Balance Payments

• Current Accounts (movements of items, G+S)1

  • Trade in goods and services +
  • Trade in services
  • =Trade in balance
  • -Investment income (from assets abroad)
  • -Transfers (aid, EU, contributions)
  • =Income balance
• Financial Account (short-term)2

  • Flows of money (regularly)
  • Buying and selling of financial assets (bonds, shares)
  • Foreign Direct Investment (FDI)
  • Reserves of gold or currency
• Capital Account (Long-term)3

  • Flows of money (long term)
  • Debt forgiveness
  • Inheritance taxes
• Net errors and omissions (correction)4

  • Balances the books, anything missed
• • Surplus = more inflow than outflow
• • Deficit: more outflow than inflow
• • Zero sum effect. E.g. If one country is in surplus the other is in deficit. One team wins the other losses
• Current Account


  1. Trade in goods account: money in/out due to imports vs exports of tangible goods
  2. Trade in services: money in/out due to imports vs exports of tangible services.
  3. Primary incomes: money in/out due to investment or employment, deposits in foreign banks + interest payments, business subsidies overseas with profits to the domestic companies.
  4. Secondary income: "other" movements or money, foreign aid, EU memberships fees, payments sent to family members abroad