Current Account Deficits: Government Investment or Irresponsibility?

The current account is a section in a country's balance of payments (BOP) that records its current transactions. The account is divided into four sections: goods, services, income (such as salaries and investment income) and unilateral transfers (for example, workers' remittances).

A current account deficit occurs when a country has an excess of one or more of the four factors making up the account. When a current transaction enters the account, it is recorded as a credit; when a value leaves the account, it is marked as a debit. Basically, a current account deficit occurs when more money is being paid out than brought into a country.

What a Deficit Implies

When a current account is in deficit, it usually means that a country is investing more abroad than it is saving at home. Often, the logic dictating a country's investment decisions is that it takes money to make money. In order to try to boost its gross domestic production (GDP) and future growth, a country may go into debt, taking on liabilities to other countries. It then becomes what is termed as a "net debtor" to the world. However, a problematic deficit can result if a government has not planned out a sound economic policy and used its debts for consumption purposes, not future growth. (For more insight, see A Look At National Debt and Government Bonds.)

Source : Investopedia