Balance of international payments: Frequently asked questions

What is the balance of payments?

The balance of payments covers all economic transactions between Canadian residents and non-residents in two accounts, the current account and the capital and financial account.

What is the current account?

The current account covers transactions in goods, services, investment income and current transfers. Exports and interest income are examples of receipts, while imports and interest expense are payments. The overall balance of receipts and payments is Canada's current account surplus or deficit.

What is the capital and financial account?

The capital and financial account is mainly composed of transactions in financial instruments. Financial assets and liabilities with non-residents are presented in three functional classes: direct investment, portfolio investment and all other types of investment. These flows arise from financial activities of either Canadian residents (foreign assets of Canadian investors) or non-residents (Canadian liabilities to foreign investors). Transactions resulting in capital inflows to Canada are presented as positive values while those giving rise to capital outflows from Canada are shown as negative values.

Who are considered non-residents?

Residency is determined by the normal place of residence or domicile. A person or business is said to be a resident of a country if their centre of economic interest is there. This would be evidenced by the location of a person’s residence and where they produce, invest and earn revenues.

Corporations are classified as residents of the country in which they are incorporated or registered to do business. Thus, subsidiaries in Canada of foreign corporations are treated as residents and foreign subsidiaries of Canadian companies are treated as non-residents. In addition, foreign companies operating as a branch or division in Canada are considered Canadian residents. Similarly, branch operations of Canadian companies in foreign economies are foreign residents.

What is the difference between flows and positions data?

Flows data refer to transactions of an economy with the rest of the world over a period of time (i.e. quarter or year). Positions are stock-oriented measures that provide a balance sheet statement (financial assets and liabilities) of the Canadian economy vis-à-vis the rest of the world at a point in time.

Does the balance of payments have to "balance"?

In principle, in the balance of payments, a current account surplus corresponds to an equivalent net outflow in the capital and financial account; and, a current account deficit corresponds to an equivalent net inflow in the capital and financial account. In other words, the two accounts should add to zero. In practice, as data are compiled from multiple sources, this is rarely the case and gives rise to measurement error. The statistical discrepancy is the unobserved net inflow or outflow.

What are the definitions of direct, portfolio and other investments?

The balance of payments and international investment position are functionally broken down by direct, portfolio and other investment. Direct investment refers to a type of investment made by investors that seek to have a lasting interest in an enterprise and usually a role in management. In contrast, portfolio investors are seeking income and potential capital gains from their investments in instruments such as bonds, stocks or money market paper. The other investment category includes such instruments as deposits, loans and trade credits. These instruments are usually not marketable as is the case for portfolio investment. Canada's international reserves are included in other investment category.

Is there a Balance of payments glossary?

Yes. Please consult the System of macroeconomic accounts glossary.

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