All you need to know on the balance of payments

The definition of Balance of Payments (BOP)

The balance of payments is a flow-oriented statistical statement for recording economic and financial transactions between resident and non-resident institutional units of an economy in a given period of time. Closely related to the flow-oriented balance of payments is the stock-oriented international investment position, which is a summary of statistical information on stock of financial assets and liabilities vis-a-vis non-residents.

The components of BOP

The balance-of-payments statistics -  the current account, the capital account and the financial account -  include  transactions between resident and non-resident entities during the reference period, whereas the international investment position (IIP) is a financial statement setting out the value and composition of the country’s external financial assets and liabilities at the end of the period. The current account records the transactions in goods and services, investment income (interest, dividend and reinvested earnings), labour income (compensation of employees) and current transfers (e.g. workers’ remittances). In the capital and financial account all those transactions vis-a-vis the rest of the world are recorded that are related to the accumulation in the national economy.

The concept of resident

The concept of resident, native in a statistical sense, in accordance with other macroeconomic statistics, is defined in the balance of payments statistics using the concepts of center of economic interest and economic territory. A resident of a given country is any natural or legal person whose center of economic interest (dwelling, place of business, production etc.) is related to the territory of the given country.  The following categories of such individuals shall be considered as residents:

• any natural person who, irrespective of nationality, has been normally residing or intends to reside in the territory of the Republic of Hungary for at least one year, not including members, employees with non-Hungarian nationality of foreign diplomatic and consular representations operating in Hungary and their family members as well as persons staying in the country for study purposes or medical treatment,
• Hungarian diplomatic and consular representations operating in foreign countries, the members or employees of these organizations and their family members with Hungarian nationality,
• any legal entity and organizations with no legal entity having a registered office or business premises or conducting economic activity in the territory of the Republic of Hungary, including free zones and transit areas

Non-resident: a natural person or legal entity as well as organization with no legal entity not classified as resident. All business organizations are classified as non-residents who are characterized so that their tax number ends with 51, their code of business form is 931 (13th to 15th character of the statistical code) and are not incorporated by the Hungarian court of registration. 

Methodological notes to the Hungarian balance of payments and the international investment position can be accessed at the MNB website.