Question

1. What would be the impact of the COVID-19 on the balance of payments of a country? Please can pick one specific country to discuss.

2. If you are hired as an advisor for the government in the country of your choice in Q1, what advice would you give to the government to deal with the positive/negative impact of the COVID-19 on the balance of payments of the country? Your advice/solutions should be tailored to the impact you discussed above.

Answer 1

So The Balance of Payments ( BOP) is a statement of all transfers between entities in one country and the rest of the world over a given period of time, such as a quarter or a year.

1The Current Account,
2. The Capital Account,
3. The Official Reserve Account

The impact of COVID on BOP of India is as follows

Current account has the following

The import of merchandise has increased compared to the amount of exports.

The indeginious industry have shut down their major production activities.

Import of active pharmaceutical ingredients have increased.

As such there is a rise in current account deficit as seen from the above equation.

In

Service account

Receipts due to tourism have declined sharply

And in Unilateral transfer account there is huge outflow of capital by foreign investors .

All of these causing huge CAD current account deficit.

For CAPITAL ACCOUNT

Tge fdi investment in their foreign subsidiaries have decreased.

FPI investors liquidating their holding and portfolio

And short term claim on debts of foreigners have increased

Therefore the overall balance on capital account have declined due to covid .

The official reserve account have

SDRs or special drawing rights which are used in contingency situation for increasing liquidity. The SDR balances have also declined.

Global economic crises have always caused a worsening balance-of - payment situation for India — with a rising Current Account Deficit (CAD) and a depreciating currency.

Current policy allows us to answer first descriptive question in detail. Please post the remaining questions as seperate entry.

Thanks:)