Saturday, June 28, 2008

Balance of Payments cheat sheet

It's been a long time since my last post about the Turkish economy, so an update is long overdue.

First of all, a cheat sheet to guide me through a qualitative analysis. The equations below are taken from the Balance of Payments Manual published by the IMF. Most of it is quite intuitive, but I like to keep the formulas in sight. Please refer to page 21 of the report.

C = private consumption expenditure
G = government consumption expenditure
I = gross domestic investment
S = gross saving
X = exports of goods and services
M = imports of goods and services
NY = net income from abroad
GDP = gross domestic product
GNDY = gross national disposable income
CAB = current account balance in the balance of payments
NCT = net current transfers
NKT = net capital transfers
NPNNA = net purchasses of nonproduced, nonfinancial assets
NFI = net foreign investment or net lending/net borrowing vis-á-vis the rest of the world

GDP = C + G + I + X - M
CAB = X - M + NY + NCT
GNDY = C + G + I + CAB
GNDY - C - G = S
S = I + CAB
S - I = CAB

And the rest of our cheat sheet comes from Wikipedia (I know this is lazy but I'm still officially on vacation and here it's 35 Celsius.)

Current Account = Balance of trade + Net factor income from abroad + Net unilateral transfers from abroad
Financial Account = Increase in foreign ownership of domestic assets - Increase in domestic ownership of foreign assets
= Foreign direct investment + Portfolio investment (equity and debt) + Other investment
Capital Account is the transfer of nonproduced, nonfinancial goods (capital goods.)

Balance of payments identity
Current Account = Capital Account + Financial Account + Net errors and emissions
X - M = Capital outflows - Capital inflows
And the following equations come from a Deloitte report on Turkish economy:

Financing Needs = Current account deficit + Debt servicing (public and private debt)

Resources for Financing Needs = FDI + Portfolio Investments (Equity) + Debt (private and public loans) + Banks' assets in hard currency + Net errors and emissions + Reserves

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