Balance of Trade and Balance of Payment
(a) Balance of Trade:
It is the relationship between a country’s visible goods (Exports) and imports (goods) within a trading period or year. It could be favourable or unfavourable.
(i) Favourable Balance Of Trade: When a country’s exports of visible goods exceed her visible imports (physical/tangle imports), the trade is said to be favourable.
(ii) Unfavourable: When a country imports more goods than what is exported i.e. visible goods, the trade is not favourable.
Note: Only the total visible exports and imports are being considered when it comes to the balance of trade.
(b) Balance of Payments:
This has to do with the relationship between the total receipts in export and payments on imports of a country’s visible and invisible items (Physical or tangible goods and services. This can be favourable or unfavourable too.
(i) Favourable Balance of Payment: if a county’s total receipts from visible items exceed her total payments on visible and invisible items of import within a given period of trading.
(ii) Unfavourable Balance of Payment: it occurs when a country’s total receipts on exports of both visible and invisible imports within a given period of trading.
Remedy for Deficit/Adverse Balance of Payment
- The imposition of tariffs will reduce the importation of goods by increasing their prices.
- Devaluation of domestic currency.
- Establishment and promotion of import substitution industries
- Borrowing from financial institution e.g. IMF
- Increase in domestic production of goods
- Sales of foreign investment and assets
- Control of foreign exchange transaction