Balance of payments

The current account balance is the difference between current receipts from abroad and current payments to abroad. When the current account of the balance of payments is positive, the country can use the surplus to repay foreign debts 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.

Definition

The current account balance is the difference between a country’s current transactions with the rest of the world and its current payments to the rest of the world. Current transactions consist of exports and imports of goods; exports and imports of services such as tourism, international freight and passenger transport, insurance and financial services; income consisting of wages and salaries, dividends, interest and other property income; and transfers.

Note that property income includes retained earnings of foreign-owned subsidiaries. All earnings of foreign-owned subsidiaries are treated as if they were remitted abroad and the part which is actually retained in the country where the subsidiary is located is then shown as a re-investment flow in the capital account.

Comparability

The data in this table are taken from balance of payments statistics compiled according to the International Monetary Fund (IMF) Balance of Payments Manual (BPM5). The IMF closely monitors balance of payments statistics reported by its member countries through regular meetings of balance of payments compilers. As a result, there is relatively good comparability across countries.

Because all earnings of foreign-owned subsidiaries are treated as though they are remitted even though a large part may in practice be retained by the subsidiaries in the countries where they are located, the existence of foreign-owned subsidiaries in an economy will tend to reduce its current account balance.