Dáil Éireann díospóireacht -
Wednesday, 22 Feb 1995

Vol. 449 No. 5

Written Answers. - Net Factor Outflows.

Derek McDowell

Ceist:

58 Mr. D. McDowell asked the Minister for Finance the reason he has projected a considerable increase in net factor outflows in 1995; if he will give a breakdown of the estimated figure for such outflow; and the method by which the estimates were made. [4031/95]

Minister for Finance (Mr. Quinn)

My Department's forecast of the value of net factor outflows in 1995 is for an increase of 14.25 per cent over the estimated 1994 outturn. This rate is not significantly above the trend in recent years. It compares with an increase of 15.5 per cent in 1993 and an estimated annual average rate of increase of about 13.5 per cent over the period 1993-1994.

Net factor outflows cover all international receipts and payments in the form of interest, profits, dividends and royalties. On the credit side are receipts into Ireland from abroad: on the debit side are payments from Ireland overseas.

Published Balance of Payments statistics break down net factor outflows into five components as follows: Remuneration of employees (credit); Trading and investment income (credit); Profits, dividends, royalties (debit); National debt interest payments (debit); and Other trading and investment income (debit).

The rate of growth in profit outflows is projected to remain the same in 1994 and 1995. Growth in national debt interest payments abroad will slow somewhat in 1995 compared with last year. The main difference between the year-on-year rates of change in total net factor outflows over the two years arises within the "Trading and Investment Income (credit)" and "Other Trading & Investment Income (debit)" items. These items mainly comprise external interest flows of the banking sector. These flows were distorted in 1993 because of factors associated with the currency crisis, leading to a sizeable increase in credit inflows in 1994. These inflows will not be repeated in 1995.

Arising from this, the gap between the rates of growth in the volume of GDP and GNP is projected to widen in 1995. The main reason is that the price deflator used to determine the volume change in net factor income is based on trade prices. In 1995, reflecting international trade prices generally, the projected rate of increase in this deflator is relatively low. Accordingly, the derived volume change in net factor income is high resulting in a wider divergence in the rates of change in GDP/GNP volume.In the summary of the projections published inEconomic Background to the Budget this gap is further accentuated by the effects of rounding.

The following table gives the published Central Statistic's Office value for 1993, and my Department's estimate for 1994 and forecast for 1995 in respect of the above items:

	1993	1994e	1995f
	£m	% change	£m	% change	£m	% change
Remuneration of employees (credit)	16	—	16	—	16	—
Trading and investment income (credit)	1,610	–1	1,920	19.25	1,950	1.5
Profits, dividends, royalties (debit)	–3,426	18.75	–3,949	15.25	–4,553	15.25
Other Trading & investment income
(debit)	–2,004	–2.25	–2,179	8.75	–2,207	1.25
Net factor outflows	–3,804	15.5	–4,192	10.25	–4,794	14.25

Forecasts of net factor income are based on information available to my Department on current trends in, and prospects for, each of the individual components. Forecasts of national debt interest payments are based on the technical assumption of unchanged interest rates, information on the composition of the national debt and anticipated interest payments provided by the National Treasury Management Agency. Forecasts of profit outflows are based on current trends in profit outflows as published within the CSO Balance of Payments statement, and on the outlook for output and exports from the foreign-owned high technology manufacturing sector. The Economic and Social Research Institute has identified a relationship between profit outflows and high technology exports in earlier periods — See O'Malley, E. and S. Scott, 1994. "Profit Outflows Revisited", inEconomic Perspectives for the Medium Term, Dublin; The Economic and Social Research Institute, Chapter 9 — This relationship is taken into account in the preparation of my Department's forecasts. Forecasts for other trading and investment income are based on information made available to my Department on a confidential basis in relation to Central Bank external income, commercial bank interest flows, intervention agency interest payments and semi-state interest payments.