(a) What is balance of payment disequilibrium? (b) Explain the two types of balance of payment disequilibrium. (c) Highlight any four reasons most West Afri...

(a) Balance of payments disequilibrium. Balance of payments disequilibrium is a situation in which a country's total autonomous receipts from abroad are not equal to its total autonomous payments abroad over a period, so that the balance of payments does not balance on its own but shows a persistent surplus or a persistent deficit.

(b) Two types of balance of payments disequilibrium:

• Surplus (favourable) disequilibrium. Total receipts from abroad exceed total payments abroad, so the country earns more foreign exchange than it spends and reserves rise.
• Deficit (unfavourable or adverse) disequilibrium. Total payments abroad exceed total receipts, so the country spends more foreign exchange than it earns, draining its reserves and forcing it to borrow.

(c) Four reasons most West African countries face balance of payments problems:

• Heavy dependence on imports. They import large quantities of manufactured, capital and even food items, so payments abroad are large.
• Reliance on a few primary exports with unstable prices. Export earnings depend on a small number of raw materials whose world prices are low and fluctuate, so receipts are small and unsteady.
• Heavy external debt servicing. Large repayments of principal and interest on foreign loans drain foreign exchange.
• Spending on invisible imports and capital flight. Payments for foreign services (shipping, insurance, technical services) and the movement of capital abroad worsen the deficit.

Examination takeaway: the root of most West African deficits is structural, importing costly manufactures while exporting a few cheap, unstable primary goods; state each reason and show how it widens the gap between payments and receipts.