Balance of Payment

Posted by admin

October 21, 2009

Balance of payment of the country is the most important indicator of the financial strength and the trading pattern of the country. Of late we are observing in the globe that many countries are having unfavourable balance payment of position, which is affecting their economy. Most of the countries who were depending on the exports suffered a set back in the balance of payment position now due to the global meltdown. If the import of the country exceeds the amount of export it affects the nation negatively. Balance of payment consists of both the current account and capital account components.

The current account balance is the net result of export minus import, hence any country will be interested to increase the export to ensure the trade surplus which can be added to the Forex reserve to help the nation, otherwise the country has to work out a plan to go in for the right substitute in the place of imported goods to avoid the imports and prevent the outflow of precious for-ex. Country like the USA where the current account deficit is around 12% of the GDP is now undergoing economic recession. China is a one country which enjoys the surplus in the balance of trade position by having more than $one trillion in the for-ex reserve.

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