Question

Home’s balance of payments show a current account surplus, but a trade deficit. How is this possible?

Answer 1

Current account is the aggregate of net export (= Export – Import), earnings from investment from foreign countries, and net transfer income (= transfer income – transfer payment). Since there is surplus, the aggregate of these would be positive.

Trade indicates a country’s export and import. Balance of trade is a part of current account, which appears as net export.

If import exceeds export, there is trade deficit; but it doesn’t mean that the current account balance also would be negative or deficit, since apart from trade balance it has other balances too like net transfer balance. Therefore, if the other balances are positive, there may be surplus in current account although there is deficit in trade balance.

answered by: anonymous