I am given to being excited whenever I see good reporting. Case in point: this January 4, 2016 story in the Business Daily about the current account boost from export inflows. My excitement was short-lived though. By February 7, 2016, the story had changed and now the thrust was: The Balance of Payment (BOP) is not balancing! we are at a deficit now! in other words we are bleeding finances. This is when I couldn't help but recall what John Maynard Keynes said in the essay The Great Slump of 1930 when he quipped that "For — though no one will believe it — economics is a technical and difficult subject."
The point is that somebody has no appreciation on how to interpret the BOP. Oh, it could well be a case of letting facts speak for themselves; in the process one gives the impression that hell has just broken loose.
The fact is that the current account (one component of the BOP) has been weak for a while now.
The logic of the BOP is that if the current account is in deficit, the capital account (the other component) must be in surplus - for the BOP must balance.
If I were to report on BOP, I will be keen to have an appreciation of the difference between what economists the stock variables (measured at a point in time) and the flow variables (measured over a specified timeframe). In BOP, current account is a flow; and some components of the capital account (e.g. debt) are stock. The adjustments that happen in the BOP dynamics will lead to the expected balance.
So the overall BOP deficit shouldn't be over-blown. If anything, the wolf has always been with us; and that wolf is that the external position has been very weak over the past 5 or so years. If you don't believe me, and you do not want to be trapped in the stock-flow matters, just look at the trend of the Kenya Shilling in nominal terms.
The fact is that the current account (one component of the BOP) has been weak for a while now.
The logic of the BOP is that if the current account is in deficit, the capital account (the other component) must be in surplus - for the BOP must balance.
If I were to report on BOP, I will be keen to have an appreciation of the difference between what economists the stock variables (measured at a point in time) and the flow variables (measured over a specified timeframe). In BOP, current account is a flow; and some components of the capital account (e.g. debt) are stock. The adjustments that happen in the BOP dynamics will lead to the expected balance.
So the overall BOP deficit shouldn't be over-blown. If anything, the wolf has always been with us; and that wolf is that the external position has been very weak over the past 5 or so years. If you don't believe me, and you do not want to be trapped in the stock-flow matters, just look at the trend of the Kenya Shilling in nominal terms.
