The financial account of the balance of payments records, on a net basis, monetary flows stemming from transactions that generate changes in the claims or liabilities of residents vis-à-vis non-residents. Such claims and liabilities are broken down into the following categories:
- Direct investment
- Portfolio investment
- Other investment
- Change in reserve assets
Net flows in the financial account are recorded in line with the sign convention set out in the 6th edition of the IMF’s Balance of Payments Manual. A positive (negative) sign indicates an increase (decrease) in Greek residents’ claims on non-residents. Similarly, a positive (negative) sign indicates an increase (decrease) in Greek residents’ liabilities vis-à-vis non-residents.
Direct investment records monetary flows between resident and non-resident firms that are in a direct investment relationship with each other. A direct investment relationship arises when a Greek firm (direct investor) holds at least 10% of the capital of a non-resident firm (direct investment enterprise) or, conversely, when a non-resident firm (direct investor) holds at least 10% of the capital of a Greek firm (direct investment enterprise).
Direct investment also includes the establishment of a branch as well as real estate investment.
All transactions – following the initial one establishing the direct investment relationship – relating to the maintenance, expansion or termination of this relationship, as well as any loans and trade credit between a direct investor and a direct investment enterprise, are recorded under direct investment. Finally, direct investment includes retained (reinvested) earnings. If the firms in a direct investment relationship are credit institutions, direct investment records only the initial holding of equity capital (if >10%) and any further increase in that holding, but not any transactions related to deposits and loans between the two firms.
Transactions are recorded under direct investment according to the directional principle, . Thus, all monetary flows from resident direct investors to non-resident direct investment enterprises are recorded under “direct investment abroad” (outward direct investment), while all monetary flows from non-resident direct investors to resident direct investment enterprises are recorded under “direct investment in Greece” (inward direct investment).
An alternative recording of direct investment according to the asset/liability principle (see special BPM6 press release) only applies to the presentation of the balance of payments as a whole. When direct investment statistics are disaggregated by country or by sector of economic activity, the directional principle continues to apply.
The category of “portfolio investment” records monetary flows relating to transactions between residents and non-residents that affect their assets and liabilities vis-à-vis each other relating to securities. Securities are distinguished into equity and debt securities (bonds and money market instruments). Residents’ net investment in securities issued by non-residents are recorded under ‘Assets’ (where a positive sign indicates an increase and a negative one a decrease), whereas non-residents’ net investment in securities issued by residents are recorded under ‘Liabilities’ (where a positive sign indicates an increase and a negative one a decrease). The balance of the portfolio investment account is the difference between assets and liabilities.
The category of “other investment” records monetary flows stemming from transactions between residents and non-residents relating mainly to loans and deposits. Monetary flows relating to loans granted by residents to non-residents and their servicing, as well as residents’ deposits with non-resident monetary financial institutions are recorded under ‘Assets’. Monetary flows relating to loans granted by non-residents to residents and their servicing, as well as non-residents’ deposits with resident monetary financial institutions are recorded under ‘Liabilities’.
Other investment includes also liabilities (or claims) resulting from the issuance of banknotes, in particular the difference between the banknote allocation key of the Bank of Greece (based on its participation in the capital of the European Central Bank) and the value of euro banknotes actually put into circulation.