A favorable balance of payments

A country’s balance of payments is essentially the net balance of credits (earnings) and debits (payments) arising from its international trade over a given period of time (see Chapter 14). Where credits exceed debits a balance of payments surplus exists; the opposite is described as a deficit. Understandably governments tend to prefer either equilibrium in the balance of payments or surpluses, rather than deficits.

However, it would be fair to say that for some governments facing persistent balance of payments deficits, a sustained reduction in the size of the deficit may be regarded as signifying a ‘favorable’ balance of payments situation. Like other economic indicators, the balance of payments statistics come in a variety of forms and at different levels of disaggregation, allowing useful comparisons to be made not only on a country’s comparative trading performance, but also on the international competitiveness of particular industries.

And commodity groups or on the development or decline of specific external markets. Particular emphasis tends to be given to the balance of payments on current account, which measures imports and exports of goods and services and is thus seen as an indicator of the competitiveness of an economy’s firms and industries.

Sustained current account surpluses tend to suggest favorable trading conditions, which can help to boost growth, increase employment and investment and create a general feeling of confidence amongst the business community. They may also give rise to surpluses which domestic firms can use to finance overseas lending and investment, thus helping to generate higher levels of corporate foreign earnings in future years.

While it does not follow that a sustained current account deficit is inevitably bad for the country concerned, it often implies structural problems in particular sectors of its economy or possibly an exchange rate which favors importers rather than exporters. Many observers believe, for instance, that the progressive decline of Britain’s visible trading position after 1983 was an indication of the growing competitiveness of its firms. It is good ides to visit this site to know about credit report and monitoring guide.

Particularly those producing finished manufactured goods for consumer markets at home and abroad. By the same token, Japan’s current account trade surplus of around $120 billion in late 1995 was portrayed as a sign of the cut-throat competition of Japanese firms, particularly those involved in producing cars, electrical and electronic products, and photographic equipment.

Related Posts

Recent Stories