MBA (General)IV – Semester, International Business Unit II
Components of the Balance of Payments
Balance of payments statistics must be arranged within a coherent structure to facilitate their utilization and adaptation for multiple purposes (policy formation, analytical studies, projections, bilateral comparisons of particular components or total transactions, regional and global aggregations, etc.).
Components of the Balance of Payments
Balance of
payments statistics must be arranged within a coherent structure to facilitate their utilization and adaptation for multiple purposes (policy
formation, analytical studies, projections, bilateral comparisons of particular components or total transactions, regional and global aggregations, etc.). The IMF requires member countries (all 197 member countries) to provide information
on their BOP statistics in accordance with the
provisions of Article
8 Paragraph 5 of the IMF Agreement. The basic
principles are given in the Balance of Payments Manual, fifth edition
(BPM5) issued by the IMF in the year 1993. The
BPM5 establishes the standard international
rules for the compilation of BOP statistics
and provides guidelines on the reporting format to the IMF, which was decided on the objectives of large
number of users
after comprehensive discussions and feedbacks of member countries. The balance of payment is a collection of accounts
conventionally grouped into three
main categories. In other words, within the balance of payments there are three separate categories under which different transactions are categorized. They are:
A. The Current Account:
It
records a nation’s
total exports of goods, services
and transfers, and its total imports of them
B. The Capital Account:
It
records all public
and private investment and lending activities.
C. The Official Reserve
Account: It measures the changes in holdings of gold and foreign currencies
(reserve assets) by official monetary
institutions.
The difference in above 1 and 2 is termed as ‘basic balance’. The RBI refers to it as overall balance. The IMF introduced the notion of overall balance in, which all transactions other than those involving reserve assets were to be “above the line”. However, depending on the context and purpose for which the balance is used, several concepts of balance have developed. They are trade balance (BOT), balance of invisibles (BOIs), current account balance, balance on current account and long-term capital.
