Understanding Balance of Payments Components

Current Contribution Balance

Balance of Trade or Merchandise: Includes transactions of goods between countries, i.e., imports and exports. The balance of goods includes the export and import of merchandise, excluding insurance. The value of exports is recorded in the income column and the value of imports in the payment column. Transactions of the balance of goods are counted as income, payments, and balances.

• Foreign currency receipts from the sale of goods and exports are termed Exports.
• Payments, also in foreign currency, result from purchases of goods and imports, termed Imports.

The balance is obtained by the difference between export receipts and import payments.

The Services Account

The Services Account (CS) includes exports and imports of services (e.g., tourism, transport, and others). The export and import of services have the same effect on gross national income as that of goods.

The Income Account

The Income Account (CR) consists mainly of gains from investments abroad. In the income account, financial capital income obtained in other countries, other than the owner's residence, is recorded.

The Current Transfers Account (CTC)

The CTC collects transactions without counterparts and includes accounts of goods, services, income, and transfers.

The Current Account Balance

The sum of account balances of goods, services, income, and transfers is the Current Account Balance. When the current account has a surplus, claims on the exterior increase, and the economy is paying the rest of the world.

Balance, Capital Account

There are two types of transactions in the Capital Account:

1. Unilateral capital transfers without consideration that do not alter the gross national disposable income, such as the movements of funds generated by liquidating the assets of emigrants.
2. The acquisition and disposal of nonfinancial assets that are not produced, such as land or subsoil resources, as well as transactions related to intangible assets like patents, copyrights, and trademarks.

Financial Account

• Direct Investment: This is considered a Direct Investment (ID) if the investor intends to maintain a stable presence in the company invested, reaching a significant degree of influence over its management or bodies.
• Portfolio Investment: These are transactions in securities, excluding those classified as direct investment.
• Other Investments: Including loans tied to commercial and financial operations, distinguishing between the short and long term.
• Change in Reserves: Reserves are the foreign exchange holdings of a country and other assets that can be used to satisfy the demands for foreign currency and position the country as an external creditor, since these represent claims on the world.