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It helps the government in taking decisions on monetary and fiscal policies on the one
hand, and on external trade and payments issues on the other.
In the case of a developing country, the balance of payments shows the extent of
dependence of the countrys economic development on the financial assistance by the
developed countries.
A balance of payments deficit per se is not the proof of competitive weakness of a nation
in foreign markets. However, the longer the balance of payments deficit continues, the
more it would imply some fundamental problems in that economy.
Thus, a deficit or surplus of balance of payments of a country per se should not be taken
as an index of economic bankruptcy or prosperity of the country. The balance of
payments deals only with the transactions of the period under review.
It does not provide data about assets and liabilities that relate one country to others.
However, despite all these short comings, the significance of balance of payments lies in
the fact that it provides vital information to understand a countrys economic dealings
with other countries.