Discuss the measures that can be taken by a country seeking to correct its balance of payment deficit.
Measures to correct balance of payment deficit are:
(i) Devaluation: Devaluation cheapens exports and makes imports expensive, thus improving the balance of payments.
(ii) Reduction of imports: The government can restrict imports by the use of tariffs on imports, quotas and embargo.
(iii) Grants and aids: This can be obtained from richer or friendly nations to offset the deficit that occurs in the balance of payments.
(iv) Borrowing: A country can borrow money from IMF or other richer nations in order to correct her balance of payment.
(v) Promotion of import substitution industries: This is done to replace the commodities that were previously brought from foreign countries.
(vi) selling of the country's investment abroad and using it to pay the creditors can also serve as a solution.
(vii) Drawings on the value of the country's foreign reserve to pay the creditors.
(viii)The encouragement of exports can be promoted through subsidies and concession.
(ix)With a spectacular rise in production, domestic prices of goods would be brought down and export of goods stimulated. Demand for imported goods will reduce.
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