Question

How is current account and capital & financial account with net surpluses beneficial for a small and resource lacking economy (e.g Singapore)?

Answer 1

The Balance of Payments is a double entry accounting system based on debits & credits. If all Current Account transactions are recorded & if all Capital Account (Financial) Transactions are recorded the debits & credits all cancel out and everything "Balances". If you use the definition of economic theory (capital account = IMF financial account), this gets a bit problematic, as export and import are linked to other investment in a negative relationship (other investment is a counter-account to export and import transactions) and all types of investment are also connected to the income balance in a negative way (through income from investments). The reason may lie in the fact that not all transactions have (yet) been taken into consideration. I think a good idea is to check the error balance. In total, if both the current and capital (IMF financial) are in surplus, there will be strong pressure on appreciation of the currency. Capital and current account can simultaneously be positive if the surplus of one of them is caused by transactions that are recorded on the examined account and on a third account, e.g. foreign exchange reserves or errors and omissions (or the "capital" capital account). So part of the transactions is not mutually balanced between the current and capital accounts. Hence net surpluses in both current account and capital/financial account is beneficial for a small and resource lacking economy.