Balance of payments
The balance of payments is a record of a country’s transactions with the rest of the world. It consists of three accounts: the current account, the capital account and the financial account.
The current account reflects a country’s imports and exports of goods, services, and income. It includes:
- Trade in goods: exports and imports of physical goods, such as raw materials, manufactured products, and agricultural products.
- Trade in services: exports and imports of intangible services, such as tourism, transportation, and financial services.
- Income: payments for labour, capital, and other factors of production between countries.
The capital and financial account reflects a country’s transactions in financial assets, such as stocks, bonds, and loans. It includes:
Capital account: transactions in non-financial assets, such as investments in real estate, patents, and trademarks.
Financial account: transactions in financial assets, such as purchases and sales of stocks, bonds, and loans.
Together, the current, capital and financial accounts show the net balance of a country’s transactions with the rest of the world. If a country’s exports exceed its imports, it has a trade surplus and a positive balance of payments. If its imports exceed its exports, it has a trade deficit and a negative balance of payments.