The University of Lahore
(Lahore School of Accounting &
Contact: +92 321 8880397
What is balance of payment ?
The balance of payment is an accounting
record of all economic transactions
between the resident of a country and
resident of foreign countries.
It is a systematic record of economic
transaction of a reporting country with the
rest of the world over the specific period of
What are it’s functions ?
There are several functions of balance of payment:
It is used to summarize all international
economic transactions for that country during a
specific time period, usually a year.
It reflects all payments and liabilities to
foreigners (debits) and all payments and
obligations received from foreigners (credits).
BOP is one of the major indicator of a country ‘s
status in international trade, with net capital out
The balance, like other accounting
statements is prepared in single currency,
usually the domestic. Foreign assets and
flows at the exchange rate of the time of
How it works in country ?
For balance of payments, two types of
accounts work in a country. These are:
It describes the current economic
transaction of a country, it includes:
Export and imports
Balance of services traded (e.g.,
Expenditure on health (e.g., if a person go
abroad for medical treatment)
Expenditure on education
Interest on loan and profits
Capital account describes the capital inflow
It included the foreign investment and
Effect on economy
1- Receipts > Payments
surplus or favorable balance of payments
positive effect on economy.
2- Payments > Receipts
Deficits balance of payments unfavorable
Causes of deficit BOP
Decrease in exports: due to
Increase in cost of production
Backward technology etc…
Increase in imports: due to
Decrease in domestic production etc…
Measures to improve the BOP
Tight fiscal and monetary policies
Decrease in cost of production
Restriction on imports