Balance of Payment
The Balance of Payment (BOP) is a statistical statement designed to provide, for a specific period of time, a systematic record of an economy’s transactions with the rest of the world. The basic convention of a BOP statement is the double entry accounting system in which every transaction is represented by two entries of equal value. A credit-entry records the provision of real resources denoting exports of goods and services and a decrease in holding of foreign financial assets or an increase in foreign financial liabilities.
Conversely, a debit-entry records the provision of real resources denoting imports of goods and services and an increase in holding of foreign financial assets or a decrease in foreign financial liabilities.
The two major classifications of transactions in the BOP statement are the current account and the capital finance account. In brief, the current account shows transactions in real resources (goods, services, income) and current transfers; the capital and financial account shows the financing (generally by way of capital transfers or transactions in financial instruments) of real resource flows.
The Bangladesh Bank has been following classification system for BOP presentation per 6th edition of IMF’s Balance of Payments Manual. The main source documents for compilation of Bangladesh BOP are the records of the Authorized Dealers supplemented by information obtained from Bangladesh Bank, and Economic Relations Division (ERD) of the Ministry of Finance. To compile export and import data, customs
records have been accessed. As per Balance of Payment Manual, the standard components incorporated in the Bangladesh BOP statements are grouped under three major categories:
1) Current Account includes Goods and Services, Primary Income and Secondary Income. The Current Account Goods and services include general merchandise, non-monetary gold, manufacturing services on physical inputs, maintenance and repair services, transportation, travel, construction services, insurance services, telecommunications etc.
Primary income component is restricted to income earned from the provision of two factors of production, labor and capital. Accordingly income earned from the labor is called compensation of employees while income earned from the capital is called investment income. Secondary Income includes official grants in food and commodity for immediate consumption and technical assistance. It also includes workers remittances, other gifts and donations.
2) Capital Account includes the acquisition and disposal of non-produced, non-financial assets between residents and non-residents and capital transfers receivable and payable between residents and non-residents. The financial account shows transactions in financial assets and liabilities. Capital transfer consists of transfer of ownership of fixed assets or forgiveness of financial liabilities between residents and non-residents.It includes mainly official foreign grants (excluding technical assistance) data which are collected from the ERD. Financial account records all transactions associated with changes of ownership in foreign financial assets and liabilities.
3) The Financial Account is classified mainly by four functional categories: (A) Direct Investment: Direct Investment covers remittances received from foreign direct investors in their enterprises and remittance made abroad by Bangladeshi direct investors for equity participation. (B) Portfolio Investment: Portfolio investment covers remittances received from and paid to on account of equity and debt securities in the form of bonds and notes, money market instrument and financial. (C) Other Investment: Other investment includes all financial transactions that are not covered in the categories for direct investment, portfolio investment or reserve asset. Under other investment, the instrument classified under assets and liabilities, comprises trade credits currency and deposits etc.(D) Reserve Assets: Reserve Assets consist of monetary gold, Special Drawing Rights (SDR) reserve position in IMF and foreign exchange of Bangladesh Bank.
