What is a Net International Investment Position (NIIP)
A net international investment position (NIIP) is a nation’s stock of foreign assets minus its foreign liabilities. The Net International Investment Position (NIIP) is related to Net Foreign Asset (NFA), which is defined as the value of overseas assets owned by a nation minus the value of domestic assets owned by foreigners. The NIIP can therefore be regarded as a nation’s balance sheet with the rest of the world at a specific point in time. NIIP includes overseas assets and liabilities held by a nation’s government, the private sector and its citizens. A negative NIIP figure indicates that a nation’s foreign liabilities exceed its foreign assets, while a positive NIIP figure indicates that its foreign assets exceed its liabilities. Most nations release NIIP figures quarterly.
BREAKING DOWN Net International Investment Position (NIIP)
A nation’s NIIP is a key component of the national balance sheet, since NIIP plus the value of nonfinancial assets is equal to their economy's net worth. In addition, the NIIP together with the balance of payments transactions comprise the economy’s set of international accounts.
The NIIP position 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. Two metrics used to assess the NIIP's size in relation 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.
The NIIP in Action
For an NIIP example, consider the U.S. position as of the second quarter of 2017. This data is published by the Bureau of Economic Analysis and contains a wealth of information on the subject.
The U.S. NIIP was -$7,934.9 billion at the end of the second quarter of 2017, which means that the value of overseas U.S. investments was well below the value of foreign investments in the U.S. Here’s how the numbers stacked up:
- U.S.-owned assets abroad at end-Q2 2017 = $25,937.6 billion
- Foreign-owned assets in the U.S. at end-Q2 2017 = $33,872.5 billion
- Net International Investment Position = a - b = -$7,934.9 billion: the value of overseas assets owned by a nation minus the value of domestic assets owned by foreigners billion