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Modified Current Account 2021

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Modified current account shows surplus of €26bn in 2021

CACA*
2011-2.81-2.831
2012-5.934-5.45
20132.787-1.35
20142.0930.25
201511.5564.186
2016-11.3733.727
20171.4579.816
201816.0078.691
2019-70.77215.058
2020-25.5113.132
202160.65925.97

The modified current account (CA*) shows a surplus for 2021 of €26bn in comparison to €61bn in the unadjusted current account balance (see Figure 2.1). This represents an increase of €13bn on the 2020 CA* surplus of €13.1bn. 

Modified Current Account Adjustment

The modified current account (CA*) is calculated as:

CA*=CA less (depreciation on R&D service imports and trade in IP + aircraft leasing depreciation + redomiciled incomes + R&D related IP exports) adding back (net aircraft related to leasing + R&D related IP imports + R&D service imports)

Due to the small and open nature of the Irish economy with a high concentration of multinational enterprises the effects of globalisation can have a significant impact on Ireland’s economic statistics. This was shown in the 2015 National Accounts and Balance of Payments data which were published in July 2016. Consequently, supplementary statistics that are more appropriate to the measurement of domestic economic activity were requested by the CSO’s Economic Statistics Review Group (ESRG). This included the development of Modified Gross National Income (GNI*) and Modified Current Account (CA*). For more on the development of CA* see our information note A Modified Current Account Balance for Ireland 2008-2018.

CA* excludes the depreciation of foreign-owned domestic capital (such as net imports of IP and imports of research and development (R&D) services). The depreciation on the foreign-owned capital is borne by foreign investors; consequently, it does not affect CA*, which is intended to capture the resources generated by domestic residents. This is especially the case if the relocated capital is not deployed in combination with domestic labour but in combination with overseas workers through contract manufacturing arrangements.

The retained earnings of firms (e.g. redomiciled firms) that are predominantly owned by foreign portfolio investors are not taken into account by CA*either. In fact, in relation to portfolio-type ownership, the net income earned is only recorded as a factor income outflow when a dividend is actually paid to the shareholders. Otherwise, if the entity decides to retain the earnings, the value of the foreign portfolio equity liability increases with the increase in the stock of retained earnings. Since the choice between paying a dividend versus retaining earnings only affects timing of the pay-out to the ultimate foreign owners, CA*is not affected by this decision, for more see the Report of the Economic Statistics Review Group (CSO, 2016).

A further change was made to CA* in November 2017 to exclude the cost of investment in aircraft related to leasing and the cost of R&D related IP from the current account balance. Some firms borrow money abroad from their parent company to finance investment in IP. In the long term this debt is repaid from the profit on the IP or the aircraft being leased. It means that this borrowing is not a liability of residents of Ireland and the purchase of this IP needs to be excluded when deriving CA*.

Since November 2017, it was decided that the revenue from R&D related IP exports and the investment of R&D service imports should be considered when calculating CA*. Moreover, depreciation on net imports of IP and imports of R&D services (e.g. depreciation on R&D service imports and trade in IP) will be used instead of depreciation of IP only. Depreciation of exports of R&D will not be taken into consideration because of the presence of domestic companies providing R&D services within and outside Ireland.

What is the size of the adjustment?

Depreciation on R&D service imports and trade in IPAircraft leasing depreciationRedomiciled PLCs IncomeNet aircraft related to LeasingR&D related IP importsR&D related IP exportsR&D service importsDifference between CA and CA*
2011-4.204-2.425-5.5486.567005.589-0.021
2012-4.94-2.755-7.0977.27008.0060.484
2013-5.374-3.06-6.4744.8070.234-0.0495.779-4.137
2014-5.535-3.783-6.8516.6961.992-1.0746.712-1.843
2015-31.272-4.607-4.6635.16817.804-0.15410.354-7.37
2016-37.477-4.865-5.787.13746.053-1.96711.99915.1
2017-44.153-5.227-4.45711.54741.477-4.50813.688.359
2018-47.885-6.529-4.91215.30719.757-0.7417.686-7.316
2019-52.833-8.634-4.86216.086116.004-0.93321.00285.83
2020-66.71-9.709-4.2569.94897.69-13.10924.78838.642
2021-69.828-9.796-9.97910.21818.286-1.29727.707-34.689

From 2011 to 2012 there was an increase in the global income returned to the Irish headquarters of redomiciled firms (+€1,549m), as continued amounts of firms moved to Ireland from the UK, US and Bermuda, for more detail see the chapter on Redomiciled PLCs 2021

From 2014 to 2015, the contribution of depreciation on R&D service imports and trade in IP increased from €5,535m to €31,272m, again centred around the relocation of these assets to Ireland. From 2020 to 2021, the sum of both depreciation of R&D service imports and trade in IP and aircraft leasing depreciation, redomiciled incomes and the disinvestment in R&D related IP exports decreased from €93,784m to €90,900m.

This gap becomes more pronounced when the investment in R&D service imports, the cost of investment in net aircraft related to leasing and the cost of R&D related to IP imports are added. The net effect of the adjustment to CA* has changed from €38,642m in 2020 to -€34,689m in 2021.

Show Table: Table 2.1 Effect on CA of IP Depreciation, Aircraft Leasing Depreciation, Redomiciled PLCs Income, Imports of Aircraft related to Leasing and R&D related IP Imports

From 2015 to 2016, the gap between CA and CA* increased from -€7,370m to €15,100m. This is strongly associated with the imports of R&D related IP. The decrease in the current account balance from 2015 (€11,556m) to 2016 (-€11,373m) is adjusted to €4,186m and €3,727m under the modified measure, CA*. Finally, the increase in the current account balance from 2020 (-€25,510m) to 2021 (€60,659m), mainly due to a decrease of R&D related IP imports in 2021, is adjusted to €13,132m and €25,970m under the modified measure CA*.

Where precisely does this affect the CSO’s balance of payments data?

The ESRG recommended showing the cost of the types of depreciation discussed above outside Ireland. This would give rise to higher multinational profits in Ireland, which would then be shown flowing out under direct investment rules (BPM6), similarly the global income of redomiciled headquartered firms was recommended to be redistributed to non-resident owners, whether paid out under dividends or not. This also adds to increased outflows of direct investment income. The adjusted current account measure also removes R&D service imports and R&D related IP exports from the current account balance resulting in the reduction of imports in the balance of payments. These adjustments and their effect on CA* by component for 2021 are shown in the Table 2.2.

Show Table: Table 2.2 CA* derivation, 2021