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Home Definitions

What is a Balance of Payments? Definition or Meaning

Posted by Bizversity

Balance of payments are like balance sheets but for an entire economy for a particular period. This includes all transactions between residents and non-residents of a country such as gifts, payments and income in both directions. If the balance is a surplus, the country is exporting more than it is importing. If it is negative, the opposite is true.

For example…

Take the hypothetical country Richland. They have so many oil rigs and produce so much oil that it would make the countries of the Middle East pale in comparison. Richland export a lot of their oil and they don’t need to impose tax on their citizens. So, the people of the country spend it big. They send gifts, transfers and barely have any loans. As a result Richland’s balance of payments would be positive most of the time.

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