Significance of BOP Data

Balance of payments data of home country and host country are have significance to government officials, international business managers, investors, and consumers, because such data influence and are influenced by other key macroeconomic variables such as gross domestic product (GDP), employment, price levels, exchange rate, and interest rates. Therefore balance of payments may be used as an indicator of economic and politicalstability. For example, if a country hasa consistently positive BOP, thiscould mean thatthere is significant foreign investment within that country. It may alsomean that the country does not export much of its currency.

The Balance of payment of Manual published by the International Monetary Fund (IMF), i.e., IMF is the primary source of BoP and similar statistics data worldwide. It prepares balance of payments manual and publishes the same in a Balance of Payments Year Book.

Monetary and fiscal policy must take the BOP into account at the national level. Multinational businesses use various BOP measures to gauge the growth and health of specific types of trade or financial transactions by country and regions of the world against the home country

Businesses need BOP data to anticipate changes in host country’s economic policies driven by BOP events. BOP data may be important for the following reasons:

a) BOP indicates a country’s financial position vis-à-vis foreign countries, thereby a country’s ability to buy foreign goods or services.

b) BOP is important indicator of pressure on a country’s exchange rate, and thus on the potential of a firm trading with or investing in that country to experience foreign exchange gains or losses. Changes in BOP may presage the impositions of foreign exchange controls.

c) BOP data helps in knowing the changes in a country’s BOP may also signal imposition (or removal) of controls over payments, dividends, and interest, license fees, royalty fees, or other cash disbursements to foreign firms or investors.

d) BOP data helps to forecast a country’s market potential, especially in the short- run. A country experiencing a serious BOP deficit is not likely to import as much as it would if it were running a surplus, and

e) BoP data can also signal increased riskiness of lending to particular country.

f) It also helps to in the formulation of trade and fiscal policies.