Ali İhsan Karacan: The balance of payments and the 'net errors and omissions' item

Ali İhsan Karacan stated the following in his article titled "The balance of payments and the 'net errors and omissions' item":

"I would like to briefly address the issue of the 'net errors and omissions' item, which is a frequently debated item regarding external balance.

The Balance of Payments is a table that provides a classified and aggregated presentation in US Dollars of the monetary dimension of the economic relations of a country's economy and the people residing in that country with the outside world and with people residing in other economies, as of specific periods (such as monthly, quarterly, 6-monthly, and annually). Today, the balance of payments table consists of 'current account,' 'capital account,' and 'financial account' as main items, along with 'reserves' and 'net errors and omissions' items that balance them.

This table or data contains valuable information for policymakers and decision-makers, companies, investors, and those interested in the economy regarding economic policy.

The Balance of Payments is a critical table for global stability, and therefore it is not just a statistical data point that concerns national administrators. With this characteristic, its standardized preparation at a global level is also of close interest to international organizations, primarily the IMF. The IMF collects and publishes the balance of payments items of countries. The IMF has a manual that it updates over time regarding the preparation of these tables. On the other hand, the EU has both regulated the subject and authorized Eurostat. In our country, the Central Bank of the Republic of Turkey collects, produces, and publishes balance of payments data within the framework of the rules regarding the collection and compilation of balance of payments statistics, in line with the aforementioned manuals and rules.

Due to this characteristic, no country can prepare balance of payments statistics in any form and format it wishes and turn this data into a table. The collection, preparation, and publication of balance of payments data is a largely regulated and standardized field.

The balance of payments table is organized with the double-entry accounting method, which is the fundamental recording method of accounting, and the logic of balance sheet preparation. As can be understood from the naming such as 'balance' and 'sheet,' it must mathematically be in balance. The table includes flow values and changes in stocks.

This balance shows that the 'payments/revenues/income/collections' that the country makes to the outside world and obtains from the outside world will ultimately be equalized. There are two main elements or items that ensure this equality: one is the 'reserve' movements, whose nature and amount are known, where the change in the country's foreign exchange or foreign asset stocks is shown, and the other is the 'net errors and omissions' item, where the difference that emerges only as a numerical residual value or discrepancy is located.

Every time balance of payments data is published, the source of the 'net errors and omissions' item of this data or table is debated, and very different explanations, including conspiracy theories, are made about this item. There is a close relationship between the size of the 'net errors and omissions' item and the intensity of the debate. Another factor affecting the intensity of the debate is the economic and political environment or conjuncture in which the country is in at that moment; the more lively and controversial the environment, the more the net errors and omissions item takes its place on that agenda. For this reason, we occasionally encounter explanations that push the limits of our imagination regarding 'net errors and omissions,' which is a balancing figure of the balance of payments.

In fact, let us say immediately that the existence of this item is not unique to our country, as we can easily see from the published balance of payments data of various countries. Based on the external balance of payments data on the IMF website, the 'Net Errors and Omissions' item figures for some countries as of the years 2019-2022 are given in Table: 2. The item in question is by years

News Source: 12punto