Balance of Payments (B.O.P) 2 SS3 Economics Lesson Note

BALANCE OF PAYMENT (B.O.P)

This is a record showing the relationship between a country’s total payments to other countries and its total receipts from them in a year

           PARTS OF THE BALANCE OF PAYMENT

A country’s balance of payment can be grouped into three parts; namely:

1. Current account
2. Capital account
3. Monetary movement account

FAVOURABLE BALANCE OF PAYMENT

A country is said to have a favourable balance of payments when the money the country receives from both visible and invisible exports is more than the amount it pays for both visible and invisible imports.

 UNFAVOURABLE BALANCE OF PAYMENT

A country is said to have an unfavourable balance of payments when what the country pays for both visible and invisible imports is greater than what it receives from both visible and invisible exports.

CAUSES OF UNFAVOURABLE BALANCE OF PAYMENT

1.   Mono-economy
2.   Decrease/fall, in a country’s exports
3.   Use of crude implement
4.   Low production
5.   Bad weather that results in low harvest 
6.   Inflation
7.   High taste for foreign-made goods and services

HOW TO CORRECT UNFAVOURABLE BALANCE OF PAYMENTS

1. Reduction of import
2. Encouragement of export
3. Establishment of import substitution industries
4. Control of foreign exchange that will limit imports
5. Increase in local production to boost exports
6. Loans from other richer nations as temporary measures
7. Finding new markets to diversify exports