Balance of payment in Nigeria
Balance of payment refers to the statistical recording of economic transactions that has been done systematically, between the habitants of a country and the rest of the world, done during a period of one year. This statement is a device used to record all the transactions carried out in a country in a year, between the residents of that country and the other countries in the world. By residents, corporate bodies and governments are included. There are various transactions involving money that a country engages in, namely; exporting and importing. Exports in Nigeria gives receipts from foreign countries. On the other hand, imports result in other countries making payments to Nigeria. International borrowing and lending amongst countries gives rise to monetary transactions between them. Payment of foreign debts results to international payments and receipts. These payments and receipts are included in yearly records.
The current account balance (% of GDP) in Nigeria read 4.43 in the year 2012, in accordance to the World Bank. This account balance indicates the sum of the net export, which includes goods and services, net income and the total current transfers. This balance of payment in Nigeria is clearly faced by disequilibrium of balance due to the occurrence of unilateral payments and receipts of visible and invisible exports and imports. This occurrence has caused a movement on one side in these items, causing disequilibrium in the country’s balance of payment.
Nigeria has had immense development and investment programmes causing the developing economy to suffer a deficit in the balance of payment. The need for the country to import increases the need for more capital to support mass industrialization, while the exports remain not boosted up. Nigeria’s export products are mainly agricultural and petroleum products and can not generate the money needed to create an equilibrium in the balance of payment.
Deficit in Nigeria’s balance of payment can also be blamed on rapid economic developments which adversely affect the resulting income and prices. The developing country needs to support this economy by importing more articles. With the country largely investing on industries, there is a resulting inflationary effect on the economy as the output produced by these industries does not bring forth immediate monetary returns to compensate for the income already invested.
With Nigerian government’s large expenditure on steel and iron industries, petro-chemical and fertilizers projects, the supply of money has been expanded largely. The result of this expansion is a situation where increasing need for monetary funds for goods and services and an increase in pricing levels.
Another cause of deficit in Nigeria’s balance of payment, and maybe the most pesky one, is the consumption pattern in the coast of Nigeria where Nigerians come into contact with Europeans, causing them to adopt the expensive lifestyles of Europeans such as purchase of expensive cars. With the high demand of good things that Nigeria cannot produce, there is a pressure on the balance of payment.
Nigeria’s deficit in equilibrium can be covered by deflating their currency so that the consumption of their home products is reduced through reduced income. If the consumption of home products is reduced, the goods available for export increases, reducing the deficit in the balance of payment.
Secondly, the country can use the exchange control method to correct its deficit where an exchange control authority directs all exports surrender their foreign earnings to the authority and rations only licensed importers. Imports into the country can also be levied to reduce deficit.
Nigeria can also restrict imports coming into the country through a Quota system to reduce the deficit brought about by adoption of expensive lifestyles.
Sloman, John (2004). Economics. Penguin. pp. 516, 517, 555–559.
Michael P. Dooley, David Folkerts-Landau, Peter Garber (February 2009). “Bretton Woods II Still Defines the International Monetary System”. National Bureau of Economic Research.
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