Balance of Payments Accounts
Current Account (CA) records:
- Net exports (exports − imports)
- Net income from abroad
- Net unilateral transfers (gifts, aid)
Capital & Financial Account (CFA) records:
- Financial capital transfers
- Purchases and sales of assets between countries
- Foreign direct investment, portfolio investment
Balance of Payments (BOP) = CA + CFA
Key accounting rule: Credits (money flowing in) must equal debits (money flowing out). CA + CFA = 0 in a closed accounting system.
Surpluses & Deficits:
- CA surplus: current account credits > debits (exports + income received + transfers in > imports + income paid + transfers out) — usually driven by exports > imports, but net income/transfers can flip the sign
- CA deficit: current account debits > credits (payments for imports, income, and transfers exceed receipts) — usually driven by imports > exports, but net income/transfers can flip it
- CFA surplus: capital inflows > outflows
- CFA deficit: capital outflows > inflows
