Measures (Policies) of solving/correcting balance of payment problems in developing   countries

The measures taken should be aimed at;

(a)  Increasing   exports and export earnings.

(b) Decreasing   imports and import expenditure.

1. port promotion policy. This  policy  is aimed  at  increasing   the  export  base  and  reducing   the obstacles   in the export  process  through   subsidization   of producers   and  trade  liberalization.    This leads to increased exports and export earnings.
2. Devaluation policy. This is the deliberate government   policy of reducing the value the country’s currency in terms of other currencies.   Devaluation   helps to discourage   imports by making   them expensive   for the locals and encourages   exports as they become cheaper to the foreigners.   This can be successful   if both imports and exports have elastic demand.
3. Import substitution   policy.   This    policy    is   aimed    at   establishing     industries     to   produce commodities    formally   imported    by   the country   as a way   of reducing    imports   and   import expenditure.
4. Economic diversification.  Developing    countries   need   to diversity   their   economies    so as  to reduce  their  over  dependency   on  a  few  traditional   cash  crops .like  cotton   and     Instead, they  should carry  out a number  of economic  activities  in order  to diversity   their  export  base  and increase  on their  foreign  exchange  earnings.
5. Economic integration.  Developing    countries   should   encourage    economic   integration    within themselves   in order to promote   market expansion.   This will not only encourage   production   for export   purposes   but also widen   the source   of foreign   exchange    earnings   for the   integrated    countries.
6. Foreign exchange control. The government should control the  issuing  of foreign  exchange   for import   purposes.   It  should   give   foreign   exchange    at  lower   rates   to  importers    of   essential commodities   which  are  scarce  in  the  economy   and  at high  rates  to  importers   of non-essential commodities.   This helps to regulate foreign exchange expenditure.
7. Political stability and security. Governments   of developing   countries   should promote   political stability   through   democratic    means   and peace      This   will not only create   a  conducive investment   climate  but also a reduction  in expenditure   on defense.
8. Infrastructural development. The government should encourage   the development   of social and economic   infrastructures    in form of transport   network,   communication    facilities,   banking   and insurance    services.   This   can   help   to   facilitate    production,     distribution     and   exchange    of commodities   among countries.
9. Divesture. The government should completely   privatize   all its inefficient   parastatals   in order to minimize            corruption    and   embezzlement     of government     funds.   This   will   not   only   reduce government   expenditure but also promote efficiency in production   hence better quality exports.
10. Encourage foreign investors. Foreign   investors   bring   in foreign   exchange   and increase   on capital inflow through their   private   foreign investment   within   the country.   This also increases production   of better quality products   for export purposes.
11. Use of restrictive fiscal and monetary policies. Such policies   can be used to encourage   export production   and to discourage   demand   for imports.  For  example  use  of restrictive   fiscal  policies like   increased   taxation,    reduced    government    expenditure    and   restrictive    monetary    policies should  be  applied  to  reduce   on  aggregate   demand   for  imports   and  to  control   inflation   in  the economy.
12. Import restrictions. Developing countries   should use appropriate   import restrictions   like import quotas and increasing import duties as a way of reducing imports and import expenditure.
13. Seeking foreign aid. Developing countries   should seek for foreign aid in form of donations   and grants   from developed   countries   with surplus resources.   This can help them to finance   their productive   activities hence increasing production   for experts.
14. Promoting tourism. Developing countries   should promote   tourism as a way of earning   foreign exchange.  This is possible if they maintain political stability and security.