Balance of Payments
The balance of payments (BoP) is a systematic record of all economic transactions between the residents of a country and the rest of the world over a given period, usually a year. It is a key indicator of a country's international economic position and is closely linked to the exchange rate and macroeconomic policy.[1]
Structure
The balance of payments is divided into several accounts:
| Account | Records |
|---|---|
| Current Account | Trade in goods and services, primary income, and secondary income (transfers). |
| Capital Account | Capital transfers and the acquisition or disposal of non-produced, non-financial assets. |
| Financial account | Transactions in financial assets and liabilities. |
| Net errors and omissions | A residual to balance the accounts. |
By construction, the current and capital accounts plus the financial account must sum to zero, so that any current account deficit is matched by a corresponding surplus in the financial (or capital) account.[1]
Interpretation
A current account deficit means that a country is importing more than it exports (including income and transfers), and is therefore borrowing from abroad or selling assets. A current account surplus means the opposite. Persistent imbalances may indicate underlying structural issues, such as competitiveness problems or excessive domestic demand.[1]