The current account records trade in goods and services plus primary and secondary income flows with other countries.
The balance of payments records all money flows between a country and the rest of the world. Its main part for this syllabus is the current account.
The current account has four components. Trade in goods: exports minus imports of physical goods, such as machines and food. Trade in services: exports minus imports of services, such as tourism, shipping and banking.
Primary income: income earned from abroad minus income paid abroad. This includes wages, profits, interest and dividends. Secondary income: transfers with nothing given in return, such as workers' remittances and foreign aid.
Current account balance = trade in goods balance + trade in services balance + primary income balance + secondary income balance. A positive total is a surplus; a negative total is a deficit.
- Trade in goods
- Exports minus imports of physical goods.
- Trade in services
- Exports minus imports of services.
- Primary income
- Wages, profits, interest and dividends, in minus out.
- Secondary income
- Transfers such as remittances and aid, in minus out.
| Component | Inflow | Outflow | Balance |
|---|---|---|---|
| Trade in goods | 300 | 340 | -40 |
| Trade in services | 120 | 90 | +30 |
| Primary income | 25 | 35 | -10 |
| Secondary income | 5 | 15 | -10 |
| Current account | - | - | -30 |
Worked example: Calculating a current account balance
Use the figures in the table below (US$ billion).
- Trade in goods: 300 - 340 = -40.
- Trade in services: 120 - 90 = +30.
- Primary income: 25 - 35 = -10. Secondary income: 5 - 15 = -10.
- Current account balance = -40 + 30 - 10 - 10 = -30: a deficit of US$30 billion.
Watch out for this
A current account deficit means the government is spending more than it collects in tax.
That is a budget deficit. A current account deficit means more money flows out of the country than in through trade and income.
Check your understanding
A country receives dividends from shares its residents own in foreign firms. Which part of the current account records this?
- Primary income
- Secondary income
- Trade in services