What is a Net International Investment Position (NIIP)?
A net international investment position (NIIP) can be viewed as a nation’s balance sheet with the rest of the world at a specific point in time, in that it measures the gap between a nation’s stock of foreign assets and foreigner's stock of that nation's assets.
- A net international investment position (NIIP) can be viewed as a nation’s balance sheet with the rest of the world at a specific point in time, in that it measures the gap between a nation’s stock of foreign assets and foreigner's stock of that nation's assets.
- NIIP is an important barometer of a nation’s financial condition and creditworthiness.
- A nation with a positive NIIP is a creditor nation, while a nation with a negative NIIP is a debtor nation.
Understanding a Net International Investment Position (NIIP)
Net international investment position (NIIP) includes overseas assets and liabilities held by a nation’s government, the private sector and its citizens. The net International Investment position (NIIP) is analogous to net foreign asset (NFA), which determines whether a country is a creditor or debtor nation by measuring the difference in its external assets and liabilities. Most nations release NIIP figures quarterly.
A nation’s NIIP is a key component of the national balance sheet, since NIIP plus the value of non-financial assets is equal to their economy's net worth. The NIIP, coupled with the balance of payments transactions, reflects the domestic economy’s set of international accounts.
The NIIP position is an important barometer of a nation’s financial condition and creditworthiness. A negative NIIP figure indicates that a foreign nations own more of the domestic nation’s assets than the domestic nation does of foreign assets, thus making it a debtor nation. Conversely, a positive NIIP figure indicates that the domestic nation's ownership of foreign assets is greater than foreign nation's ownership of that domestic nation's assets, thus making it a creditor nation.
Two metrics used to assess the NIIP's size relative to the economy's size are the ratio of NIIP to GDP and the ratio of NIIP to the economy’s total financial assets, both expressed as a percentage.
In the NIIP, assets are divided into direct investment, portfolio investment, other investment, and reserve assets (which include foreign currencies, gold, and special drawing rights). Liabilities are reported with the same classification, except for “reserve assets,” which have no equivalent on the liabilities side.
U.S. NIIP (Q1-2019)
For a NIIP example, consider the U.S. position as of the first quarter of 2019. This data is published by the Bureau of Economic Analysis and contains a wealth of information on the subject.
The U.S. NIIP at the end of the first quarter of 2019 was $9.93 trillion, a decrease from its prior reading of $9.55 trillion at the end of the fourth quarter of 2018. This means that the difference in the value of foreign assets owned by U.S. fell further below the value of U.S. assets owned by foreign nations. Here’s how the numbers stacked up:
- Foreign assets owned by the U.S. at end-Q1 2019 = $27,137.6 billion
- U.S. assets owned by foreign nations at end-Q1 2019 = $37,066.7 billion
- Net International Investment Position = $9,929.1 billion, or ~($9.93 trillion)