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Portugal Table of Contents


The Balance of International Payments

The balance of payments reveals much about how the residents of a nation-state earn their livelihood by providing goods and services to foreigners in exchange for goods and services produced abroad. It may also reveal indirectly whether the country is a net creditor or net debtor in its dealings with the rest of the world. The Portuguese international balance was characterized by a protracted and large merchandise trade deficit that was largely offset (financed) by annual surpluses on invisibles, mainly emigrant worker remittances and tourism income. But because of its international debtor position (including a growing stock of private foreign investment in the country), Portugal annually remitted substantial interest and dividend payments to foreigners. Portuguese traders relied predominantly on foreign carriers and insurance firms; as a result, the current account registered annual net payments (debits) for these services.

From 1974 to 1984, Portugal's current external deficits were financed by a combination of foreign reserve drawdowns and official external borrowing, mainly the latter. In the five-year period 1985-89, three years of current account surpluses (for 1985-87, totaling nearly US$2 billion) more than offset two years of current deficits (for 1988-89, totaling US$1.6 billion). Following Portugal's accession to the EC, large and growing inflows of private capital--direct investment, portfolio investment, and repatriation of flight capital--resulted in substantial accumulation of foreign reserves by the Bank of Portugal.

The 1989 balance of international payments was fairly representative of Portugal's position in the late 1980s. The merchandise trade deficit of US$5.1 billion was more than covered by the joint income from tourism (US$2.6 billion) and emigrant remittances (US$3.4 billion). The Portuguese paid exporters and importers US$832 million (net) for the use of foreign carrier and insurance services and remitted US$800 million in net investment income of interest and dividends (US$1,323 million in payments and US$521 million in receipts). Although unilateral transfers (which do not give rise to claims) comprised mainly emigrant worker remittances, net public remittances of US$824 million in favor of Portugal, a recent component of the balance of payments, reflected mainly EC assistance to Portugal in support of economic restructuring.

The algebraic addition of the current account balance (-US$551 million) and the medium- and long-term capital account (US$2,560 million) netted a "basic balance" of around US$2 billion in 1989.

Data as of January 1993