3.2 Balance of Trade and Balance of Payments

Balance of Trade (BOT): the goods-only ledger — merchandise exports minus merchandise imports. Nepal's BOT: a chronic, structural deficit (among the world's largest relative to GDP — the import flood: fuel, machinery, gold, food, raw materials; the export trickle: carpets and garments' faded era, large cardamom, iron-steel products, yarn, tea, herbs).Balance of Payments (BOP): the complete record of a country's transactions with the world in a period — the double-entry account of everything crossing the border: | Account | Contains |Nepal's pattern | |---|---|---| | Current account | trade in goods (BOT) + services (tourism, transport) + income (interest, profit) + current transfers (remittances!) | trade deficit massively offset by remittances (~a quarter of GDP) and tourism: the current account's survival equation | | Capital & financial account | FDI, portfolio flows, loans, aid (grants in the current account's transfers; concessional loans here), banking flows | modest FDI; concessional borrowing; the aid flows | | Overall balance + financing | the change in reserves | reserves as the buffer (months of import cover — the watched number) |The conceptual pair (the exam's trick): BOT is one line; BOP is the whole account — a country can (and Nepal does) run a large BOT with a manageable BOP because transfers bridge the gap: the remittance economy's entire macro logic in one…