Balance of Payments

A country’s Balance of Payments, which is a record of that country’s economic transactions with the rest of the world, is divided into two principal sections; namely. the current account and the capital account.
The current account relates to transactions relating to the purchase or sale of good and services. The current account section is essentially a record of income, as distinct from capital transactions. The section of the current account which records the import and export of merchandise (goods) is known as the Balance of Trade. The term invisible exports is often applied to the export of services since nothing of a tangible nature leaves the country in return for the money which is received; e.g. foreign tourists spending their holidays in Rwanda; similarly the term invisible imports is applied to the purchase by local residents or businesses of foreign services. It is extremely unlikely that the value of goods and services imported would be exactly equal to the value of goods and services exported so that there will be a surplus if the value of goods and services imported is less than the value of goods and services exported and a deficit if the opposite applies. The Balance of Payments is completed when the capital account section is associated with the current account section.
The capital account section is an account of a country’s inflow and outflow of capital and transactions of this nature cause a consequent net increase or decrease in the external reserves of the country. Since the Balance of Payments is a financial statement, it is a book-keeping exercise and consequently the totals of the current and capital accounts must balance in the sense that total credits must equal total debits. References to surplus or deficits refer to the current account section of the Balance of Payments or to a change in the level of foreign reserves that are held by the National Bank



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