1. BALANCE OF PAYMENTS AND PUBLIC DEBT
INTRODUCTION

2. At the end of this topic, students should be able to:
Define the concept of the balance of payments
Know the details of the balance of payments
Know types of balance of payments
Define balance in balance of payment
Define surplus in balance of payments
Define deficit in balance of payments
Explain what national debt is
Identify the types and sources of government loans
Discuss the purpose of a government expenditure
Explain the purpose of a government debt
Discuss the disadvantages of public debt
Differentiate between domestic loans compared to external borrowing

3. 1. What is balance of payment?
The balance of payments records financial transactions made between consumers, businesses and the government in one country with others. 4

4. 2. Details of the balance of payments
 current account,
Capital Account 5

5. the current account
the current account on the balance of payments measures the inflow and outflow of goods, services and investment income.
The transactions included in current account are trade in goods (tangible), services (intangible), investments income such as dividends and also net transfers such as financial aid from other countries.
A surplus in the current account simply means that export is more than import while deficit in current account means import is more than export.

6. the capital account
The capital account (also known as financial account) is one of two primary components of the balance of payment, the other being the current account.
Whereas the current account reflects a nation's net income, the capital account reflects net change in ownership of national assets.
A surplus in the capital account means money is flowing into the country, the inflows will effectively represent high ownership of domestic assets by foreigners.
On the other hand, a deficit in capital account is obtained when the nation’s citizen is investing in other countries and owning foreign assets.

7. The financial account.
The major components of the financial account are:
Foreign direct investment (FDI)
Portfolio investment
Other investments
Reserves assets 6

8. The financial account. Foreign Direct Investment
-long term capital investment by foreigners in a host country or by a citizen in another country. For example, purchase of equipment or buildings.
Portfolio Investment
-Purchase or selling of shares or bonds from various sources in the international capital market.
Reserve asset
-purchase or selling of foreign currencies

9. Types of balance of payment
Balance of payment maybe:
balanced,
deficit or
surplus.

10. Balance In THE balance of payments
A balance in a nation's balance of payments in which payments made by the country same as payments received by the country.
this rarely happens
Import= export

11. Balance of payments surplus
or the amount by which the money coming into a country is more than the money going out in a particular period of time.
An imbalance in a nation's balance of payments in which:
payments made by the country are less than payments received by the country.
Import< export

12. Balance of payments deficit
An imbalance in a nation's balance of payments in which payments made by the country exceed payments received by the country.
Import> export

13. Public debt
Government debt (also known as public debt and national debt is the debt owed by a central government

14. Source of government loans
Government loan resource is divided into two:
Domestic borrowing (Internal sources)
Overseas loans (External sources)

15. Domestic borrowing
Government borrows from the lenders within the country or the citizens.
Treasury Bills
MARKET LOAN
Small SAVINGS
Provident funds
Investment Certificates
Other loans

16. Overseas loans
Less creditworthy countries sometimes borrow directly from a supranational organization or international financial institutions. Sources of the overseas loans include:
Market loan
LOAN from commercial bank
LOAN FROM OTHER GOVERNMENT
INTERNATIONAL MONETARY FUND OR WORLD BANK

17. Purpose of a government expenditure
To supply goods and services that the private sector would fail to do, such as public goods and services, including education, healthcare and defense.
To achieve supply-side improvements in the macro- economy, such as spending on education and training to improve labour productivity.

18. Purpose of a government expenditure
iii. To reduce the negative effects of externalities, such as pollution due to uncontrolled release of wastages by manufacturers.
iv. To subsidize industries which may need financial support.
v. To help redistribute income and achieve more equility.

19. Purpose of a government debt
The cover for the government's revenue shortfall
To finance economic development and operational costs of incurred by the government.
Funding delayed tax revenue
Allows government to be flexible in fiscal policy 
To boost the economy in terms of growth and development.

20. The disadvantages of public debt
i. The interest on the borrowing is too high -The cost of borrowing will usually increase by years especially a long term borrowing. -It will drag down the standard of living of hard working people and retired people. ii. It will be a cost and burden to the future generation to repay the debt.

21. The advantages of domestic loans compared to external borrowing
not affected by changes in foreign exchange rates
does not involve an outflow of money
more convenient and flexible
lower interest rates