Balance of Payments
Concepts and Definitions
Each quarter the Australian Bureau of Statistics produces a record of
economic transactions by Australian residents with the rest of the world.
This record is known as the Australian balance of payments.
There are three types of economic transactions:
- transactions in goods, services and income-recorded in the current
account;
- special entries required to record 'one-sided' transactions such
as gifts and donations, split according to purpose into current and
capital transfers-recorded in the current and capital
accounts respectively; and
- financial transactions involving investment between Australia
and the rest of the world-recorded in the financial account
Under the double-entry system for recording all balance of payments transactions,
the balance of payments always balances. This means in theory that a deficit
(or surplus) on the current account will always be offset by a surplus
(or deficit) on the combined capital and financial accounts. In practice
however, some transactions are not measured accurately or not measured
at all and balance between the accounts has to be achieved with the help
of a balancing item. The balancing item is shown outside the three accounts.
Changes to the Balance of Payments Series
In the September quarter 1997 the ABS began publishing Australia's balance
of payments and international investment statistics on a new basis, consistent
with the most recent international standards for these statistics. The
main reason for this change was to improve the international comparability
of Australia's statistics.
Prior to September 1997, the balance of payments consisted of just two
accounts-current account and capital account. The new system comprises
three accounts-current account, capital account and financial account.
The financial account is the same as the old capital account. The new
capital account has been created for the recording of capital transfers,
such as the assets migrants bring with them into a country, previously
included within the current account but more reasonably regarded as capital
in nature. The new capital account thus bears no relationship to the old
capital account. The new current account is very similar to the old current
account except that it now excludes capital transfers.
The Current Account
The largest items in the current account are exports and imports of goods-the
difference between these is the balance on merchandise trade. Other
items included in the current account are services (eg freight
and insurance charges); income (eg interest and dividends) paid
to and received from the rest of the world; and current transfers
such as pensions paid to Australian citizens living abroad and tax revenue
received from non-residents.
The net result of all transactions recorded in the current account is
the balance on current account. Australia has almost always run
a deficit on its current account.
Meaning of the Balance on Current Account
The balance on current account is equal to the imbalance between a country's
level of national investment and its level of national saving.
If a country's balance on current account is in surplus in a period,
then national saving exceeds national investment and the country is a
net provider of investment funds to the rest of the world. If, on the
other hand, a country's balance on current account is in deficit in a
period, then national investment exceeds national saving and the country
is a net recipient of investment funds from the rest of the world.
A current account deficit contributes to the level of foreign debt but
the size of the deficit does not necessarily equate with a corresponding
increase in debt. For example, a current account deficit that was entirely
financed by foreign equity investments would have no impact at all on
the level of debt.
Historical Data
The balance on current account is often shown as a percentage of gross
domestic product (GDP) to show its significance relative to the whole
economy and to allow for more appropriate comparisons to be made over
time.
Since 1959-60 Australia has had only one surplus on its current account
and that was in 1972-73. A common concern has been the rise in the current
account deficit from between 2 and 3 per cent of GDP in the 1960s and
1970s to between 4 and 6 per cent of GDP in the 1980s and 1990s.
MESI Tables 6.1 and 6.2
Monthly Economic and Social Indicators Table 6.1 shows monthly data on the value of exports
and imports.
Table 6.2 shows quarterly data on the size
of the balance on current account in both original and seasonally adjusted
terms.
Further information can be obtained by contacting a member of the Statistics
Group, Information and Research Services, Department of the Parliamentary
Library.
This feature was prepared by Tony Kryger.
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