Balance of Payments (BOP): An accounting statement summarizing economic transactions between a country's residents and non-residents over a specific period.
Purpose: Acts like a giant receipt showing all flows or transactions by a country with non-residents across different economic areas.
Identifying Residents
Individual Residency: A person is considered a resident if they stay or intend to stay in the country for a year or more.
Business Residency: A business is considered a resident if it engages in significant production or service delivery in the country for a year or more.
Note: Nationality is not the basis for determining residency.
Types of Economic Transactions
Current Account Transactions
Goods: Fresh and manufactured goods, raw materials, mineral fuels, and capital and consumer goods.
Services: Transport, travel, financial services, telecommunications, computer and information services, and royalties from patents and copyrights.
Income: Provision of labor or financial resources including salaries of resident workers abroad, dividends, grants, and aids from/to non-resident governments and international organizations.
Example: Nation X exports goods to Nationwide; payments to Nation X are credit to Nation X's BOP and debit to Nationwide's BOP.
Capital Account Transactions
Capital Flows: Includes grants and donations for investment.
Non-Produced/Non-Financial Assets: Purchase or disposal of assets like copyrights and trademarks.
Example: Nationwide donates funds to Nation X for infrastructure; funds are credit to Nation X's BOP and debit to Nationwide's BOP.
Financial Account Transactions
Financial Assets/Liabilities: Involves cross-border investments in subsidiaries, equity and debt securities, loans, and other investments.
Example: Nationwide invests in foreign securities issued by Nation X; reflected as debit to Nationwide's BOP and credit to Nation X's BOP.
Overall BOP Position
Surplus: Inflows > Outflows
Deficit: Outflows > Inflows
Balance: Inflows = Outflows
Importance and Reporting
Purpose of Compilation: Crucial for national planning and economic development.
Philippines Reporting:
Compiled by the Banco Central ng Pilipinas (BSP).
BOP report provides vital information for economic analysis, forecasting, and policy formulation.
Further Learning
Resource: Visit BSP website www.bsp.gov.ph and follow on social media for more on balance of payments and central banking topics.