Question

What is "Current Account Deficit" in the balance of payments?

Answer 1

The balance of payments (BOP) is the place where countries record their monetary transactions with the rest of the world. Examining the current account portion of a country's BOP can give us a good idea of its economic activity. It includes activity around a country's industries, capital market, services, and the money entering the country from other governments or through remittances.

Calculating a country's current account balance (CAB) will tell us if it has a deficit or a surplus. If there is a deficit, does that mean the economy is weak? Does a surplus automatically mean that the economy is strong? Not necessarily. It's important to look at all of the factors involved when analyzing the current account on a country's BOP.