Question

Write about Zimbabwe Balance of Payment, including the recent data and detailed analysis, also give some suggestions to improve the Balance of Payment of Zimbabwe?

Answer 1

Zimbabwe had been consistently running BoP deficit till Sept. 2019 and only recently it has become BoP surplus country. Of late, Zimbabwe was running short of foreign currency to pay for imports, so it significantly reduced electricity import.

One of the many reasons for turning the BoP from deficit to surplus could be its Current Account (CA) Surplus. This hand-in-hand relation of CA and BoP shows if the BoP has to be improved CA should also run in surplus. BoP shows, in laymen's term, how much a country is competitive globally.

To improve the health of CA, the country needs to export more of what it is expert in making, and at the same time, it should rely more on locally produced goods. To enhance more production of local goods, the country needs to slightly become a protectionist by elevating the level of import tariffs. Zimbabwe also needs to provide subsidies to local firms so that their exports become more competitive in the global market.

With certain financial and monetary instruments, the Reserve Bank of Zimbabwe can let the currency slightly depreciate to make exports more competitive in the long run (as per J-curve). Also, if the currency depreciates, the import would become expensive and the people would turn to consume local goods ( if Marshall- Lerner conditions satisfy).

Also, Zimbabwe should make the investment for foreigners more lucrative by elevating interest rate so that capital account remains surplus. Remittances can also play an important role in reducing the capital account.

Many policies together can improve the health of BoP.