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Balance of Payments

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The balance of payments is an accounting document that records commercial, service and capital movements of a country abroad.

The balance of payments is a macroeconomic indicator that provides information on the economic situation of the country in a general way. That is, it allows to know all the income that a country receives from the rest of the world and the payments that such country makes to the rest of the world due to imports and exports of goods, services, capital or transfers over a period of time.

Balance of payments structure

Within the balance of payments there are four main accounts:

- Current account balance: This balance is the most important since it's the most used to know the state of a country's economy. This includes imports and exports of goods and services, in addition to income and transfers. In turn, it's subdivided into four sub-accounts: trade balance, service balance, income balance and transfer balance.
- Capital account balance: The movement of capital is recorded, for example, aid coming from abroad or the purchase and sale of non-financial goods.
- Financial account balance: The loans requested by a country abroad are collected, the investments or deposits made by foreign countries to a country.
- Errors and omissions account: This account is included given the difficulty of calculating with extreme precision the total exports and imports of a country.

Deficit and surplus in the balance of payments

Each of these scales gives an independent balance that can be positive or negative:

- Surplus: In the event that the balance of a type of balance is positive we will be talking about the balance being in surplus.
- Deficit: If the balance is negative.

However, the balance of each of these balances alone isn't sought, but the overall balance of the balance of payments. Therefore, the balance of payments will always be in equilibrium, for example a deficit in the current account balance will be offset by a capital account surplus. Since if a country has more purchases than sales, money must be obtained from somewhere, either through foreign investments or loans.


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