Question

How has covid-19 affected Balance of payments of countries?

Answer 1

Covid-19 has reduced international transactions between countires i.e. exports and imports have reduced. This has reduced the current account because other parts of Current account like remittances etc will also decrease as people don't have jobs and those who have them have their salaries reduced by companies. Capital account, on the other hand, will be at a rise because countries and central banks are taking more and more debt in order to combat this crisis. Hence, the capital account has gone up. We see that the reduction in the current account will be less as compared to the increase in capital account because a lot of debt is being taken by countries to fund the medical infrastructure and to fund the fiscal measures. Hence BOP will increase for most countries.