The IMF's Statistical Systems in Context of Revision of the United Nations' A System of National Accounts

Vicente Galbis

• Publisher: INTERNATIONAL MONETARY FUND
• Year: 1991
• ISBN:
  9781557751591

NONE

Part I EXTERNAL SECTOR TRANSACTIONS

1 Residents of an Economy

ARIE C. BOUTER

IN CONNECTION with the forthcoming revision of the United Nations’ A System of National Accounts (SNA), a question has arisen about whether the definition of the residents of an economy,¹ given in the 1968 version of the SNA and in the 1977 edition of the IMF’s Balance of Payments Manual (BPM) can continue to serve as the basis for compiling national accounts and balance of payments statistics that provide the users of these statistics—the central authorities of the compiling economy and the international organizations—the information they need for policy purposes. That question is discussed in Section I of this chapter. The concept underlying the definition given there is virtually the same as that underlying the definition of residents in the 1968 version of the SNA. Therefore, measures of gross domestic product (GDP) and gross national product (GNP) based on the definition given in Section I should be similar, if not the same, as those based on the 1968 definition of the residents of an economy. The continuity of the existing time series would thus be maintained.

The residency status of the general government, individuals, private nonprofit bodies serving individuals, and enterprises of an economy is discussed in Sections II through V; the residency status of international organizations, which are not considered to be residents of any national economy, including the economy in which they are located or conduct their affairs, is discussed in Section VI. Brief conclusions are given in Section VII.

I. Policy Needs of the Authorities

The government of an economy sets policy and makes the laws and regulations that apply to it. These laws and regulations affect, in principle, all entities—those physically or legally present in that economy (“residents”), as well as those physically or legally present in the rest of the world (“nonresidents”).² The enforcement of these laws and regulations as they affect residents differs considerably, however, from their enforcement with respect to nonresidents. For residents of the given economy, enforcement of the laws and regulations is straightforward because it derives from the government’s authority in that economy. In contrast, because the government of the given economy lacks the authority to enforce its laws and regulations in the rest of the world, enforcement of those laws and regulations with respect to nonresidents is not practicable. If at all, enforcement on nonresidents comes about only when the government of the given economy can exert pressure on entities in the rest of the world through affiliated entities in the given economy. Moreover, nonresidents are, more than anything else, subject to the possibly contradictory policies of the authorities in the rest of world and, therefore, may not be able to comply with the laws and regulations of the given economy. Thus, it appears that for statistical, analytical, and policy purposes the residents of a given economy can best be defined in terms of their presence in the territory of that economy—the home economy. In this context, the territory of an economy is defined to include its territorial seas and air space, as well as those international waters beyond its territorial seas and the international air space beyond its territorial air space over which the economy has or claims to have exclusive jurisdiction.

The strict application of this concept of residence to a given entity that temporarily enters or leaves the territory of a given economy would affect the classification of the transactions of that entity during that time and would require the recording, both in the national accounts and in the balance of payments, of the two successive changes in the international investment position that result from that entity’s temporary change of residence. This change in recording would be particularly bothersome in extreme situations—for example, when an individual leaves the territory of the home economy for a one-day vacation, or when an enterprise installs equipment in the territory of an economy other than the home economy. If a vacationing individual continued to be a resident of the home economy, that individual’s expenditures on goods and services for use during his vacation should be classified under travel (direct purchases abroad). If, however, a vacationing individual temporarily became a resident of the host economy, these same expenditures should be classified under private unrequited transfers (other capital transfers by private sector, denoting a change in net worth). Similarly, for an enterprise installing equipment in the territory of an economy other than the home economy, the recording and classification of the various transactions would depend on the residency status of that enterprise. For example, any payment for wages to residents of the host economy would be recorded as labor income, and the proceeds from the installation services should be recorded as services (miscellaneous commodities) if the enterprise continued to be a resident of the home economy. The net proceeds from the installation services (gross proceeds from the installation services minus payments for wages), however, should be recorded as investment income (entrepreneurial income) if the enterprise temporarily became a resident of the host economy.

In addition, the strict application of that concept of residence would require the recording, both in the national accounts and in the balance of payments, of the two successive changes in the international investment position that result from an entity’s temporary absence from the home economy. An entity’s claims on and liabilities to other residents of the home economy would, for one day, become that economy’s foreign liabilities and claims, whereas an entity’s claims on and liabilities to residents of the rest of the world would become, again for one day, the rest of the world’s domestic liabilities and assets. Thus, if an entity were defined in terms of its presence in the territory of an economy, a good deal of information would be required to implement the existing accounting rules.

In view of these considerations, it appears that there would seem to be justification for defining the residents of an economy as the entities that may be expected to consume goods and services, participate in production, or engage in other economic activities in the territory of an economy on other than a temporary basis. Under this approach, however, questions would arise about the length of time an entity can remain outside the territory of the home economy and about the activities in which it can engage during that time without the entity undergoing a change in its residency status.

Obviously, the longer an entity stays outside the territory of the home economy and the more an entity is integrated in the economy where it is temporarily located (the host economy), the more reason there is for treating that entity as a resident of the host economy. Entities whose stay in the territory of a host economy is brief and whose integration in the host economy is tenuous—as in the examples cited above—should not be considered residents of that economy during that period. In contrast, entities whose stay in the territory of the host economy is indefinite and whose integration in the host, economy is substantial should clearly be considered residents of that economy.

An approach to determining residency that is based on the length of stay and on the degree of integration in the host economy, however, cannot be adopted. For one thing, ranking of entities according to these criteria is not a feasible undertaking. Furthermore, even if such ranking were made, it would still be a matter of judgment to decide exactly how long and for what purpose an entity would have to be in the territory of the host economy to become a resident; that is, where the borderline between residents and nonresidents should be drawn. Therefore, a supplementary rule of thumb for determining the residency status of entities that temporarily remain outside the home economy would seem to be needed. Moreover, because little information on the activities of entities that temporarily remain outside the territory of the home economy is commonly available, there would seem to be justification for expressing that rule in terms of a period of time during which an entity can remain outside the territory of its home economy without undergoing a change in its residency status.

Because the introduction of such a rule would affect both the compilation and the analytical usefulness of the data, it is important that the rule represent the best possible trade-off between these two aspects. Therefore, such a rule might be that entities entering the territory of an economy for less than one year would not become residents of that economy, and that entities leaving the territory of an economy for less than one year would continue to be residents of that economy.

The one-year time span of an entity’s presence in a given economy as the basis for identifying resident and nonresident entities is not in itself sacrosanct. One could argue for a period longer than one year. What is important is that, from a statistical and analytical standpoint, an objective criterion rather than a vague reference to some concept of “center of economic interest” be adopted for demarcating resident and nonresident entities. Although the length of the period to be used for identifying resident and nonresident entities could certainly be a point for discussion in any reappraisal of the existing guidelines on residence, consideration of maintaining continuity in the time series would favor retention of the present one-year rule.

Under this approach, however, a problem of principle would arise for entities that, after a point in time, remain permanently outside the territory of any national economy (that is, in international waters or air space) or that move frequently between the territories of two or more economies, thus posing a problem similar to that of entities remaining permanently in international waters or air space. As a matter of principle, such an entity should be attributed to a single economy on the basis of that entity’s being subject to the laws, regulations, and protection of that economy. But because information for such attribution is generally not available, still another supplementary rule of thumb to deal with both of these cases would have to be provided. Such a rule might suggest that until the time an entity that is physically or legally present in more than one national territory during the course of a year, or outside any national territory, has established residency elsewhere, it continues to be a resident of the economy of which it was a resident before it left its territory. In this connection, it should be recognized that failure to attribute an entity to any economy has caused asymmetries in the global accounts.

The analytical and statistical considerations discussed in this section point to the need for formulation of guidelines on residence such as those described in Sections II–VI.

II. General Government

The general government agencies that are residents of an economy include all departments, establishments, and bodies of its central, state, and local governments located in its territory and the embassies, consulates, military establishments, and other entities of its general government located elsewhere.

The general government of an economy comprises all agencies of the public authorities not classified elsewhere:

• Government departments, offices, and other bodies, whether covered in ordinary or extraordinary budgets or in extrabudgetary funds, that engage in administration, defense, and regulation of the public order, promotion of economic growth and welfare and technological development, provision of education, health, cultural, recreational, and other social and community services free of charge or at sales prices that do not fully cover their costs of production
• Other nonprofit organizations serving individuals or business enterprises that are wholly, or mainly, financed and controlled by the public authorities and nonprofit organizations primarily serving government bodies themselves
• Social security arrangements for large sections of the community imposed, controlled, or financed by the government, including voluntary social security arrangements for certain sections of the community and pension funds that are considered to be part of the public social security schemes
• Unincorporated government enterprises that mainly produce goods and services for the government itself or that primarily sell goods and services to the public, but that operate on a small scale
• Public saving and lending bodies that are financially integrated with a government or that lack the authority to acquire financial assets or incur liabilities in the capital market.

Because embassies, consulates, military establishments, and other entities of a general government are subject mainly to the laws and regulations of the economy they represent, they are considered to be residents of that economy and not of the economy in which they are physically located.

III. Individuals

In this section a general concept of residence for individuals is proposed and a classification of individuals whose stay in a given economy is to be considered temporary is drawn. Implications of the general definition are then discussed.

General Definition

The concept of residence adopted for individuals is designed to encompass all persons who may be expected to stay in the territory of a given economy on other than a temporary basis, including residents who leave the territory of that economy for whatever period of time but do not establish residency elsewhere. For individuals other than government employees and employees of international organizations, a temporary basis is defined to be a period of less than one year. Because they are subject mainly to the laws and regu...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Foreword
• Preface
• Contents
• Introduction
• Part I External Sector Transactions
• Part II Public Sector Accounts
• Part III Financial Flows and Balances
• Contributors
• Abbreviations
• Footnotes