DEFINITION

Balance of payments is defined as a systematic record of all economic transactions between the residents of a country and residents of foreign countries during a certain period of time.

IMPORTANCE
BOP provide extremely useful data for economic analysis of countrys weakness and strength as a partner in international trade. It also reveals the changes in composition and magnitude of foreign trade. BOP also provides indications of future transactions of country past trade performances. It also reveals the weak and strong points in countrys foreign trade relations.

COMPOSITION
The BOP account of a country is constructed on the principle of double-entry book-keeping. Each transaction is entered on the credit and debit side of the balance sheet. In Balance of payments accounting, credits are shown on the left side and debits on the right side of the balance sheet. When a payment is received from a foreign country, it is a credit transaction while payment to a foreign country is a debit transaction.

STRUCTURE
The economic transactions between a country and the rest of the world may be grouped under two broad categories: CURRENT TRANSACTIONS: It refers to export and import of goods and services that change the current level of national income.  CAPITAL TRANSACTIONS: These are those which increase or decrease a countrys total stock of capital, instead of affecting the current level of national income.

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Current Accounting: In this, the exports of goods and services and receipts of transfer payments are entered as credits(+) because they represent receipts from foreigners. On the other hand, the imports of goods and services and grant of transfer payments to foreigners are entered as debits(-) because they represent payments to foreigners. Capital Accounting: In this, borrowings from foreign countries and direct investment by foreign countries represent capital inflows. They are positive items or credits because these are receipts from foreigners. On the other hand, lending to foreign countries and direct investment in foreign countries represent capital outflows. They are negative items or debits because they are payments to foreigners.

DISEQUILIBRIUM
A disequilibrium in the balance of payments of a country may be either a deficit or a surplus. A deficit or surplus in BOP of a country appears when its autonomous receipts do not match its autonomous payments. If autonomous credit receipts exceeds autonomous debit payments, there is a surplus in the balance of payments and the disequilibrium is said to be favorable. On the other hand, if autonomous debit payments exceeds autonomous credit receipts, there is a deficit in BOP and the disequilibrium is said to be unfavorable.

FISCAL POLICY
Fiscal Policy means a policy under which the government uses its expenditure and revenue programs to produce desirable effects and to avoid undesirable effects on the national income, production and employment.

OBJECTIVES
 Fiscal policy for Stabilization  Fiscal policy for external Economic Stability  Fiscal policy for Economic Development  Economic justice and equity