How to Correct an Unfavourable Balance of Payments

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.

Read: Tools Used to Control International Trade and Protect Local Industries

The following are ways to correct an unfavourable balance of payments:

1. 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.
2. Encouragement of Exports: Domestic industries need to be promoted and supported to increase exports by providing incentives, market access, and trade agreements.
3. Establishment of Import-Substitution Industries: Domestic industries should be developed that can produce goods that were previously imported, reducing reliance on foreign products.
4. 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.
5. Finding New Markets: New international markets need to be sought out to diversify exports and reduce dependency on a limited number of trading partners.
6. 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.
7. Loans from Richer Nations: Loans or financial assistance should be obtained from wealthier nations to address short-term balance of payments issues.
8. Imposition of Embargo: Trade embargoes should be imposed on certain goods and services, restricting their import or export as a means of economic leverage.
9. Control of Foreign Exchange: Foreign exchange controls can be implemented to limit the availability of foreign currency for imports, thereby reducing imports.
10. 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.
11. Reduction of Government Expenditure Abroad: Government spending on international initiatives, projects, or foreign aid should be cut down to conserve foreign exchange.
12. Increase in Local Production: Local production can be boosted to increase the supply of exportable goods and reduce the need for imports.