Is my eco teacher correct here? (1 Viewer)

[Girls]

Hey, so my eco teacher asserts that foreign financial aid is recorded as a credit on the Transfers Account, but I can't find evidence in either Dixon, Riley, Excel or the Internet as to whether or not this is true. We just accepted it as fact but after doing a past paper with the whole class getting a related question incorrect, we aren't so sure any more.

This would be an outflow of Australian funds, so is financial aid to foreigners really a credit for the current account?

 

[Drifting95]

Non conditional financial foreign aid (meaning the country can spend the $ how they want) is recorded in Secondary income on the Current Account. A credit or debit will depend on if the country is receiving or donating the financial aid obviously.

On the other hand, conditional financial foreign aid (meaning the country states how the $ is to be spend, e.g for new infrastructure) is recorded in the Capital Account.

Also, if the aid is flowing out of Australia, it would be a debit for Australia in either of these sections mentioned above in the balance of payments.

 

[Girls]

See I would have naturally assumed that what you have said is correct.

I really don't know why our teacher told us that financial aid to other nations from Australia is recorded as a credit in the transfers account. Especially when considering that an outflow of capital aid is a debit on the capital transfers. It just didn't add up whatsoever.