Principle of ownership (Time of recording) The principle of ownership stipulates that the creditor owns a claim on the debtor, and the debtor has an obligation to the creditor. Transactions are recorded when economic value is created,  BIS Review 79/2006  1  transformed, exchanged, transferred, or extinguished. For example, loan drawings are entered in the accounts when actual disbursements are made, and financial claims are established, and not necessarily when an agreement is signed. Accrued interest liability In order to maintain inter-temporal and inter-country comparability of external debt statistics, and to identify the variation introduced by the timing of recording of interest costs that have accrued and are not yet payable, such accrued costs must be included in the gross external debt position. With respect to bonds, the difference between the issue price and face value or redemption value is treated as accrued interest over the life of the bond. Arrears When principal or interest payments are not made when due, arrears are created, but are recorded under other debt liabilities. But the debt statistics compiler should ensure that the debt is not counted twice by understanding and applying the principle of recording arrears. Otherwise the magnitude of the debt burden would be over stated. Valuation The principle of valuation states that the nominal value of a debt instrument reflects the value of the debt at creation; any subsequent economic flows, such as transactions (e.g. repayment of principal); valuation changes including exchange rate and other valuation changes other than market price changes.

In other words, quality data are invaluable for sound policy decisions. For example, to enhance comparability across time and across countries, debt compilers must be guided by certain principles. I will proceed to highlight a few of them, mindful of the fact that the expert team of resource persons will provide deeper insights into these and other issues during the course. The major principles include residence criterion, ownership (i.e. time of recording), accrued interest liability, treatment of arrears and valuation. Residence Debt liabilities of residents must be owed to non-residents for such liabilities to be classified and included in an economy’s gross external debt position. Debt liabilities of residents owed to residents are excluded. Hence the definition of residence is central to the definition of external debt. A resident of an economy is an entity such as a household, corporation, government agency, etc that is capable, in its own right, of owning assets, incurring liabilities, and engaging in economic activities and in transactions with other entities. Residence is defined as a country’s “economic territory” which consists of a geographical territory administered by a government and includes, for maritime countries, any islands subject to the same fiscal and monetary authorities as the mainland. However, international (multilateral) organizations are not considered residents of any national economy in which the organizations are located, although employees of those bodies are residents of the national economy. In the same vein, the residence of offshore enterprises is attributed to the economies in which they are located.