Balance of Payments

The balance of payments is an accounting record of the money value of trade (goods and services) between Australia and the rest of the world.

Money received by Australians is recorded as a credit.

Money paid by us to overseas countries is recorded as a debit.

Balance of Payments

There are two sides to the balance of Payments.

Left Side – Balance on Current Account

Right side – Balance on Capital Account

Balance of Payments

Balance of Payments

The current account records transactions between Australia and the rest of the world involving exports and imports of goods and services, income and transfers.

The Current Account

The current account is made up of 4 sections

1. Net Goods: Credits from Exports of goodsDebits from imports of goods

Exports > Imports = Goods surplusImports > Exports = Goods deficit

Sections in the Current Account

Sections in the Current Account

2. Net services: - Credits (money coming in) from Services

(including tourism in Australia)

- Debits (money going out) from services (including Australian tourists travelling overseas)

3. Net Primary Income:

- Credits for income earned from o/s such as interest received on money lent, dividends received from o/s shares, wages earned

- Debits for income paid o/s such as interest paid on foreign debt, dividends paid to o/s shareholders, wages paid to Australians living o/s

Sections in the Current Account

4. Net Secondary Income:

- Credits from people who live in Australia receiving a pension from another country, gifts of money flowing into Australia

- Debits from Australians who live overseas receiving a pension from Australia, gifts of money flowing out of Australia, foreign aid to countries.

Sections in the Current Account

The balance on the current account = net goods + net services + net primary income + net secondary income.

If the balance on the current account is a negative number we have a current account deficit

If the balance on the current account is a positive number we have a current account surplus

Balance on Current Account

The balance on the capital and financial accounts are made up to two parts:

Balance on Capital account: records the credits minus the debits of movements of capital transfers including ownership of copyrights, patents and trademarks and movement of bank account money of immigrants.

Capital and Financial Accounts

The balance on the capital and financial accounts are made up to two parts:

Balance on financial account: records the credits minus the debits for transactions involving the movements of money, including loans or investment into or out of Australia, as well as the dealings of the Reserve Bank of Australia.

Capital and Financial Accounts