Are you always

spending your
money for
imported goods?
BALANCE OF PAYMENT
Chapter Roadmap
 Define Balance of Payments,
 Discuss Composition of Balance of
Payments,
 Explain the Causes of balance of
payments Deficits, and
 Explain the Solutions to Balance of
Payments Deficits
OVERVIEW

 INTERNATIONAL TRADE- exchange of

goods and services between one
country and other countries
 $ Dollar- usually the medium of
international payment system
Definition of TERMS

 Balance of Payment
-annual accounting statement of all
financial transactions of a country with
the rest of the world.
-include transactions of individuals,
businessmen & government of one
country with individuals, businessmen &
government of other countries
Definition of TERMS

 If deficit- BSP has to draw on its official

monetary reserves( like gold or US
Dollar)
- IF not sufficient – BSP obtain foreign
loans( borrowed money from the WB &
IMF)
Definition of TERMS

 Balance of Trade- a situation where the

value of the exports of a country is equal
to the value of its imports
 Visible Items- refers to goods in the
balance of payments
 Invisible Items- pertain to services in
the balance of payments
Definition of TERMS

 Surplus Balance of Payments- a

situation where the receipts( income) are
greater than the payments ( expenses)
 Deficit Balance of Payments- a
situation where the receipts are lesser
than the payments.
Definition of TERMS

 Credits- these are the receipts of

individuals, organization or government
coming from other countries.
( eg salaries of overseas workers, IMF
loans, foreign donations, US bases
rentals, export earnings, expenses of
tourists in the country)
Definition of TERMS

 Debits - these are the payments of

individuals, org. or gov. of a country to
other countries.
- These are outflows of resources from
country
- e.g ( import payments, travels abroad,
repayment of WB loans, foreign studies,
donations, investment in New York
COMPONENTS OF BOPs

> Current Account

> Capital Account
>Official Monetary
Reserves/ Cash Account
HYPOTHETICAL BOP/s OF
COUNTRY X
Items Cr. Dr.
Current Accounts
Goods
exports +
imports -
Services
Japanese Tourists +
Filipino Students in US -
HYPOTHETICAL BOP/s OF
COUNTRY X
Item Cr. Dr.
Capital Account
Private Foreign Inv. +
World Bank Loans +
United nations grants +
Debt Payment to WB-IMF -
Cash Account
Monetization of Gold +
Allocation of SDRs +
CAUSES OF BOPs DEFICITS

 Structural or Real Causes

-traditional exports of LDCs are products
which are inelastic
- lower price of the primary products
- exports earning of LDCs are low
CAUSES OF BOPs DEFICITS

 Monetary Causes
- Improper monetary policies can create
BOP problems for a country
- E.g creation of more money w/o the
corresponding increase in the production
of goods & services results inflation.
SOLUTIONS TO BOP

 Adjustments of BOP- equalize receipts

& payments
 Adjustments of BOP- means solving of
BOP
 To eliminate BOP Deficits – increased
receipts (CREDIT) and decrease
payments( DEBIT)
SOLUTIONS TO BOP

 Reduce Payments- government

expenditures are reduced.
SOLUTIONS TO BOP
 BSP will execute the following
measures:
1. Increase cash margins for the
opening of letter of credit to the
importation of luxuries & other non-
essential goods
2. Total ban on the importation of
luxuries & other non-essential goods
SOLUTIONS TO BOP

3. Limit dollar allocation to

importers of said goods, together
with unnecessary foreign travel
4. impose higher exchange rate for
the importation of luxuries & other
non-essential goods
QUIZ

Essay.

1. Briefly discuss one cause of

balance of payments deficits. ( 5
points)
( ¼ sheet of paper, maximum
of 5 sentences.)