So what is NIIP? NIIP is the difference between a country’s
- external financial assets (including assets held abroad by a country’s residents and corporate affiliates); and
- liabilities of that country (including Government and private debt, and corporate shares by foreign nationals).
The following chart sets out the NIIP of countries readers are likely to find interesting:
|Countries||Date||GDP (US$MM)||Date||NIIP (US$MM)||Date||NIIP (%GDP)|
|China, People’s Republic||2021||16,642,318||2021Q1||+2,140,041||2021||12.9|
So what does a scan of the above numbers tell us?
There are a number of NIIP superstars, countries which have NIIP’s in excess of 100%. These include Hong Kong, Singapore, Norway, Netherlands, etc. These countries are not only affluent; high NIIP also provides resilience to weather crises.
Then there are the NIIP stragglers, like Montenegro, Greece, and surprisingly Ireland, that have NIIP’s of less than -100%. (Ireland is apparently a special case, driven by the decisions od multinationals to domicile intellectual property there). In times of crisis, especially if foreigners were to liquidate their positions in those countries’ assets, those countries could fare quite negatively.
Interesting to note that Central European countries are typically mid to lower end of the, with Austria slightly positive (13.4%), Czech Republic and Slovenia slightly negative (-9.6% and -12.5% respectively), then Hungary, Poland and Croatia (in the -40 to -50% range), with Bulgaria and Romania further behind.
While Japan has a respectable NIIP as a percentage of GDP (62.8%), the substantial size of its economy gives it the single largest NIIP in absolute terms (USD 3.376 trillion).
It is interesting also to note the position of the major powers: US, China and Russia. Both Russia and China are have positive NIIP’s, while the US has a whopping -64.9% NIIP. This may be considered surprising, given the vast debt and equity holding of US institutions (including multinationals) abroad, but the level of US debt held by foreigners, and holdings in US shares by foreigners is even larger. While substantially negative US NIIP is not likely to be a cause for concern in the short-term, thanks to a positive spread between what US investors earn abroad compared to what foreign investors earn in the US, the US could be put into a very tough spot if interest rates were to suddenly experience a major rise. Also, the trend in US NIIP has been negative over time—if the trend continues, there may come a point where foreign investors lose confidence. If you look at the chart above, the absolute number of US NIIP is so overwhelming (some USD 14 trillion), a loss of confidence would have global ramifications.
NIIP can be an interesting tool or metric for future:
- when doing an acquisition or investment, it could be useful to know the NIIP of the country in which you are investing, from a risk management perspective.
- A measure of government performance is debt as a percentage of GDP. Perhaps NIIP would be at least as useful a metric.