Relationship between accounts
The IB exams will use a standard structure for the balance of payments. This will be as follows:
| Credits (+), Debits (-) | $m (2011) | |
|---|---|---|
| Current account | ||
| 1 | Exports of goods | 555 |
| 2 | Imports of goods | -635 |
| 3 | Balance of trade in goods | -80 |
| 4 | Exports of services | 185 |
| 5 | Imports of services | -215 |
| 6 | Balance of trade in services | -30 |
| 7 | Income receipts (investment income) | 225 |
| 8 | Income payments (investment income) | -215 |
| 9 | Net income receipts (investment income) | 10 |
| 10 | Current transfers (net) | -35 |
| 11 | Net income flows | -25 |
| 12 | Current account balance | -135 |
| Capital account | ||
| 13 | Capital account transactions (net) | 25 |
| Financial account | ||
| 14 | Direct investment, net | 55 |
| 15 | Portfolio investment, net | -15 |
| 16 | Reserve assets funding | 45 |
| 17 | Errors and omissions | 25 |
| 18 | Capital and financial account balance | 135 |
The balance of payments should balance. All inflows of money into the country should be matched by an equivalent outflow (across all the accounts - current, capital and financial). In practice, this is simply not going to happen. There are so many transactions and they are so complex that it would be impossible to record them all accurately. As a result a figure is added in for errors and omissions to ensure that the balance of payments balances.
This means that the relationship between the accounts is as follows:
Current account = capital account + financial account + errors and omissions
Task - Balance of payments
Go to the national statistics for the country where you live (or another of your choice) and identify the balance of payments figures for recent years. To find the National Statistics sites for different countries, you could use the OFFSTATS site. Select the country you require under the 'Browse' link. This will give links usually to the National Statistics provider for each country. Consider the changes that have taken place and assess how these might have affected the economy. Reflect on the questions below:
- Has your chosen country been running a persistent current account deficit or surplus? Consider the likely impact on economic policy of this situation.
- Is the capital transfers figure a net credit or a net debit? Assess the extent to which this might be related to net immigration or emigration figures.
- Does your chosen country have a net credit or a net debit on the financial account? Are they a net investor overseas? Assess the extent to which this is related to the net income receipts or payments figures.
