 Travel 366 435 470 441 69 35-29 Business Services: 852 862 860 845 10-2 -14 Insurance services 47 43 49 71-3 6 22 Financial services 175 216 212 194 41-4 -18 ICT services 99 83 78 84-16 -4 6 Other services 532 520 521 497-12 1-24 Government services 54 60 65 59 6 5-6 PRIMARY INCOME 1,774 1,735 1,665 1,665-39 -70 0 Employee Compensation 1,345 1,260 1,159 1,138-85 -101-21 Investment 311 333 357 387 21 24 30 Other 117 142 148 140 25 7-9 SECONDARY INCOME 90 78 88 101-11 10 13 TOTAL RECEIPTS 3,217 3,226 3,200 3,166 9-26 -34 CURRENT ACCOUNT BALANCES GOODS -1,007-958 -888-889 49 70-1 SERVICES 345 384 451 415 39 68-36 Transportation -218-233 -207-199 -15 26 8 Travel 72 135 167 135 63 32-32 Business Services: 456 441 445 438-15 4-7 Insurance services -69-50 -69-71 20-19 -3 Financial services 144 171 176 164 27 5-12 ICT services 15-14 -4 3-29 10 7 Other services 365 334 342 342-32 8 0 Government services 36 41 46 41 5 5-5 PRIMARY INCOME 1,402 1,438 1,162 1,327 35-276 165 Employee Compensation 1,275 1,193 1,095 1,072-81 -99-23 Investment 11 103-81 115 92-184 196 Other 117 142 148 140 25 7-9 SECONDARY INCOME -128-140 -131-134 -12 9-3 CURRENT ACCOUNT BALANCE 612 724 595 719 111-129 124 FINANCIAL ACCOUNT Direct investment 11-14 0 222-25 14 222 Portfolio investment 1,574 1,406 391-1,028-168 -1,015-1,419 Financial Derivatives 52 59 0 93 7-59 93 Other investment -2,380 605-1 152 2,985-606 153 Reserve assets 18 3 0-5 -15-3 -5 NET ACQUISITION OF FINANCIAL ASSETS -724 2,060 390-566 2,784-1,670-956 Direct investment -71 249 0 128 320-249 128 Portfolio investment -63 470 0 267 534-470 267 Financial Derivatives -108-1 0 15 107 1 15 Other investment -167 650-1 -1,344 817-651 -1,343 NET INCURRENCE OF FINANCIAL LIABILITIES -409 1,368-1 -934 1,778-1,369-933 TOTAL NET FINANCIAL ACCOUNT 315-692 -391-368 -1,006 300 23 TOTAL NET CAPITAL ACCOUNT 0 0 0 0 0 0 0 TOTAL NET LENDING (+)/NET BORROWING (-) -315 692 391 368 1,006-300 -23 BALANCING ITEM -927-32 -204-351 895-171 -147 R revised, P provisional Numbers may not add due to rounding
TABLE 4 2012/2011 CURRENT ACCOUNT YEAR OVER YEAR PERCENTAGE CHANGE (%) Components Q1 Q2 Q3 Q4 YEAR CURRENT ACCOUNT PAYMENTS GOODS IMPORTS 0.4 5.1-1.7-3.6 0.0 SERVICES -7.1-1.0-0.3 4.6-0.9 Transportation 4.5 0.1-6.1-4.6-1.6 Travel -1.5-0.5-0.1 4.9 0.9 Business Services: -16.1-1.9 3.5 10.7-1.8 Insurance services -6.2 31.4 29.7 27.4 20.7 Financial services -34.3-7.8-16.6 4.5-17.9 ICT services -15.2 0.0 0.8 7.4-2.2 Other services -17.1-23.9-8.6 1.0-13.1 Government services -2.3-2.3-1.7-2.2-2.2 PRIMARY INCOME -13.6 12.1-45.7-60.5-32.8 Employee Compensation 0.6 10.0 2.3 0.4 3.3 Investment -14.9 13.2-53.2-67.7-38.1 Other SECONDARY INCOME -1.3 12.2 8.9 8.4 7.0 TOTAL PAYMENTS -6.1 3.6-8.3-12.2-6.1 CURRENT ACCOUNT RECEIPTS GOODS EXPORTS -0.2-15.2-18.4-8.2-10.8 SERVICES -6.8-6.1-0.2 0.5-3.2 Transportation 42.7 9.8-22.8 34.1 9.8 Travel -9.1-11.5 1.7-9.6-6.3 Business Services: -7.0-2.3-0.3 2.9-1.7 Insurance services -11.7 53.9 79.8 60.8 44.6 Financial services -13.8-7.1-5.9-8.4-8.6 ICT services 3.4 9.2 8.6 7.9 7.2 Other services -6.0-7.6-6.3 2.5-4.5 Government services -12.2-28.9 25.8 5.5-8.6 PRIMARY INCOME -4.3 1.4 2.9 0.5 0.0 Employee Compensation -5.9-5.0-1.0 4.7-1.8 Investment 7.5 26.7 17.9-13.1 8.3 Other -16.7-2.2 0.1 4.9-5.7 SECONDARY INCOME 6.1 20.3 10.1 21.1 14.4 TOTAL RECEIPTS -5.0-1.8 1.5 1.1-1.1 CURRENT ACCOUNT BALANCES GOODS 0.4 5.4-1.4-3.6 0.1 SERVICES -6.1-15.0-0.1-11.0-8.0 Transportation -2.0-1.6-1.3-10.6-3.9 Travel 30.8-19.6 3.6-390.2-19.2 Business Services: 3.4-2.8-3.5-2.8-1.6 Insurance services -2.0 16.9-5.8 2.3 3.7 Financial services -3.7-7.0-4.4-9.9-6.7 ICT services -443.7-83.6-291.5-3.6-165.6 Other services 0.0 1.9-5.1 3.1 0.0 Government services -13.2 11.1-9.2 9.8-11.1 PRIMARY INCOME 2.6 0.0 24.3 33.2 14.2 Employee Compensation -6.3-5.9-1.2 4.9-2.1 Investment -45.4 34.7-281.4-240.9-242.8 Other -16.7-2.2 0.1 4.9-5.7 SECONDARY INCOME -5.6 6.8 7.9 0.3 2.1 CURRENT ACCOUNT BALANCE 2.9-14.0 45.5 88.8 20.9 (SURPLUS/DEFICIT) * value is unusable R revised, P provisional Numbers may not add due to rounding
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.
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) 297-7761, Fax: (441) 295-8390 E-mail: statistics@gov.bm Website: www.statistics.gov.bm