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Most candidates who attempted the question could not identify the situation as unfavourable balance of payment. Some also could not

state measures the country could take to correct the situation.

The expected responses are.

1. The situation is referred to as an unfavourable/adverse/deficit balance of payment.


2. Measures to correct an unfavourable balance of payment


1. Restricting imports: If imports are more than exports, the country should restrict imports to reduce its citizens’ demand for imported goods and services. Such restrictions may take the form of total ban, quotas, and increased import duties.


2. Increasing exports: A country may resort to measures that would encourage its citizens to produce for export; where by its earnings from exports would be used to offset its import bills.


3. Exchange control: The government of a country may introduce measures that would regulate the amount of foreign exchange available for importers.


4. Devaluation: A country may reduce the official rate of exchange of her currency with other currencies. The effect of this is to make

exports cheaper and imports expensive, thus increasing the demand for her exports.

5. Borrowing: A country may borrow to solve its balance of payment problems. Such loans should go to finance home production for export.


6. Sale of gold reserves/ foreign investment: A country may sell part of its gold reserves as well as other securities so as to finance its balance of payments.


7. Gift or aid: A country may seek assistance from friendly countries and donor agencies to correct its adverse balance of payments.


8. Drawing on foreign reserves: A country can make drawings on its external reserves to solve her balance of payment problems.


9. Import substitution: A country may encourage domestic producers to produce close substitutes of imported products to discourage importation of such good.