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Glossary

Balance of Payments (BoP)
The balance of payments (BoP) is the part of the national accounts where are reported all the payments by residents and their receipts from non-residents resulting from the international transactions that take place during a given period.
 
Most entries in the balance of payments refer to transactions in which economic values are provided or received in exchange for other commensurate values, for instance goods or services exchanged against payment. Other entries such as unilateral donations or grants, remittances or forgiveness of debt, however, are given away rather than exchanged, and are offset by entries referred to as transfers.
 
The standardized data structure of the balance of payments (see BoP standard components) provides a means to compare and analyze key elements of the economy over time, and between different countries.
 
The balance of payments shares with commercial accounting some key bookkeeping principles.
  • It captures the transaction flows that may increase or decrease the country's wealth, and not the stock of wealth itself, in the same manner as a company's operating (or profit and loss) statement tracks receipt and expense flows, as opposed to the balance sheet that reports the stocks of the company's wealth.
  • It is a double-entry bookkeeping system: every entry to an account requires a corresponding and opposite entry to a different account. One of these entries is designated a credit with a positive arithmetic sign; the other is designated a debit with a negative sign. For instance, an export paid cash is entered as a credit to the exports account, and as a debit to the financial account. For real or financial assets, a positive figure (credit) represents a decrease in holdings, and a negative figure (debit) represents an increase. In contrast, for liabilities, a positive figure shows an increase, and a negative figure shows a decrease. Transfers are shown as credits when the entries to which the transfers provide the offsets are debits and as debits when those entries are credits.
  • The balance of payments is by definition always balanced. The words balance of payments deficit or surplus usually refer to its current account section. Indeed, when a country runs a current account surplus, this export surplus is compensated by a proportionate "import" of I-owe-yous (debt notes) from its foreign partners, and vice-versa, thus achieving a balanced status. In principle, the sum of all credits is identical to the sum of all debits, giving a zero net balance of all entries. In reality, however, the accounts frequently do not balance (possibly for reason of valuation discrepancies), and a separate entry (net errors and omissions), equal to the net credit or net debit amount with the sign reversed, is made to balance the accounts.
 
In recording an economy's transactions with the rest of the world, balance of payments accounts are divided into two groups:
  • the current account, which records transactions in goods, services, primary income ¹, and secondary income ².
  • the capital and financial account, which records
    • (a) capital transfers³ receivable and payable between residents and nonresidents, acquisition or disposal of nonproduced, nonfinancial assets ⁴; and
    • (b) transactions in financial assets and liabilities, classified according to the functional categories, sectors, instruments, and maturities used for net international financing transactions.

Balance of Payments - Overview

CreditsDebitsBalance
Current account
Goods and services54049941
Goods46239270
Services78107-29
Primary income ¹504010
Compensation of employees62
Interest1321
Distributed income of corporations1717
Reinvested earnings140
Rent00
Secondary income ²1755-38
Current taxes on income, wealth, etc.10
Net nonlife insurance premiums211
Nonlife insurance claims123
Current international cooperation131
Miscellaneous current transfers110
Adjustment for change in pension entitlements
Current account balance13
Capital account
Acquisitions / disposals of nonproduced nonfinancial assets ³00
Capital transfers ⁴14
Capital account balance-3
Net lending (+) / net borrowing (-) (from current and capital accounts)10
Financial account (by functional category)Net acquisition of financial assetsNet incurrence of liabilitiesBalance
Direct investment811
Portfolio investment1814
Total changes in assets / liabilities30
Other investment2022
Reserve assets8
Total changes in assets/liabilities5747
Net lending (+) / net borrowing (-) (from financial account)10
Net errors and omissions0
 
Notes :
  1. Primary income : amounts payable and receivable in return for providing temporary use to another entity of labor, financial resources, or nonproduced nonfinancial assets.
  2. Secondary income : redistribution of income, that is, when resources for current purposes are provided by one party without anything of economic value being supplied as adirect return to that party. Examples include personal transfers and current international assistance.
  3. Nonproduced, nonfinancial assets consist of: (a) natural resources; (b) contracts, leases, and licenses; and (c) marketing assets (and goodwill).
  4. Capital transfers are transfers in which the ownership of an asset (other than cash or inventories) changes from one party to another; or which obliges one or both parties to acquire or dispose of an asset (other than cash or inventories); or where a liability is forgiven by the creditor.
 
The linkages between the total economy and balance of payments flows can be explored by the use of key algebraic equations:

GDP = C + G + I + X - M 

GNDY = C + G + I + CAB

S = GNDY - C - G

S = I + CAB

  • when:
  • GDP = gross domestic product
  • C = private consumption expenditure
  • G = government consumption expenditure
  • I = gross domestic investment
  • X = exports of goods and services
  • M = imports of goods and services
  • X - M = trade balance in the balance of payments
  • GNDY = gross national disposable income
  • S = gross domestic savings
  • CAB = current account balance in the balance of payments

CAB = X - M + NY + NCT

CAB = S - I

CAB = (Sp + Sg) - (Ip + Ig)

CAB = GNDY - (C + G + I)

  • when:
  • NY = net income from abroad
  • NCT = net current transfers
  • Sp = gross domestic private savings
  • Sg = gross domestic government savings
  • Ip = gross domestic private investment
  • Ig = gross domestic government investment

NFI = S - I + NKT - NPNNA

NFI = CAB + NKT - NPNNA

CAB = NKA + RT

S - I = NKA + RT

S - I = CAB = TB + SIB + TRANB = NKA + RT

  • when:
  • NFI = net foreign investment or net lending/net borrowing relative to the rest of the world
  • NKT = net capital transfers
  • NPNNA = net purchases of nonproduced, nonfinancial assets
  • NKT = NPNNA = balance on the capital account of the balance of payments
  • NKA = net capital and financial account (i.e., all capital and financial transactions excluding reserve assets)
  • RT = reserve asset transactions
  • TB = trade balance
  • SIB = service and income balance
  • TRANB = current transfer balance
 
By applying regular algebraic operations to the equations above, one can explore the likely causes of payments imbalances, how do imbalances impact national wealth, external debt status, income payments, changes in countries' stocks of external assets and liabilities, and viability of financial flows, as well as to evaluate possible adjustments more economy friendly, and more people amicable.
 
Sources: Balance of Payments and International Investment Position Manual (BPM6), IMF - International Monetary Fund, Washington D.C. 2011, and Balance of Payments Manual, 5th edition, IMF - International Monetary Fund, Washington D.C. 1993.

Balance of Payments: Standard Components  Go to top

ComponentsCreditDebit
  1. Current account
    1. Goods and services
      1. Goods
        1. General merchandise
        2. Goods for processing
        3. Repairs on goods
        4. Goods procured in ports by carriers
        5. Nonmonetary gold
          1. Held as a store of value
          2. Other
      2. Services
        1. Transportation
          1. Sea transport
            1. Passenger
            2. Freight
            3. Other
          2. Air transport
            1. Passenger
            2. Freight
            3. Other
          3. Other transport
            1. Passenger
            2. Freight
            3. Other
        2. Travel
          1. Business
          2. Personal
        3. Communications services
        4. Construction services
        5. Insurance services
        6. Financial services
        7. Computer and information services
        8. Royalties and license fees
        9. Other business services
          1. Merchanting and other trade-related services
          2. Operational leasing services
          3. Miscellaneous business, professional, and technical services
        10. Personal, cultural, and recreational services
          1. Audiovisual and related services
          2. Other cultural and recreational services
        11. Government services n.i.e.
    2. Income
      1. Compensation of employees
      2. Investment income
        1. Direct investment
          1. Income on equity
            1. Dividends and distributed branch profits
            2. Reinvested earnings and undistributed branch profits
          2. Income on debt (interest)
        2. Portfolio investment
          1. Income on equity (dividends)
          2. Income on debt (interest)
            1. Bonds and notes
              1. Financial intermediation charge indirectly measured*
              2. Other interest
            2. Money market instruments and financial derivatives
        3. Other investment
          1. Financial intermediation charge indirectly measured*
          2. Other interest
          3. Imputed income to households from net equity in life insurance reserves and in pension funds*
    3. Current transfers
      1. General government
        1. Current taxes on income, wealth etc.*
        2. Other taxes on production*
        3. Other subsidies on production*
        4. Social contributions*
        5. Social benefits*
        6. Other current transfers of general government*
      2. Other sectors
        1. Workers' remittances
        2. Other transfers
          1. Current taxes on income, wealth, etc.*
          2. Other taxes on production*
          3. Other subsidies on production*
          4. Social contributions*
          5. Social benefits*
          6. Other current transfers of other sectors*
  2. Capital and Financial Account
    1. Capital account
      1. Capital transfers
        1. General government
          1. Debt forgiveness
          2. Other
        2. Other
          1. Migrants' transfers
          2. Debt forgiveness
          3. Other
      2. Acquisition/disposal of nonproduced, nonfinancial assets
    2. Financial account
      1. Direct investment
        1. Abroad
          1. Equity capital
            1. Claims on affiliated enterprises
            2. Liabilities to affiliated enterprises
          2. Reinvested earnings
          3. Other capital
            1. Claims on affiliated enterprises
              1. Debt securities issued by affiliated enterprises*
              2. Other claims on affiliated enterprises*
            2. Liabilities to affiliated enterprises
              1. Debt securities issued by direct investors*
              2. Other liabilities of direct investors*
        2. In reporting economy
          1. Equity capital
            1. Claims on direct investors
            2. Liabilities to direct investors
          2. Reinvested earnings
          3. Other capital
            1. Claims on direct investors
              1. Debt securities issued by direct investors*
              2. Other claims on direct investors*
            2. Liabilities to direct investors
              1. Debt securities issued by affiliated enterprises*
              2. Other liabilities to direct investors*
      2. Portfolio investment
        1. Assets
          1. Equity securities
            1. Monetary authorities
            2. General government
            3. Banks
            4. Other sectors
          2. Debt securities
            1. Bonds and notes
              1. Monetary authorities
              2. General government
              3. Banks
              4. Other sectors
            2. Money market instruments
              1. Monetary authorities
              2. General government
              3. Banks
              4. Other sectors
            3. Financial derivatives
              1. Monetary authorities
              2. General government
              3. Banks
              4. Other sectors
        2. Liabilities
          1. Equity securities
            1. Banks
            2. Other sectors
          2. Debt securities
            1. Bonds and notes
              1. Monetary authorities
              2. General government
              3. Banks
              4. Other sectors
            2. Money market instruments
              1. Monetary authorities
              2. General government
              3. Banks
              4. Other sectors
            3. Financial derivatives
              1. Banks
              2. Other sectors
      3. Other investment
        1. Assets
          1. Trade credits
            1. General government
              1. Long-term
              2. Short-term
            2. Other sectors
              1. Long-term
              2. Short-term
          2. Loans
            1. Monetary authorities
              1. Long-term
              2. Short-term
            2. General government
              1. Long-term
              2. Short-term
            3. Banks
              1. Long-term
              2. Short-term
            4. Other sectors
              1. Long-term
              2. Short-term
          3. Currency and deposits
            1. Monetary authorities
            2. General government
            3. Banks
            4. Other sectors
          4. Other assets
            1. Monetary authorities
              1. Long-term
                1. Prepayments of premiums and reserves against outstanding claims*
                2. Other assets*
              2. Short-term
            2. General government
              1. Long-term
                1. Prepayments of premiums and reserves against outstanding claims*
                2. Other assets*
              2. Short-term
            3. Banks
              1. Long-term
                1. Prepayments of premiums and reserves against outstanding claims*
                2. Other assets*
              2. Short-term
            4. Other sectors
              1. Long-term
                1. Net equity of households in life insurance reserves and in pension funds*
                2. Prepayments of premiums and reserves against outstanding claims*
                3. Other assets*
              2. Short-term
        2. Liabilities
          1. Trade credits
            1. General government
              1. Long-term
              2. Short-term
            2. Other sectors
              1. Long-term
              2. Short-term
          2. Loans
            1. Monetary authorities
              1. Use of Fund credit and loans from the Fund
              2. Other long-term
              3. Short-term
            2. General government
              1. Long-term
              2. Short-term
            3. Banks
              1. Long-term
              2. Short-term
            4. Other sectors
              1. Long-term
              2. Short-term
          3. Currency and deposits
            1. Monetary authorities
            2. Banks
          4. Other liabilities
            1. Monetary authorities
              1. Long-term
              2. Short-term
            2. General government
              1. Long-term
              2. Short-term
            3. Banks
              1. Long-term
              2. Short-term
            4. Other sectors
              1. Long-term
                1. Net equity of households in life insurance reserves and in pension funds*
                2. Prepayments of premiums and reserves against outstanding claims*
                3. Other liabilities*
              2. Short-term
      4. Reserve assets
        1. Monetary gold
        2. Special drawing rights
        3. Reserve position in the Fund
          1. Deposits*
          2. Loans*
        4. Foreign exchange
          1. Currency and deposits
            1. With monetary authorities
            2. With banks
          2. Securities
            1. Equities
            2. Bonds and notes
            3. Money market instruments and financial derivatives
        5. Other claims
          1. Currency and deposits*
          2. Securities*
            1. Equities*
            2. Debt securities*
*Details necessary for reconciliation with classifications used in the SNA Rest of the World Account

Extracted from: Balance of Payments Manual, IMF - International Monetary Fund, https://www.imf.org/external/np/sta/bop/BOPman.pdf