Cambridge International as and a level Economics Ebook

Net errors and omissions
Th
e balance of payments as a whole must always balance. 
Th
is is because any credit item has to be matched by a 
corresponding debit item. For example, if a country sells 
exports, these exports will be recorded as credit items. To 
purchase the exports, foreigners would have to obtain the 
currency of the country they are importing from. Th
ey 
may do this by, for instance, borrowing from the country’s 
banks – a debit item.
A defi cit on the current account of the balance of 
payments should be matched by a surplus of equal 
value on the capital and fi nancial accounts. In practice, 
however, with so many transactions involved, it is 
diffi
cult to keep an accurate record. Some mistakes 
are likely to be made and some transactions may not 
be included. To compensate for this, 
a net errors and 
omissions
fi gure (also sometimes called the balancing 
item) is included. For example, if the current account 
plus the capital and fi nancial accounts, add up to minus 
$2,000 million, this means that $2,000 million more 
must have come into the country than was recorded. 
In this case, a net errors and omission fi gure of plus 
$2,000 million would be added. By including the net 
errors and omissions fi gure, it means that the current 
account, capital account, fi nancial account and net errors 
and omissions equal zero.
Over time, more and better quality information is likely 
to become available and so the size of the net errors and 
omissions fi gure usually declines. It is interesting to note that 
the value of current account defi cits experienced by some 
countries should be matched by the value of the current 
account surpluses experienced by other countries but again, 
due to mistakes and items being left out, this is not the case.