Internation

al Balance
of
Payments

Open economy
Open Economy is the one
that is engaged in international
trade. It is also open to the flow
of capital, whether in the form of
direct
investments,
or
borrowings and even lending to
other countries.

Inward
Payment

Inward
Payment

Outward
Payment

Balance of payments
International
Balance of Payments

A statement that summarizes all

international transactions
Reflects the flows of payments and is not
concerned directly with stocks
Represents the flow of payments between
a countrys residents and those of
foreigners.

3 Major Parts

Current Account
Capital and Financial Account
Official Settlements

HOW TO TREAT AN INTERNATIONAL

TRANSACTION

Flow of Payments

Inflow
(+)

Receipt of foreign money

A credit item
Increase in the holdings of foreign money

Outflow
(-)

Payment of foreign money

A debit item
Decrease in the holdings of foreign money

PHILIPPINE BALANCE OF PAYMENTS FORMAT

Line #
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
1
19
20
21
22
23
24
25
26
27
28
29
30
31
32

Description of Transactions

Receipts = Credit (+)

I. Current Account
A. Trade
Goods
Exports
Imports
Services
Receipts
Payments
B. Transfers
Inflow -> Inward Payment
Outflow -> Outward Payment
II. Capital and Financial Account
A. Medium and Long-Term Loans
Availment
Repayment
B. Investments
Non-resident Investments in Phil
Resident Investments Abroad
C. Change in NFA of Commercial Banks
Asset Increase
Asset Decrease
D. Short- Term Capital
Availment
Repayment
III. Others (official Adjustments)
A. Monetization of Gold
B. Revaluation Adjustments
Adjustments vs. Reserve Assets
IV. Net Unclassifies Items
Errors and Omissions
Floats -> Payments made not yet collected
V. Overall BP Position

Credit (+)
Credit (+)
Credit (+)

Credit (+)
Credit (+)
Credit (+)
Credit (+)

Payments =
Debit (-)

Net
?
?

Debit (-)
Debit (-)

?
?

Debit (-)
?
Debit (-)
Debit (-)
Debit (-)
Debit (-)

?
?
?
?
?
?
?
?
?
?

Lines 1 to 11 : Current Account

Current
account
Contains the payments for transaction
Overall current figure
Sums up all the payments and receipts

Imbalance
in
the
Current
Account
Current
Current

Account
Surplus
the
inflows
exceed the
outflows

Account
theDeficit
outflows
exceed the
inflows

Lines 3 - 5 : Goods trade

Export of Goods
The receipt of payments or inward
payments
Examples : export of sugar, coconut oil,
semiconductor parts, computer parts

Import of Goods
An outflow of payments
Examples: imports of machinery,
petroleum, all other raw materials
imoprts

Lines 6 - 8: Services

Services exported and the

payments received are treated
as credits
Examples : Travel of foreigners to the
Philippines; services of Philippine
communications companies ( PLDT and
Globe Telecom)

Services imports or payments

are treated as debits
Examples : Filipinos traveling abroad;
imports or payments for services of
foreign banks, of communications
companies

Lines 9 - 11 : current transfer

Inflows/credits
Examples: Overseas Filipino workers
remittances to their families at home;
pensions to retirees in the Philippines from
foreign sources; foreign donation to Phil.
Charities; grants of foreign aid institutions
to the Phil. Government or private
institutions

Outflows/Debits

Examples: Philippine gifts to foreign

charities; pensions paid to resident abroad

Lines 12 to 24 : capital and financial

Account
The capital and financial account
represents the financing aspects of
international transactions.

Lines 13 - 15 : medium and long-term

loans

Line 14: availment of Loans

( credits)

Examples :receipt of proceeds from

multilateral financial institutions; from
bilateral institutions, receipt of loan
proceeds for a Philippine resident
corporation
Line
15: Repayments of

Loans (Debits)

Examples: payments of debt by the

government to multilateral and bilateral
financial institutions

Lines 16 to 18 : Investments

Direct
Investments
Credit Items
Investments made in the country by foreign
residents
Investments in the form of equity by nonresidents
Reinvestment of the earnings of foreign
enterprises that are already located in the
Phil Items
Debit
Withdrawal of investments by foreign
companies from the country

Lines 16 to 18 : Investments

Portfolio
Investments
Credit Items
Issuance if new debt securities by Philippine
residents in which debt instruments are held
by the non-residents
Investments by non-residents in the form of
ownership of stocks or equities

Debit Items
If non-resident dump Philippine equities and
take their money home with them

Line 17 : non-resident investment in

the Philippines

Credit/Inflow
Itemsgovernment issue of bonds in world
Any Philippine
capital markets, whether in London, in New York, or in
Tokyo.
A Philippine blue-chip company, like PLDT and San
Miguel Corporation, on the strength of its credit
standing, makes a bond issue and sells this to foreign
pension and investment companies.
A Hong Kong pension fund or equity mutual fund buys
stock in the Philippines stock market.
Intel and Texas Instruments reinvest profits in their
plants in Laguna and Baguio, respectively, for
expansion and upgrade of machinery and equipment.

Line 17 : non-resident investment in

the Philippines

Credit/Inflow
Items
A foreign
company lends money

to a subsidiary
located in the Philippines for operational and
investments purposes.
Foreign banks buy into the equity of a Philippine bank
so that the latter could comply with the capitalization
increase requirements in the banking reform program.
Foreign company purchases the assets of a power
generating plant which was offered for sale by the
Philippine government.

Line 17 : non-resident investment in

the Philippines

Debit/Outflow
Items
All payments of foreign debt liabilities.
Sales of Philippine equity by nonresidents to Philippine residents.
Closure of plant by a foreign drug
company and relocation to another
country for restructuring of production
activities.

Line 18: Philippine resident Investment

Abroad

Credit/Inflow
Items
Sale
of stocks owned in a company located in a

foreign country by a Philippine resident.

Sale by a Philippine investment fund of stocks of
foreign corporations held in foreign country.
Repatriation of investments in a foreign country,.

Debit/Outflow
Itemsresidents invest in foreign equity markets.
Philippine
A Philippine citizen buys real estate property in
California.
A Philippine businessman invest in shopping centers
in China.
San Miguel Corporation puts up a brewery in
Vietnam.

Lines 19 - 21 : Change in net foreign

assets of commercial banls

Net foreign assets are holdings of

foreign deposits and currency of
domestic commercial banks.

Lines 22 - 24: Short-term capital

Often large part of financing in

the balance of payments because of
the prevalence of short-term credits in
international trade and finance.

Lines 25 27: others(official adjustments)

Useful to track any changes in the

value of monetary gold held
by
authorities and of the reserve assets
under government control.

3 Major Elements
Monetization of Gold
Revaluation of Assets
Change in the Reserve Position

Line 26 : Monetization of Gold

Done by buying gold in the open
market for use as official reserve
deposits by the monetary authorities.
Line 27 : Revaluation of Adjustments
It can have an impact on payments
and level of resources available.
Revaluation of assets are not likely to
lead to charge changes in nature of
credits or debits for the country.

Lines 29 - 30 : net unclassified items

Net errors and omissions stand for data
errors in recording and omissions of
Under-declaration of
transactions.

transactions

Aside from normal human error or even

criminal intent, sometimes the occurrence of
under-declaration is caused by economic
policy.

Net errors and omissions

Reflect transactions that are known to have

occurred but for which
no specific measure was made.

Line 32 : Overall balance of

payments position

Current Account + Capital

Account = Overall Balance of
Payment Position

Economics
and the
Balance of
Payments

Current Account
CurrentBalance
Account Surplus and
Deficit

Current Account is in Surplus all current

receipts are greater than current payments
Current Account is in Deficit- all current
receipts are less than current payment.

Persistent Current Accounts

Deficit

A country suffers from it, either it is expanding

too fast in an unsustainable way, or it is living
beyond its means from year to year.

Persistent Current Accounts

Surplus
The country keeps on having receipts above
payments from year to year.

Balance of Payments
Deficit

When all payments outflows exceeds inflows

Balance of Payments Surplus

When overall receipts are in excess of
payments

Description
I. CURRENT ACCOUNT
Goods and Services
Exports
Imports
Goods
Credit:Exports
Debit:Imports
Services
Credit:Exports
Debit:Imports
Income
Credit:Receipts
Debit:Disbursement
Current Transfers
Credit:Receipts
Debit:Disbursement

PHILIPPINE BALANCE OF PAYMENTS, 2001 AND 2000

2001
4504
808
34394
33586
2747
31243
28496
-1939
3151
5090
3252
7348
4096
444
515
71

2000
8459
4806
41267
36461
6918
37295
30377
-2112
3972
6084
3216
7804
4588
437
552
115

-3839
-12
12
24
-3827
1953
-161
1792
1399
-234
1165
-7179
13893
6714

-6469
38
74
36
-6507
1348
-107
1241
-113
806
693
-7742
15311
7569

III. NET UNCLASSIFIED ITEMS

-857

-2503

IV. OVERALL BALANCE OF PAYMENTS POSITION

Debit: Change in Reseve Assets
Credit: Change in Reserve Liabilities
use of Fund (IMF) Credits
Short-term
Memo Items:
Change in Commercial Banks' Net Foreign Assets
Basic Balance
Net Unclassified Items as Percent of Total Trade

-192
473
666
-8
674

-513
-94
419
304
115

-195
7224
-1

1730
10730
-4

Balance of Payments
Deficit

When all payments outflows exceeds inflows

II. CAPITAL AND FINANCIAL ACCOUNT

Capital Account
Credit:Receipts
Debit:Disbursement
Financial Account
Direct Investment
Debits:Assets, Residents' Investment Abroad
Credit:Liabilities,Non-Residents' Investment in the Philippines
Portfolio Investment
Debits:Assets, Residents' Investment Abroad
Credit:Liabilities,Non-Residents' Investment in the Philippines
Other Investment
Debits:Assets, Residents' Investment Abroad
Credit:Liabilities,Non-Residents' Investment in the Philippines

Balance of Payments Surplus

When overall receipts are in excess of
payments

The country keeps on having receipts above

payments from year to year.

Philippine
Balance of
Payment,
2016 and
2015