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Balance of Payment Stats Show Notable Change in June Quarter 2018

Balance of Payment Stats Show Notable Change in June Quarter 2018
Shoran Devi
November 03
11:00 2018

When it comes to evaluat­ing a country’s economic performance, there are multiple macro to micro indica­tors which are simultaneously referred to for making general in­ferences.

As such, the Balance of Payment (BOP) is one such indicator which can provide valuable insight into a country’s financial transactions with the rest of the world.

The Balance of Payment allows one to evaluate how much is being spent by consumers and firms on imported goods and services, and how successful firms have been in exporting to other countries. The BOP is composed of current account, capital account and the financial account.

The current account generally measures the flow of goods and services; the capital account con­sists of capital transfers and the acquisition and disposal of non-produced, non-financial assets; and the financial account records investment flows.

Any transaction that causes mon­ey to flow into a country is a credit, and any transaction that causes money to flow out of a country is a debit to its BOP account.

Balance of Payment

A balance of payment deficit means the country imports more goods, services and capital than it exports.

Similarly, a balance of payments surplus means the country exports more than it imports.

If the overall balance of pay­ments is in a surplus, this means that the level of foreign reserves that a country holds increases and it decreases when it’s a deficit.

In the latest release by the Fiji Bureau of Statistics, the balance on current and capital account re­sulted in a deficit of $102.0m in the June quarter of 2018, when com­pared to a surplus of $29.1m in a year earlier.

This is due to increases in the im­port of machinery and transport equipment, import of air trans­port services and outflows of other current transfers.

Similarly, the balance on finan­cial account resulted in a deficit of $286.1 m in the June quarter of 2018, when compared to a deficit of $205.0 m a year earlier.

The higher deficit is due to a de­cline in currency and deposits.

Current Account

Records the value of Fiji’s trans­actions with the rest of the world in goods, services, primary income and secondary income.

The current account balance is the sum of all current account credits less all current account debits.

When the sum of debits is greater than the sum of credits we have a current account deficit.

The current account balance showed a net outflow of $104.8 mil­lion for the June quarter of 2018. The net current account balance fell by 57.3 per cent ($140.5m) when compared to the March quarter of 2018.

The net current account balance fell by 494.0 per cent ($131.4m) when compared to the June quar­ter of 2017.

  • The balance on goods and servic­es was a deficit of $169.6m in the June quarter of 2018.

This represents a rise by 212.9 percent ($115.4 m) when compared to the June quarter of 2017.

Import of goods increased by $132.9 million mainly due to the in­crease in machinery and transport equipment.

Import of services increased by $39.9 million mainly due to the in­crease in air transport services.

  • The balance on primary income was a deficit of $68.5 million in the June quarter of 2018.

This represents a fall by 28.2 percent ($26.9 million) when com­pared to the June quarter of 2017 as a result of the decrease in in­vestment income paid abroad.

  • The balance on secondary in­come was a surplus of $133.3 mil­lion in the June quarter of 2018. This represents a fall by 24.3 per­cent ($42.9 million) when com­pared to the June quarter of 2017 due to an increase in the outflows of other current transfers.

Capital Account

Has two components – capital transfers and the acquisition or disposal of non-produced, non-financial assets.

Capital transfers involve the transfer of ownership of fixed as­sets, or the transfer of funds linked to them, without any counterpart transaction.

The capital account balance showed a net inflow of $2.8 million for the June quarter of 2018.

The net inflow capital account balance rose by 7.7 per cent ($0.2 million) when compared to the March quarter of 2018.

The net inflow capital account balance rose by 12.0 percent ($0.3 million) when compared to the June quarter of 2017.

Financial Account

Records financial transactions involving Fiji claims on assets and liabilities to non-residents.

The financial account is clas­sified into assets and liabilities, which are broken down by type of investment (direct, portfolio, other investment and reserve assets) and instrument of investment.

The financial account balance showed a net borrowing of $286.1 million which consisted of net in­flows of $38.3 million in equity and net outflows of $324.4 million in debt for the June quarter of 2018. The financial account net borrow­ing fell by 26.4 per cent ($102.6 mil­lion) when compared to the March quarter of 2018. The financial ac­count net borrowing rose by 39.6 percent ($81.1 million) when com­pared to the June quarter of 2017.

  • Direct investment showed a net inflow of $34.4 million in the June quarter of 2018. This represents a rise by 127.0 percent ($161.6 mil­lion) when compared to the June quarter of 2017.
  • Portfolio investment showed a net outflow of $11.6 million in the June quarter of 2018. This repre­sents a fall by 352.2 percent ($16.2 million) when compared to the June quarter of 2017.
  • Other investment showed a net outflow of $288.2 million in the June quarter of 2018.

This represents a fall by 25.4 per cent ($98.3 million) when com­pared to the June quarter of 2017.

  • Reserve assets showed a net out­flow of $20.7m in the June quarter of 2018. This represents a fall by 106.8 percent ($324.8 million) when compared to the June quarter of 2017.

Although the total of payments and receipts for a country are supposedly equal, there will be in­equalities—excesses of payments or receipts, called deficits or sur­pluses—in particular kinds of transactions.

Therefore, the statement that a country has a deficit or surplus in its “balance of payments” must refer to some particular class of transactions.

The BOP data highlights the di­rection of economic growth or otherwise of any country and is a ground on which many important policy decisions are based.

It is affected by vital macroeco­nomic variables such as exchange rate, price levels, interest rates, employment, and GDP.

As such, regulatory bodies make reference to these statistics when deciding on government policies.

Monetary and fiscal policies are formed in a way to achieve very specific objectives, which general­ly exert a significant impact on the BOP. Policies can be formed with the objectives to induce or curb foreign inflows or outflows.

Feedback: maraia.vula@fijisun.com.fj

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