In accordance with the principles of building the balance of payments, it is always balanced, which reflects the standard presentation of the balance of payments. The concept of a positive or negative balance applies only to its individual parts. It should be noted that the balance of payments alone cannot have an unambiguous interpretation in terms of its impact on the national economy. Depending on the goals of economic policy, both the negative and the positive balance in individual items can be regarded both in positive and negativeplans.
Usually, when analyzing the internal structure of the balance of payments, it is customary to allocate the balance of trade, the balance of current operations, the balance of capital and the balance of official settlements.
The trade balance is formed as the difference between the export and import of only goods (excluding services). Analytical comments on changes in the trade balance depend on what factors determined its change.
For example, if a negative balance was formed as a result of a reduction in exports, then this may indicate a decrease in the competitiveness of the national economy and be considered a negative phenomenon. But if this situation arose due to the growth of imports as a result of the influx of direct investment in the country, then this fact cannot be regarded as a weakening of the national economy, since this import, firstly, paid by a foreign investor and, secondly, has long-term consequences, since, being invested in the real sector of the national economy, with a favorable economic policy, foreign investment in the future will contribute to additional export growth.
The balance of payments on current operations is considered, as a rule, as a reference balance of payments, since it determines the country’s need for financing, being at the same time a factor in foreign economic restrictions in domestic economic policy, since it is an integral element of GDP and directly affects it.
The current account balance means that the country is a net investor in relation to other countries of the world, and, conversely, the current account deficit means, that she becomes a net debtor to the rest of the world.
The balance of capital flows is actually a mirror image of the current balance of payments, as it shows the financing of the flow of real resources. Here we can consider international investment as sources of financing the trade deficit, when part of the import is financed by foreign investors.
The balance of changes in official settlements records a change (increase or decrease) of liquid requirements for the country by non-residents or an increase (decrease) in the country’s official reserves in foreign liquid assets.
In the practice of international settlements, for the purposes of analysis, the indicator of net foreign exchange reserves is also used, which serves as a kind of indicator for assessing the country’s ability to repay debts to foreign creditors and, if necessary, in force majeure circumstances, independently finance the import necessary for the country at the expense of its own foreign exchange funds. Without the use of absolute values, the following relative indicator is used to assess the adequacy of foreign exchange reserves:
(net foreign exchange reserves / total imports) x 12 months
This indicator provides information on how long (in months, and sometimes even in import weeks) a country can pay for its import from existing foreign exchange reserves. The possibilities of obtaining foreign loans, especially countries with economies in transition and developing, depend on the value of this indicator. So, if this indicator is at a level of less than three months of import coverage (for transition economies, this norm usually decreases to two months), then the situation is considered unfavorable and the possibility of obtaining new loans will be fraught with certain difficulties due to the additional risks of non-return of borrowed funds.
Balance of payments statistics are not only based on common methodological principles practically supported by the IMF in countries that are members of this international organization. In addition, balance of payments statistics for all IMF member countries are presented in US dollars. This fact allows, using homogeneous indicators and price unity, to conduct a comparative analysis of the balance of payments of different countries. The most complete information basis for such a comparison is the IMF’s Balance of Payments statistical collections , published monthly for all IMF member countries, as part of a standard and analytical presentation of the balance of payments, as well as an international investment position.