What is included in the current account balance?

The current account balance is a measure of a country's international transactions and represents the difference between exports and imports of goods, services, investment incomes, and unilateral transfers. It is a key indicator of a country's economic health and its ability to meet its financial obligations. A positive current account balance indicates a surplus, meaning that the country exports more than it imports, while a negative balance indicates a deficit, meaning that the country imports more than it exports.

The current account balance is made up of four components: 1. Trade balance (also known as net trade in goods and services): This is the difference between the value of a country's exports and imports of goods and services. A trade surplus indicates that a country exports more goods and services than it imports, while a trade deficit indicates the opposite. 2. Net Primary Income: This refers to the difference between the income a country receives from abroad for its investments and the income paid to foreign investors who own domestic assets. It includes interest, dividends, and profits from investments. 3. Net Secondary Income: This refers to the difference between the inflow and outflow of transfers received from and made to other countries without receiving goods, services, or assets in return. These transfers can be either public or private and include foreign aid, remittances, and pensions. 4. Unilateral Transfers: These are one-way transfers of resources (usually money) between a country and its residents and the rest of the world. They are non-compulsory and non-reciprocal, meaning that no goods, services, or assets are exchanged in return. Examples include government grants and donations, private gifts, and remittances sent by migrant workers to their families in their home country. To calculate a country's current account balance, you need to add up the net values of these four components.