Make exports cheaper by subsidising them. Reduce imports by rationing or reducing foreign currency allocation for importers. Reduce the number of importers by controlling the issue of import licences. Discourage domestic consumption of specific products by introducing excise duty and export more goods.

How can we solve the balance of payments problem?

First, fall in domestic prices or lower rate of inflation will induce people to buy domestic products rather than imported goods. Second, lower domestic prices or lower rate of inflation will stimulate exports. Fall in imports and rise in exports will help in reducing deficit in balance of payments.

What causes Unfavourable balance of payment?

Balance of payments is unfavorable when its payments are more than its receipts. This situation reduces foreign exchange reserves. In this case exports of goods, services and capital receipts are less than import of goods, services and capital receipts are less than import of goods, services and capital payments.

How disequilibrium in balance of payments can be corrected explain?

Since most of balance of payments difficulties is the result of domestic inflation, the disequilibrium may be corrected by disinflation (eliminating the inflationary gap and reducing demand to the level of full employment) or at least by controlling inflation and adjusting the exchange rate.

What is the difference between balance of payment and balance of trade?

Difference between the Balance of Trade and Balance of Payment. BOT is a statement which records a country’s imports and exports of goods with other countries in a period. Whereas BOP records all the economic transactions performed by that country within a period.

How to correct an adverse balance of payments?

Promotion of exports is the best measure to correct an adverse balance of payments. To achieve this end,all taxes on export goods be withdrawn,export industries should be provided raw materials and transport facilities at reduced prices,so that prices of these goods remain low.

What happens if the balance of payments is unfavorable?

If the balance of payments was unfavorable there was an outflow of gold from the country causing a contraction in the volume of currency and credit, and ultimately a fall in the domestic price level. This encouraged exports, while it discouraged imports. The equilibrium in the BOP was automatically restored after some time.

How is disequilibrium in the balance of payment corrected?

The monetary methods for correcting disequilibrium in the balance of payment are as follows :- 1. Deflation Deflation means falling prices. Deflation has been used as a measure to correct deficit disequilibrium. A country faces deficit when its imports exceeds exports.

Is the current account balance balanced or unbalanced?

Balance of payments on current account may be both balanced and unbalanced.In case of balanced position of BOP,receipts and payment on account of exports and imports are equal.