An unfavourable balance of payments occurs when a country’s imports exceed its exports, leading to economic challenges. To address this issue, various strategies can be implemented.
The following are ways to correct an unfavourable balance of payments:
- Curtailment or Reduction of Imports: There should be the implementation of policies or measures to reduce the volume of imports, which may include trade restrictions or import quotas.
- Encouragement of Exports: Domestic industries need to be promoted and supported to increase exports by providing incentives, market access, and trade agreements.
- Establishment of Import-Substitution Industries: Domestic industries should be developed that can produce goods that were previously imported, reducing reliance on foreign products.
- Imposition of Tariffs: Tariffs or import taxes should be imposed on certain imported goods to make them less competitive and encourage the consumption of domestic products.
- Finding New Markets: New international markets need to be sought out to diversify exports and reduce dependency on a limited number of trading partners.
- Borrowing from IMF: As a temporary measure, countries can borrow from international organizations like the International Monetary Fund (IMF) to stabilize their balance of payments.
- Loans from Richer Nations: Loans or financial assistance should be obtained from wealthier nations to address short-term balance of payments issues.
- Imposition of Embargo: Trade embargoes should be imposed on certain goods and services, restricting their import or export as a means of economic leverage.
- Control of Foreign Exchange: Foreign exchange controls can be implemented to limit the availability of foreign currency for imports, thereby reducing imports.
- Devaluation of Local Currency: There is need for the reduction in the value of the local currency relative to foreign currencies to make exports more competitive and imports more expensive.
- Reduction of Government Expenditure Abroad: Government spending on international initiatives, projects, or foreign aid should be cut down to conserve foreign exchange.
- Increase in Local Production: Local production can be boosted to increase the supply of exportable goods and reduce the need for imports.