Balance of Payments-Structure

Balance of Payments-Structure

Balance of payments is an account that records the flows of money from the dealings between the residents of a country and other countries over a period of time. The inflow of money is recorded as a credit item with a positive sign while an outflow is debited with a negative sign. The balance of payments comprises three components, namely the current account, capital account and financial account.

Current account
The current account is made up of trade in goods, trade in services, income and current transfers. The overall balance in the current account is the sum of the four parts. If the outflows (debits) exceed the inflows (credits), there is a current account deficit. But if the inflows surpass the outflows, a current account surplus arises. 

Table 1: U.S. Current account-Trade in goods (in millions of dollars)

Exports of goods (credits)1,432,2181,761,364
General merchandise:1,407,3551,729,061
     Foods, feeds, and beverages139,280164,749
     Industrial supplies and materials450,606616,784
     Capital goods except automotive462,894520,769
     Automotive vehicles, parts, and engines128,834144,066
     Consumer goods except food and automotive174,009221,720
     Other general merchandise51,73160,974
Net exports of goods under merchanting835832
Nonmonetary gold24,02831,472
Imports of goods (debits)2,346,1032,851,660
General merchandise:2,284,4412,825,919
     Foods, feeds, and beverages155,445183,323
     Industrial supplies and materials429,307641,595
     Capital goods except automotive647,208764,758
     Automotive vehicles, parts, and engines309,865347,898
     Consumer goods except food and automotive639,900767,137
     Other general merchandise102,717121,207
Nonmonetary gold61,66225,741
Balance on goods-913,885-1,090,296

Source: Data from the U.S. Bureau of Economic Analysis

Trade in goods
is made up of the export and import of goods. Goods are visible items such as computers, cars, etc. Export of goods results in the flow of money into a country (credit item) while import of goods leads to the flow of money out of a country (debit item).  The difference between the export of goods and the import of goods is referred to as the balance of trade in goods, the balance of visible trade or the balance of merchandise. A surplus occurs when exports are more than imports (positive balance) and a deficit occurs when imports exceed exports ( negative balance). In Table 1 above, there was a balance of trade deficit of $913,885 million ($1,432,218 million minus $2,346,103 million) in  2020 and $1,090,296 ($1,761,364 minus $2,851,660 million) in 2021. 

Table 2: U.S. Current account-Trade in services (in millions of dollars)

Exports of services (credits)726,433795,273
Manufacturing services on physical inputs owned by othersn.a.n.a.
Maintenance and repair services n.i.e.13,19612,526
Travel (for all purposes including education) ¹72,48170,214
Insurance services20,27722,741
Financial services151,033171,740
Charges for the use of intellectual property n.i.e.115,558124,613
Telecommunications, computer, and information services56,45659,797
Other business services195,046217,426
Personal, cultural, and recreational services20,82023,915
Government goods and services n.i.e.22,00323,394
Imports of services (debits)466,537550,025
Manufacturing services on physical inputs owned by othersn.a.n.a.
Maintenance and repair services n.i.e.6,2037,982
Travel (for all purposes including education) ¹34,15956,851
Insurance services57,67359,377
Financial services45,31449,529
Charges for the use of intellectual property n.i.e.47,70843,342
Telecommunications, computer, and information services39,72843,142
Other business services112,979129,601
Personal, cultural, and recreational services24,32528,304
Government goods and services n.i.e.24,55325,147
Balance on services259,896245,248

Source: Data from the U.S. Bureau of Economic Analysis
1. All travel purposes include 1) business travel, including expenditures by border, seasonal, and other short-term workers and 2) personal travel, including health-related and education-related travel.
n.i.e. Not included elsewhere 
n.a. Transactions are possible, but data are not available.

Trade in services
is a record of the export and import of services, e.g. banking, transport, etc.  The difference between the export of services and the import of services is known as the invisible balance, the balance on services or the balance of trade on services. In Table 2 above, the U.S. recorded balance on services surplus of $259,896 million ($726,433 million minus $466,537 million) in 2020 and $245,248 ($795,273 million minus $550,025 million) in 2021.


Table 3: U.S. Primary and secondary income and capital account (in millions of dollars)

Primary income receipts936,2361,052,080
Investment income:929,6081,045,181
     Direct investment income474,585582,837
     Portfolio investment income380,207403,207
     Other investment income74,56159,220
     Reserve asset income255-84
Compensation of employees6,6286,899
Primary income payments773,146912,587
Investment income:758,716895,030
     Direct investment income178,380303,136
     Portfolio investment income492,302521,780
     Other investment income88,03370,114
Compensation of employees14,43017,557
Balance on primary income163,090139,493
Secondary income (current transfer) receipts ²165,209171,436
Secondary income (current transfer) payments ²294,008312,236
Balance on secondary income-128,799-140,800
Capital account  
Capital transfer receipts and other credits3723,864
Capital transfer payments and other debits5,9036,338
Balance on capital account-5,531-2,474

Source: Data from the U.S. Bureau of Economic Analysis

2. Secondary income (current transfer) receipts and payments include U.S. government and private transfers, such as U.S. government grants and pensions, fines and penalties, withholding taxes, personal transfers (remittances), insurance-related transfers, and other current transfers.

Income flows represent the inflow and outflow of income accruing to factors of production such as dividends, interest, profit and wages. This is also known as primary income because it is from working (e.g. wages) and possession of financial investments (e.g. dividends). It comprises incomes from direct investment, portfolio investment, reserve assets and other investments (see Table 3 above).

Current transfers
, also known as secondary income, are payments made by a country’s residents to another country’s residents without receiving anything in return, e,g, grants or aids from international organisations to the government, international transfers by individuals, etc. The balance on secondary income is the difference between secondary income receipts and payments (see Table 3 above).

Capital account

The capital account is a relatively small part of the balance of payments. It contains flows from capital transfers and non-financial assets. Capital transfers include grants for capital projects, the sale/purchase of fixed assets (e.g. land),  debt forgiveness and money brought in/taken out by migrants. The non-financial assets in this account are intangible assets such as copyrights, patents, trademarks, brand names, right to use land or water for mining or fishing.

Table 4: U.S. Financial account (in millions of dollars)

Net U.S. acquisition of financial assets excluding financial derivatives (net increase in assets / financial outflow (+))943,0911,278,599
Direct investment assets:271,798421,749
     Debt instruments-19,409-4,332
Portfolio investment assets:406,364719,095
     Equity and investment fund shares395,995154,795
     Debt securities:10,369564,299
          Short term-24,94675,613
          Long term35,315488,686
Other investment assets:255,95623,763
     Other equity1,8471,206
     Currency and deposits92,767-47,977
     Insurance technical reservesn.a.n.a.
     Trade credit and advances-8,3111,922
Reserve assets:8,974113,993
     Monetary gold00
     Special drawing rights81113,685
     Reserve position in the International Monetary Fund8,814460
     Other reserve assets:78-153
          Currency and deposits-73-64
          Financial derivatives00
          Other claims00
Net U.S. incurrence of liabilities excluding financial derivatives (net increase in liabilities / financial inflow (+))1,634,9651,977,294
Direct investment liabilities:148,914448,325
     Debt instruments-18,88967,539
Portfolio investment liabilities:946,560676,112
     Equity and investment fund shares687,417-19,562
     Debt securities:259,144695,674
          Short term269,163-61,466
          Long term-10,019757,140
Other investment liabilities:539,490852,857
     Other equityn.a.n.a.
     Currency and deposits319,425318,654
     Insurance technical reservesn.a.n.a.
    Trade credit and advances12,56419,358
     Special drawing rights allocations0112,834
Financial derivatives other than reserves, net transactions ³-5,107-41,902
Financial account balance-696,981-740,597

Source: Data from the U.S. Bureau of Economic Analysis

3. Transactions for financial derivatives are only available as a net value equal to transactions for assets less transactions for liabilities. A positive value represents net U.S. cash payments arising from derivatives contracts, and a negative value represents net U.S. cash receipts.

Financial account
Financial account records change in ownership of assets, flow of money for bank deposits and investment. It is a relatively large component for some countries. It includes direct investment (e.g. factories), portfolio investment (e.g. shares), other financial investments (e.g. deposits and bonds) and central bank reserve assets (gold and foreign currencies). Reserves are assets controlled by the central bank for policy objectives such as intervention in the foreign exchange market and to assist the government in meeting its commitments to the International Monetary Fund (IMF) (see Table 4 above).

Table 5: U.S. Balances (in millions of dollars)

Balance on current account: -619,698 -846,354 
   Balance on goods-913,885 -1,090,296 
   Balance on services 259,896 245,248 
   Balance on primary income 163,090 139,493 
   Balance on secondary income -128,799 -140,800 
Balance on capital account -5,532 -2,474
Balance on financial account 696,981 740,597
Statistical discrepancy  -71,751 108,231

Source: Data from the U.S. Bureau of Economic Analysis

Net errors and omissions

Net errors and omissions ensure that the total of all debits is equal to the total of credits of the balance of payments. In Table 5 above, it is -$71,751  in 2020 and $108,231 in 2021. This will bring the overall balance in the balance of payments to zero (e.g. -$619,698 + $619,698 in 2020). When this happens, there is a balance of payments equilibrium. Net errors and commissions represent a balancing figure necessitated by the imbalance arising from delays and omission of items. A country is usually engaged in a large volume of transactions.