BALANCE OF PAYMENTS

UNDERSTANDING BALANCE OF PAYMENTS.

THE CURRENT ACCOUNT BALANCE IS THE DIFFERENCE BETWEEN CURRENT RECEIPTS FROM ABROAD AND CURRENT PAYMENTS TO ABROAD.

WHEN THE CURRENT ACCOUNT IS POSITIVE, THE COUNTRY CAN USE THE SURPLUS TO REPAY FOREIGN DEBTS, TO ACQUIRE FOREIGN ASSETS OR TO LEND TO THE REST OF THE WORLD.

WHEN THE CURRENT ACCOUNT BALANCE IS NEGATIVE, THE DEFICIT WILL BE FINANCED BY BORROWING FROM ABROAD OR BY LIQUIDATING FOREIGN ASSETS ACQUIRED IN EARLIER PERIODS.

CURRENT ACCOUNT TRANSACTIONS CONSIST OF EXPORTS AND IMPORTS OF GOODS; EXPORTS AND IMPORTS OF SERVICES SUCH AS TRAVEL, INTERNATIONAL FREIGHT AND PASSENGER TRANSPORT, INSURANCE AND FINANCIAL SERVICES; INCOME FLOWS CONSISTING OF WAGES AND SALARIES, DIVIDENDS, INTEREST AND OTHER INVESTMENT INCOME; AND CURRENT TRANSFERS SUCH AS GOVERNMENT TRANSFERS, WORKER’S REMITTANCES AND OTHER TRANSFERS SUCH AS GIFTS, INHERITANCES AND PRIZES WON FROM LOTTERIES.

INVESTMENT INCOME INCLUDES RETAINED EARNINGS OF FOREIGN SUBSIDIARIES.

SOURCE : FDI AND BALANCE OF PAYMENTS – OECD FACTBOOK 2011.

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