Balance of payments

Balance of payments is the accounting done by a country, mostly annually using their domestic currency, in relation to the international trade it has been doing with the rest of the world. The transactions themselves include the exchange of goods and services or the provision of capital between a country and the rest of world, the main objective of balance of payment is to improve the economic growth rate of the business and to create more opportunities to better the country’s financial structure (Balance of Payments Manual. (2005)

Since the 1950 has an unfavourable balance of payments. In an effort to improve the situation they changed the exchange rate from a fixed one to a floating one. However until now it has remained unfavourable due to increase in the cost of petroleum in the Arabian countries. To fill in the gap, the government borrowed money from other countries but it only made the situation worse, by increasing the deficit the balance of payment became more unfavourable. In 2008 the BOP still remained unfavourable. The current account showed a deficit in the imports and exports in the country where the imports are higher than the exports.

Solutions to how to lower the deficit in the nation.

The country has formulated ways to cater for the deficit. This refers to taxation, consumption and production ways to reduce budget. The government, citizens, workers, businesses and investors have formulated ways to curb the issue at hand through various ways.

Promoting economic growth and creation of job opportunities, this creates a win- win situation. Higher employment and increase in tax revenue offers a large pool of finance contribution. It sets expenditure ratio and lowers debt to GDP.

The government has also tried to regulate the rules in regard to business since most investors are usually afraid to create jobs in the country. Positive investment too is an approach by investors to lower the deficit. If infrastructure and quality production and training of workers would make U.S products and services more competitive this would make revenue increase since production is high. Investment would be a great source of employment to the nation (Hanson, 2005).

President Obama made a proposal “living within our means and investing in the future”. The plan included tax increase on the wealthy along with future cuts on expenses on health care, defence and mandatory saving programs.

Through proposal act in lowering tax margin would encourage citizens to invest and also would prevent avoidance in the purchase of non-taxable items. In another view it would encourage people to pay their taxes. All this would increase revenue in the nation. Lowering taxes would also encourage businesses to focus more on economic beneficial factors rather than ways to invest with minimal taxation involved (Reducing the deficit: spending and revenue options, 2011).

The citizens would also reduce deficit through reduction of importation of goods and increasing local production. This would increase exportation and would increase the nation’s production level. Paying of taxes too would help increase the level of revenue in the nation.

Implementations by the nation.

The government has revised several laws and acts; they increased the value of child tax credit, included tax relief to married couples and prevented more taxpayers from being subject to alternative minimum tax.

The government has also lowered its borrowing and focused more on living on what it can afford and produce.

The president has also made reforms to ensure controlled and proper payment since over the past years the country has been losing a lot in improper allocation of payments (Budget of the U.S. Government: Fiscal Year,2012).

A reduction in the national deficit would be a great improvement in the nation and would help reduce debt and increase economic growth.

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