Balance of payments means a systematic record of all economic transactions between the residents of one country and residents of foreign countries during a given period of time usually, one year.

It contains a classified record of all receipts and payments on account of goods exported, services rendered and capital received by residents in a country and payments made by them on account of goods imported, services received and capital transferred to non­residents or foreigners out of the country.

It implies the difference between the total payments into and out of a country during a particular period. According to Beham, “balance of payments’ of a country is a record of the monetary transactions over a period with the rest of the world”.



The main features of balance of payments are as follows:

(i) It is a systematic record of all economic transactions between one country and rest of the world.

(ii) It relates to a particular period of time, usually one year.


(iii) It includes all receipts and payments, visible and invisible.

(iv) It includes all economic transactions both on current account and capital account.

(v) It adopts the double entry system of book keeping. Foreign exchange receipts are re­corded on the credit side and payments on the debit side.

(vi) It shows the country’s position in world trade.


(vii) A country’s balance of payments is said to be ‘favourable’ or in surpluses when the total receipts from foreign countries exceed the total payments to foreign countries.

On the other hand, if a country’s receipts from abroad are less than its payments the balance of payments is said to be ‘unfavourable’ or in ‘deficit’. When total receipts and total pay­ments are equal, balance of payment is said to be in equilibrium.

(viii) The balance of payments position of a country serves as the barometer of the economic position. Favourable balance of payments indicates economic prosperity, whereas ad­verse balance of payments reflects economic weakness of the country.

Increasing ex­ports, reducing imports and devaluation of currency are the main methods used to correct the adverse balance of payments.


Balance of trade

Balance of payments is a wider term than Balance of trade. Balance of trade refers to the difference between the value of imports and the value of exports for a year.

If the exports of a country exceed its imports it has a favourable balance of trade. If imports are more than that the exports, there is ‘unfavourable’ balance of trade.

Thus, balance of trade consists of only visible trade (goods), whereas balance of payments covers both visible trade and invisible trade (services).