SUNBIZ

Balance Of Payment Highlights

Balance of Payment recapitulates all economic transactions made between consumers, businesses and the government of a country with the rest of the world in a specific period. It is something
06 Dec 2014 00:10
Balance Of Payment Highlights

Balance of Payment recapitulates all economic transactions made between consumers, businesses and the government of a country with the rest of the world in a specific period.

It is something similar to International Investment Position (IIP) but instead of dealing with assets, Balance of Payments deals with monetary transactions that include payments for the country’s imports and exports of goods and services, financial capital, and financial transfers.

These transactions are then classified into two basic accounts – the current account, and the capital account and financial account.

Current Account

The Current Account records the net amount a country is earning if it is in surplus, or spending if it is in deficit and includes:

– trade in goods and services;

– income from investment and employment and lastly

– transfers or secondary income and this may arise from gifts, donations and overseas aid.

The Capital Account tracks flow of aid and grants either in cash or kind for capital development and equipment purchase whilst Financial Account records the net change in ownership of foreign assets and includes:

– direct investment – investment in an enterprise where the owners or shareholders have some element of control in the business;

– portfolio investment – the investor has no control over the enterprise

– financial derivatives – the financial instrument whose underlying value is based on another asset, such as foreign currency, interest rates, commodities or indices;

– reserve assets – foreign financial assets that are controlled by the Reserve Bank of Fiji.  These assets (includes gold, special drawing rights and foreign exchange) are used to finance deficits and deal with imbalances.

Sum of balance

The sum of the Balance Of Payments must always equal zero with no surplus or deficit.

Hence, if a country is importing more than its export, it will be in deficit so this deficit will have to be compensated in some other way such as funding from its foreign investments.

Any deficit in the current account will always accompany an equal surplus in the capital and financial account, and vice versa.

The deficit may be caused by excessive growth in the economy, high export prices due to a country’s inflation being higher than that of its competitors, or if its currency is over-valued which will reduce its price competitiveness, poor productivity, government’s fiscal deficit, business competitiveness, etc.

Deficits can be financed by selling gold or holdings of foreign exchange or borrowing from other Central Banks and a surplus can be disposed of by buying gold or currencies or by paying off debts.

Provisional balance of payments data for the June quarter of 2014 illustrates that the current and capital account was in a deficit of $245.4m and the financial account was also in a deficit of $24.8m.

The net outflow balance of the current account for the June quarter of 2014 totaled $247.7m which was a slight decrease when compared to the $286.1m recorded for the March quarter of 2014.  The following flows were recorded:

– Net goods deficit improved by $39.0m largely due to a decrease in the imports of machinery and transport equipment and leased aircraft;

– Net services surplus increased by $32.0m largely due to an increase in tourism earnings;

– Net primary income deficit increased by $18.1m as there was an increase in reinvested earnings and

– Net secondary income surplus decreased by $14.5m due to an increase in personal transfers.

The capital account recorded a net inflow of $2.3m in the June quarter of 2014, an increase of $1.1m.

June Quarter

In the June quarter of 2014, the balance on financial account registered a net borrowing of $24.8m that consisted of net inflows $83.2m in debts and net outflows of $108.0m in equity.

Direct investment registered a net outflow of $168.2m, an increase of $70m from the net outflow of $98.2m in the previous quarter where;

– Direct investment assets recorded an inflow of $0.5m;

– Direct investment liabilities recorded an inflow of $167.7m.  This was due to an increase in investment from abroad.

Investment

Portfolio investment registered a net inflow of $63.9m, an increase of $49.8m from the net inflow of $14.1m in the previous quarter where;

– Portfolio investment assets recorded ad inflow of $63.9m;

– Portfolio investment liabilities recorded no transaction.

Net inflow

Other investment registered a net inflow of $46.7m and the result of this net effect is highlighted below:

– Other investment assets recorded an inflow of $99.7m.  This was due to the inflow of $90.6m in currency and deposits, $6.0m in trade credit and advances and $3.1m in other accounts receivable.  However, there was no transaction recorded for loans.

– Other investment liabilities recorded an inflow of $53.0m.  This was due to the inflow of $9.8m in currency and deposits, $18.3m in trade credits and advances, $24.3m in loans and $0.6m in other accounts receivables.

Reserve assets registered a net inflow of $32.8m, an increase of $7.5m from the net inflow of $25.3m in the previous quarter.

Conclusion

This week’s conclusion focuses on the direct impact that the oversupply in US crude oil prices could help in the fuel import bill for Fiji. Previously around US$100 a barrel of US crude oil and now at US$70 a barrel.

However the strong USD against the FJD could hurt the Fijian economy.

More so this could impact Fiji’s external debt position mainly because most of these are denominated in USD.

To put this in perspective the FJD/USD was earlier in the year at 0.53 cents and now sits below 0.51 cents.

Conclusively a two cent additional cost in foreign exchange exposures whether in debt or imports.

Next week’s issue will cover exchange rates namely the FJD/USD.

– This is an informative publication, sponsored by The Fiji Sun, Fiji Bureau of Statistics and HFC Bank. All views expressed or implied are purely of the Treasurer at HFC Bank, Peter Fuata.

 




Fijisun E-edition
Total Excellium
Subscribe-to-Newspaper
Fiji Sun Instagram
Subscribe-to-Newspaper