Balance of Payment

Balance of Payment




  • The outcome of the total transactions of an economy with the outside world in one year is known as the balance of payment (BoP) of the economy. 
  • Basically, it is the net outcome of the current and capital accounts of an economy. 
  • It might be favourable or unfavourable for the economy, However, negativity of the BoP does  not mean it is unfavourable.
  • A negative BoP is unfavourable for an economy if only the economy lacks the means to fill the gap of negativity.
  • The BoP of an economy is calculated on the principles of accountancy (double-entry bookkeeping) and looks like the balance sheet of a company—every entry shown either as credit (inflow) or debit (outflow).
  • If there is a positive outcome at the end of the year, the money is automatically transferred to the foreign exchange reserves of the economy and if there is any negative outcome, the same foreign exchange is drawn from the country’s forex reserves. 
  • If the forex reserves are not capable of fulfilling the negativity created by the BoP, it is known as a BoP crisis and the economy tries different means to solve the crisis in which going for forex help from the IMF is the last resort.
  • The balance of payments (BoP) records the transactions in goods, services, and assets between residents of a country with the rest of the world for a specified time period typically a year. 

-Khyati Khare

Download Daily Current Affairs of 5th May 2021

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