(a) Explain the term balance of payments deficit
(b) What four measures can be taken to reduce the balance of payments deficit of a country?
Explanation
(a) A balance of payments deficit occurs when the combine receipts on the current and long term capital accounts of a country are less than the corresponding
payments. Or When a country's expenditure flows are more than the country's income flows.
(b) Methods or ways of reducing balance of payment deficit are:
(i) Foreign exchange control — Rationing of foreign exchange
(ii) Expenditure reduction —To cut domestic demand and reduce imports
(iii) Expenditure switching — Exchange rates manipulation to induce people to patronize locally made goods.
(iv) Fiscal control — raising tariffs i.e. increase in import duties.
(v) Increasing exports — to generate more foreign exchange.
(vi) Raising interest rates to reduce bank lending.
(vii) Devaluation.
(viii) Borrowing
(ix) Selling investments abroad