The International Monetary Fund (IMF) has issued a Working Paper (WP/07/87) on the **“Concept of Offshore Financial Centers: In Search of an Operational Definition”**.

The Working Paper proposes a new definition of Offshore Financial Centers (OFCs) and develops a statistical method **to differentiate between OFCs and non-OFCs** using data from the Coordinated Portfolio Investment Survey (CPIS), the International Investment Position (IIP), and the balance of payments. The suggested methodology identifies more than 80 percent of the OFCs in the study sample that also appear in the a priori list used by the IMF to conduct its OFC assessment program. The methodology distinguishes OFCs based strictly on their macroeconomic features and avoids subjective presumptions on their activities or regulatory frameworks. The study also identifies three new countries meeting OFC criteria – Latvia, the United Kingdom and Uruguay.

**Proposed Definition**

The Working Paper maintains that the current definitions of OFCs do not adequately capture the intrinsic feature of the OFC phenomenon, which is its raison d’être—the provision of financial services to nonresidents, namely, exports of financial services. The peculiarity of OFCs is that they have specialized in the supply of financial services on a scale far exceeding the needs and the size of their economies. Therefore, the following definition attempts to capture that feature so characteristic of OFCs.

*”An OFC is a country or jurisdiction that provides financial services to nonresidents on a scale that is incommensurate with the size and the financing of its domestic economy.”*

The study claims that consistent with the proposed definition, an indicator of the OFC status of a country or jurisdiction would relate the level of its net exports of financial services to a measure of its national income or domestic financing needs. More specifically, it can be considered that:

*”The ratio of net financial services exports to GDP could be an indicator of the OFC status of a country or jurisdiction.”*

The author points out that the issue of an objective definition is of crucial importance to the work of the IMF. *”Indeed, the IMF has been carrying out a program of OFC assessments with an initial list of OFCs based on an FSF list that includes IMF member countries and non-member OFCs.”* It is pointed out that since the OFC assessment program is voluntary and relies on a cooperative effort to enhance the supervisory capacity of the assessed jurisdictions, enshrining the eligibility in the program through objective and mutually acceptable criteria will go a long way toward promoting participation in, and ownership of, the assessment programs and the ensuing reforms.

*Note: WP/07/87 was prepared by Mr. Ahmed Zoromé of the Monetary and Capital Markets Department of the IMF, and published with a disclaimer that the views expressed are those of the author and do not necessarily represent those of the IMF or IMF policy. IMF Working Papers describe research in progress and are published to elicit comments and to further debate.*