Correcting the balance of payment disequilibrium

Business studies study module

The measures that may be taken to correct this may include;

1.Devaluation of the country’s currency to encourage more exports than imports, discouraging the importers from importing more into the country.

2.Encouraging foreign investment in the country, so that it may increase the level of economic activities in the country, producing what can be consumed and even exported to control imports

3.Restricting the capital outflow from the country decreasing the percentage of the profits that the foreigner can repatriate back to their country to reduce the outflow

4.Decreasing the volume of imports. This will save the country from making more payments than it receives. It can be done in the following ways;

  •  Imposing or increasing the import duty on the  imported goods to make them more expensive as compared to locally produced goods and lose demand locally
  • Imposing quotas/total ban on imports to reduce the amount of goods that can be imported in the country
  • Foreign exchange control. This allows the government to restrict the amount of foreign currencies allocated for the imports, to reduce the import rate
  • Administrative bottlenecks. The government can put a very long and cumbersome procedures of importing goods into the country to discourage some people from importing goods and control the amount of imports

5.Increasing the volume of exports. This enable the country to receive more than it gives to the trading partners, making it to have a favourable balance of payment disequilibrium. This can be done through;

  • Export compensation scheme, which allows the exporter to claim a certain percentage of the value of goods exported from the government. This will make them to charge their export at a lower price, increasing their demand internationally
  • Diversifying foreign markets, to enable not to concentrate only on one market that may not favour them and also increase the size of the market for their exports
  • Offering customs drawbacks. This where the government decides to refund in full or in part, the value of the custom duties that has been charged on raw materials imported into the country to manufacture goods for export
  • Lobbying for the removal of the trade restriction, negotiating with their trading partners to either reduce or remove the barrier put on their exports

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