Answer to Question #63179 in Economics for kareem

Question

Is it possible for a country to have, simultaneously, a current account deficit along with a balance of payments surplus? Explain your answer with reference to the significance and meaning of each of the BOP accounts. Be sure to discuss the possible implications for official international reserve flows (i.e. the reserve portion of the financial account).

Answer 1

It is possible for a country to have, simultaneously, a current account deficit along with a balance of payment surplus. Current account along with capital account and official settlements account is a part of balance of payments. When country has a current account deficit is the situation when country’s import of goods and services exceeds country’s export. During this period of time positive county’s balance on asset transaction can may exceed current account deficit. As a result, country has balance of payment surplus.

Also country could engage the official reserve transactions that also could exceed current account deficit.