Analysis Of Balance Of Payment

7 Pages 1760 Words

Introduction

The Balance of Payment of an economy represents a record of all international money flows between domestic and foreign residents over a specified period of time, usually measured at an annual basis. These flows are usually a result of international trade transactions & other international finance activities such as loans, transfers etc. that are executed by individuals, firms or governments.

Simply put, the Balance of Payment (BoP) is calculated using the following equation:

BoP = (X - M) + (CI - CO) + ∆FXB
Where:

X = Exports
M = Imports
CI = Cash Inflow
CO = Cash Outflow
(X-M) = Current Account
(CI-CO) = Capital Account
∆FXB = Change in Official Foreign Exchange Reserved Balance

The recording of the transactions for the balance of payment uses a double entry book keeping method, so all entries or transactions are offset by a transaction of the opposite type. As a result the BoP equation always adds up to zero, i.e. BoP=0 always.

The BoP can be broken down into various components among, which are:
• Current Account
• Capital Account
• Changes to Official Forex Reserves


The BoP can be analyzed to review the performance of a country's economy. Detailed analysis of the various components can give valuable information about the various elements of a country's economy and its performance.

This paper will attempt to perform a BoP analysis for Egypt from 1990 to date.


Economic Overview of Egypt

The Egyptian economy has long been characterized by a dominant public sector. Price and administrative controls maintained over the years on public and private sector activities have impeded the working of the market mechanism and created structural weakness in the economy.

President Sadat’s open door policy partially liberalized the economy and produced a short robust of growth. Egypt's economy grew strongly in the late 1970s and the early 1980s owing larg...