What is the current account of a country?
The current account of a country comprises its imports and exports of goods and services, plus income from foreign investments minus payments made to foreign investors, and net international transfers of capital over a given period of time, such as a quarter or a year.
Put differently, the current account of a country is its trade balance (exports and imports of goods) plus net income and direct payments.
Payments received by a country are called credits, while payments made are referred to as debits. Thus, exports are indicated as credits, and imports are recorded as debits. Express differently, items received by a country are recorded as debits. Conversely, items delivered in transactions are recorded as credits.
Part of a country’s balance of payments
The current account is not to be evaluated in isolation, because it is one of the components of a country’s balance of payments system. The other two components are the Capital Account and the Financial Account:
- The Capital Account is a record of all financial transactions that do not affect the country’s income, savings, or production.
- The Financial Account records the fluctuations (increases and decreases) in ownership of international assets.
Noteworthy, in accordance with double-entry bookkeeping, credits (such as exports) in the current account will have corresponding debits recorded in the capital account.
The components of the current account
The current account consists of four components: trade, net income, direct transfers, and asset income.
Trade
Trade (buying and selling) of goods, services, and commodities between countries is the largest component of the current account.
A trade deficit (value of imports exceeds the value of exports) can be enough to cause a current account deficit. A deficit in the trading of products and services is often of such an extent that it can cancel out any surplus in net income, direct transfers, and net income.
Net income
Net income refers to all the income generated by the residents of a country minus income paid to foreigners.
Residents receive income from two sources, namely:
- Work done in foreign countries.
- Interest and dividends earned on foreign investments.
Income paid to foreigners also derives from two similar sources:
- Interest and dividends are paid to foreigners on investments held in the particular country.
- Money paid to foreigners for work done in a specific country.
A positive net income occurs if the income generated by a country’s individuals, businesses, and government from foreigners, exceeds the income paid to foreigners.
Contrarily, a deficit is created if the income received is less than the amount of income paid to foreigners.
Direct transfers
Direct transfers comprise, inter alia, the following actions:
- Money sent from workers in one country back to family and/or friends in their native country.
- Investments made into ventures, businesses, or assets in a foreign country.
- Direct foreign aid by a government to another country.
- Loans provided by banks to foreigners.
Asset income
Asset income includes increases and decreases in assets within a country, entailing real estate, securities, reserves held by government and central banks, and bank deposits.
As a rule, assets belonging to foreigners get deducted from the asset income of a country. Assets like:
- Loans made to local banks by foreign banks.
- Securities of a country’s companies, such as bonds and shares, bought by foreigners.
- A foreign direct investment. For example, debt, equities, and reinvested earnings.
- A country’s obligations to foreigners such as deposits of foreign residents at the banks in the country.
- Other debts that belong to foreigners.
- Assets held by governments of other countries.
- Foreign private buying of a government’s bonds. In South Africa, bonds are issued by the National Treasury.
- Net shipments of a country’s currency to foreign governments.
Contrarily, the following types of assets will increase the asset income.
- Loans by banks to foreigners.
- Deposits of residents and entities at foreign banks.
- Debt obligations of foreigners to a country’s residents and businesses.
- Sales of securities of foreign companies.
- Direct investments made in foreign countries.
- Assets in foreign countries that are owned by the government of a country.
- A country’s official reserve assets of foreign currency.
Interpretation of the current account
The current account is important because it measures a country’s current trade activities, direct investments, and the effectiveness of assets held by residents and entities of a country.
In addition, the current account, as a component of the balance of payments, is used to determine a country’s financial surpluses or deficits accurately.
The balance of a current account can be:
- In balance, meaning a country’s government, businesses, and residents have enough money to engage in buying activities in the country, funding all purchases in the country.
- Positive (or a surplus), indicating that a country is a net lender to other countries and a net exporter of goods and services. It also shows that a country earns more than it spends.
- Negative (or a deficit), signalling that a country is a net borrower and a net importer of goods and services. A negative balance also indicates that a country spends more than it earns.
Current account balances of some countries
According to the World Bank, the ten countries with the largest account surpluses (as a percentage of GDP) in 2025 were: China, Germany, Japan, South Korea, the Netherlands, Italy, Singapore, Russia, Australia, and Kuwait.
China’s current account balance was 298.8 billion US dollars in 2025, which is 1.9% of the country’s GDP.
The USA’s current account balance was a deficit of 647.2 billion US dollars in 2025 – 3.1% of the country’s GDP.
Regarding South Africa, the country recorded a current account with a positive balance of R342.8 billion (5.6% of GDP) for the second quarter of 2025. This was the largest current account surplus since records became available in 1960.
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