Spain’s Balance of Payments: A Detailed Analysis
Item 11: External Sector
11.1. Structure of the Spanish Balance of Payments
The Balance of Payments represents the operations a country places with the rest of the world in an accounting document with economic transactions made over a period of time. Currently, the model which is followed is published by the IMF. It is made up of 4 sub-balances:
- Current Account: Includes all external transactions that may affect the income of a country.
- Trade Balance: Reflects the costs and revenues associated with imports and exports.
- Services Trade Balance: Revenues and expenditures in respect of services abroad.
- Income: Receipts and payments that have their origin in the remuneration of productive factors.
- Current Transfers: Receipts and payments that are not remuneration for goods and services but affect the level of disposable income in the country, such as remittances or taxes.
- Capital Account: Capital transfers affecting the ownership of assets but do not pose a direct variation on income.
- Financial Account: It reflects the position before a debtor or creditor country.
- Investments: Can be direct (those that seek to control companies) or portfolio (seeking returns).
- Other Investments: Like loans, credits, and deposits.
- Reservations: Indicates the fluctuation of foreign reserves.
- Errors and Omissions: To adjust the balance to achieve its final account balance.
11.2. Current Account and Capital Account in Spain
From 1970 to the present, the balance has closed every year with a deficit:
- The trade balance is always negative.
- The services balance is always in surplus.
- Income regularly has a negative balance.
- Current transfers regularly have positive balances.
Commercial operations are responsible for the chronic deficit.
Causes of the Trade Balance Deficit:
- Specialty production in medium-low technological intensity.
- Energy dependence.
- The inflation that we have traditionally had.
- Economic opening, first with development, then contact with Europe, and later integration with the EU.
Balance of Services: Main countervailing game deficit. They are a very heterogeneous group in which the main item is tourism, but royalties and intellectual property rights have a negative balance and a high growth trend.
Balance of Income: Income from work is not very important quantitatively. However, Investment reflects a negative balance due to the large payment involving foreign direct investment in our country, but in recent years, financial investments abroad are increasing.
Current Transfers: Shaping your balance by migrant remittances in development and currently received by EU transfers.
Capital Account Balance: Collects the high income by way of monetary funds and cohesion from the EU. It has also received payments made to international agencies and developing countries to finance cooperation projects.
11.3. Financial Account and Foreign Investments
It reflects the position of a creditor or debtor country to the rest of the world, where the origin of the resources that financed the deficit and the fate of surpluses from abroad are. It has been very limited but has been increasing in recent years (Iberoamerica and the EU). In Spain, foreign investment is critical to the deficits, providing property and creating businesses; it is mainly a European presence.