Causes of a Deficit or Surplus — Current Account of the Balance of Payments | IGCSE Economics

Exam Frequency Analysis

Past paper frequency (2018 to 2024)

This topic accounts for approximately 5% of your exam marks.

new

Rare

New5%

New emphasis in the 2027 syllabus; the structure of the current account and the causes, consequences and correction of deficits and surpluses are examined directly. Guidance based on specimen materials.

The balance changes whenever the value of what a country sells abroad changes relative to what it buys.

Causes of a current-account deficit

Low international competitiveness. If domestic goods are more expensive or lower quality than foreign rivals, exports fall and imports rise. This can come from high relative inflation, low productivity or a high exchange rate.
Strong domestic demand. When incomes and spending are high, people buy more imports, widening the deficit.
A high exchange rate. A strong currency makes exports dear abroad and imports cheap at home, worsening the trade balance.
Reliance on imported essentials. A country that must import much of its food, fuel or raw materials runs a structural import bill.

Causes of a current-account surplus

The opposite conditions: high competitiveness from low costs, high productivity or a low exchange rate; weak domestic demand that holds imports down; or a strong base of exports such as commodities, manufactured goods or services like tourism and finance.