Secondary income (also called current transfers) is a component of the current account that records one-way, non-reciprocal transfers of money or goods between residents of one country and the rest of the world.
Key characteristic:
- Unlike trade in goods or services, secondary income involves no quid pro quo — the transfer is made without any corresponding economic value being received in return.
Types of secondary income:
- Personal transfers: money sent by migrants or workers to their home countries (e.g., remittances)
- Government transfers: foreign aid, grants, military aid, and contributions to international organisations (e.g., UN, EU)
- Other current transfers: pensions, welfare payments, and charitable donations
Treatment in the accounts:
- When a country receives a transfer, it is recorded as a credit (no goods or services received in return)
- When a country makes a transfer, it is recorded as a debit
Significance:
- Secondary income can significantly affect a country’s current account balance
- Remittances are a major source of foreign currency for many developing countries
- Large aid payments or diaspora remittances can mask underlying trade imbalances
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