We give the original definition of the balance of payments from the 5 edition of the “Balance of Payments Manual” (Article 13).
IMF definition. “The balance sheet is a statistical report, where the total data on the foreign economic operations of a given country with other countries of the world for a certain period of time are presented in a systematic form. Such operations, most of which are performed between residents and non-residents, include operations with goods and services and revenue flows; operations related to financial requirements and obligations of a given country in relation to to the rest of the world; operations classified as transfers (e.g., gifts) … The very concept of “operation” is defined as an economic flow reflecting the creation, transformation, exchange, transfer or elimination of any economic value, which may involve the transfer of ownership of goods and / or financial assets, the provision of services or the provision of labor and capital ”[9, c. 21].
Usually a shorter definition is given in the economic literature: the balance of payments is a statistical report on all international transactions of residents of a country with non-residents for a certain period of time.
The first and second formulations require clarification of the concept of “resident” and “deal”. Usually, for the purposes of the balance of payments, a resident is considered to be an individual or legal entity residing in a given country for more than a year, regardless of his citizenship and passport status. Diplomats and military personnel outside their country, as well as international organizations, are not residents of the country where they are located. A legally clearer definition of residency is contained in relevant legislation (such as customs and tax codes, the law on currency control, etc.) and in the case of a particular country, there may be significant discrepancies with the basic definition associated with economic and other features. So, when determining residency in a number of countries, for individuals, the citizenship of a given country is necessary, in others – no; for legal entities in one case, registration in the territory of a given country is mandatory, in other cases – no, etc. As for the concept of a transaction, for the most part it represents a voluntary exchange of value, in which ownership of a product, service or asset is transferred from a resident of a given country to a resident of another country. However, there are exceptions when the transaction relates to foreign trade, and the transfer of ownership does not occur (for example, leasing operations, operations with tolling raw materials).
Separately, it should be noted that the balance of payments deals with flows, rather than with reserves, and reflects changes in real and financial assets and liabilities occurring only during the reporting period, and not with the total amounts of economic assets and liabilities of the country that exist at a particular point in time.
For example, in the annual balance of payments we will find data on changes in the reserves of the National Bank for the reporting period, but we will not find data on the total value of these reserves.
Similarly, the balance of payments will contain data on direct and portfolio investments attracted during the reporting period, on changes in external debt, but the balance of payments does not contain the total values of these indicators – for this it is necessary to either summarize the data of a number of balance of payments for the period of interest, or use other statistical tools (such as the international investment position, which reflects the reserves of financial assets and liabilities of a given country at a certain date, usually at the end of the reporting year).