The current account balance is an accounting document and is part of the balance of payments structure . It is one of the economic indicators that details more precisely the way in which a country interacts with the outside world.
The current account balance, unlike the capital account balance and the financial balance that refer to accounts with financial assets and investments, breaks down purchases and sales of goods and services of a country with the rest of the world . In other words, this balance summarizes all transactions for exports and imports of goods and services and that, therefore, are related to income generation.
Current account balance components
The current account balance is made up of four sub-scales:
- Balance of goods and services: although previously they were separated, according to the VI Manual of the Balance of Payments and International Investment Position of the IMF , they are grouped into this account called «account of goods and services», with two sub-accounts, one for each transaction:
- Trade balance: merchandise exports and imports are included. If exports exceed imports, the country is said to be in a surplus situation . On the contrary, if imports exceed exports, the country will have a trade deficit .
- Balance of services. This category includes operations carried out with intangible products, for example services provided to other companies , transportation, travel, insurance, etc.
- Income balance. It includes all operations related to work remuneration, for example, wages for work performed for a foreign company. In addition, income from investments abroad is also included, that is, interest on loans, dividends , etc.
- Balance of current transfers. In this balance are current transactions that do not require counterpart. The most common items are the personal remittances of foreigners who have their residence in another country, donations and public or private aid.