(a) What is balance of payment disequilibrium? (b) Explain the two types of balance of...
(a) What is balance of payment disequilibrium?
(b) Explain the two types of balance of payment disequilibrium.
(c) Highlight any four reasons most West African countries are experiencing balance of payment problem.
Explanation
(a) Balance of payment disequilibrium refers to a situation where the total receipts of a country's exports are not equal to the total payments on imports usually for a year.
(b)(i) Balance of payment surplus: This is a situation where the total receipts from a country's exports is greater than the total payments on imports of a country in a given year or vice versa.
(ii) Balance of payment deficit: This is a situation where the total payments on imports is greater than the total receipts of a country's export in a given year or vice versa.
(c)(i) Over-reliance on imported goods.
(ii) Inadequate technical know-how/low level of technology.
(iii) Over-reliance on primary products whose prices fluctuate on the world markets.
(iv) Political instability/crisis which disrupts production of exports.
(v) Servicing of foreign debts.
(vi) Excessive government expenditure on unproductive activities.
(vii) Existence of import dependent industries which expends foreign exchange on imports.
(viii) Poor infrastructural facilities which hinder production.
(ix) Over-reliance on one export product whose prices are unpredictable.
(x) Deterioration in the terms of trade as a result of rising imports prices.
(xi) Inflation which increase the cost of production and make exports uncompetitive.
(xii) Fall in the value of the domestic currency/ devaluation which increases the prices of imports.
(xiii) Low level of agricultural production which reduces the volume of exports.