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Analysis Of Development In Balance Of Payment

5 Chapters
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148 Pages
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16,910 Words

The balance of payments (BOP) is a crucial indicator of a country’s economic health, reflecting its transactions with the rest of the world. Continuous development in the balance of payments is essential for a nation’s economic stability and growth. Positive changes, such as an increase in exports, foreign direct investment, or remittances, contribute to a favorable balance of payments. This influx of foreign exchange enhances a country’s ability to meet its international obligations, build foreign exchange reserves, and stimulate economic development. Conversely, persistent deficits in the balance of payments, driven by factors like excessive imports or capital flight, can pose challenges, potentially leading to currency depreciation and economic imbalances. Therefore, policymakers often strive to implement strategies that promote a sustainable balance of payments, fostering economic resilience and global competitiveness.

PROPOSAL

In undertaking this project topic, the main objective is to analyze the trends in Nigerian balance of payment with a view to determined whether the country is able to pay her wage internationally within periods of 1995 – 1999. Other objective is to determine whether the monetary and exchange rate policies is effective.
To aid this study, the researcher will make use of both primary and secondary data. The primary data to be used will be collected through top ranking officials in Central Bank of Nigeria (CBN) while the secondary data will be collected from books,, journal and other publication.
The data will be presented to tabular form for ease of reference and further analysis. The analysis will be made using percentage to compare the magnitude of economic indicator to be studied..
The significant of this research work is that it is a due to the managers of the economy on monetary and exchange rate policy in addressing Nigerian balance of payment problems.
To the foreign investors, it will provide the citizens of the country a better understanding of how the economy is managed and expectation they shall have from the government. The study will provide the authorities a good insight into the effectiveness of the policy of the past administration which will serve as a guide for future initiatives.
The limitation of this study is financial problem and time. Thus, there will be scarcity of accurate national statistic.
Also, unco-operative attitude by top ranking officials may contribute limitation to this study.

ABSTRACT

This study, an analysis of development in Nigerian balance of payment (1995 – 1999) was carried out to assertion whether Nigeria has been paying her wages internationally to examine the statement with a view to determine what recent developments have taken place in Nigerians foreign trade and others transaction with the rest of the world.
Information was collected using literary method i.e. various publications, textbooks newspapers, magazines and journals. Also, oral interviews were used to elicit information from some government officials (staff).
It was found out that the exports receipts were sufficient to pay for the imports and settle some international obligations that fell due within the period, the fact remains that the managers of the economy did not exercise a considerable amount of control over the foreign exchange resources.
It was however, recommended that if not for the debt management strategies pursued by government during that period, there would have been more years deficits in the balance of payment position over and above four years recommended.

TABLE OF CONTENT

Title Page
Approval Page
Dedication
Acknowledgement
Proposal
Table of Content
Abstract

CHAPTER ONE
1.0 Introduction
1.1 Background of the Study
1.2 Statement of Problem
1.3 Objective of the Study
1.4 Research Question
1.5 Research Hypothesis
1.6 Significance of the Study
1.7 Scope and Limitation of the Study
1.8 Definition of Terms

CHAPTER TWO
2.0 Review of Related Literature
2.1 Introduction
2.2 Overview of the Study
2.3 The theoretical frame work
2.4 Significance of Balance of Payment Statement
2.5 Causes of Disequilibrium in Balance of payment statement
2.6 Measures for Correcting Disequilibrium
2.7 Nigerian Balance of Payment – an overview
2.8 Summary of the Review Literature

CHAPTER THREE
3.0 Research Methodology
3.1 Research Design
3.2 Sources of Data
3.3 Primary Data
3.4 Secondary data
3.5 Interview Question
3.6 Samples used
3.7 Method of Investigation

CHAPTER FOUR
4.0 Data Presentation
4.1 Testing of Hypothesis
4.2 Analysis and Interpretation

CHAPTER FIVE
5.0 Discussion, Implications and
Recommendation
5.1 Discussion of Results
5.2 Recommendation
5.3 Conclusion
References/Bibliography
5.4 Appendixes:
Research questions

CHAPTER ONE

1.0 INTRODUCTION
In an era when advancements in travel and communication technology have reduced the whole world to what may at best be described as a global village and the barriers that had hither to separated one country from the other appear to have been reduced to the bearest minimum, economic relationships can be established with little or no difficulty amongst nations.
Consequently, there is a continuos flow of resources across boarders. The continuity which characterizes the flow of resources makes reckoning imperative balance of payment statement is the means through which the reckoning is performed ad it is a summary of a country’s international transaction.
The major components of that activity are the trade balance (Merchandise exports minus merchandise imports), the current account balance (trade, services and transfer) and the capital accounts balance. The net total of these balances must equal zero, since the quantity of naira paid must equal the quantity received. It can also be deduced that the number of possible “balances” in the balance of payment is equal to the number of possible groupings of accounts in that statement. Balance computed on the basis of certain accounts in the balance of payments provide an indication of how given economic sectors contribute to the economic position of the country in international market.
For instance, an analysis of a surplus in the merchandise trade account can show the contribution that net export of goods from that country make to the country’s acquisition of external purchasing power. However, the most common reason for computing “a balance” in the balance of payment is to understand the net market pressures that affect the international value and availability of the currency between (1995 – 1999).
Finally, the balance of payment figures report the amount of international flows on a historical basis, after the fact.
Thus, when we include the reserves accounts, the supply of exchange equals the demand for exchange, just as ““debits equal credit” if we want to use the balance of payment as a tool to measure the pressures in the exchange market; we must look to the future. It is only this sense that we can see imbalance between supply and demand for foreign exchange developing at the going exchange rates. Governments may choose to provide the funds needed to establish balance at the going exchange rate or alternatively, they may let the exchange rate fluctuate to bring the forces of supply and demand into balance. International monetary agreements adjusting imbalances in international flow.

1.1 BACKGROUND OF THE STUDY
The background of this study is to analyze the recent trends in Nigeria balance of payment with a view to determining whether the country was able to pay her way internationally within periods of 1995 – 1999 and to determine whether the monetary and exchange rate policies pursued were effective.
To carryout this study work the main data will be carried out through primary data source, interviewing with Central bank of Nigeria (CBN) and top ranking officials while the secondary data will be collected from an extensive research in CBN as well as other libraries, books, journals and other publications. Further deductive logic will be used to arrive at certain conclusion.

1.2 STATEMENT OF PROBLEM
Considering the importance of balance of payments, statement as a source of information for the managers of the Nigerian economy and indeed other interested users of the balance of payment statement, these is a compelling need to constantly analyze the statement with the view of determining:
1. Whether the nation is paying her wages internationally in other words, is the nation paying for goods, drawing down her foreign reserves accumulating foreign liabilities or through the receipt of gifts and donations.
2. Is the country borrowing or lending money to the international community?
3. How effective are the various policy initiatives I checking international payments imbalances?
These problems are what this project is out to investigate.

1.3 OBJECTIVES OF STUDY
1. With due reference to the questions raised on the proceeding section, this researchers intends to collect, collate and analyze data on Nigerian balance of payment position for the period covering 1995 – 1999 all inclusive.
2. It is also the intention of this researcher to critically examine the statement with a view to determining what recent developments have taken place in Nigerians foreign trade and other transactions with the rest of the world.
3. In particular, this researcher will try to ascertain whether Nigeria has been paying her wages internationally.
Not only that, the question as to whether the various policy packages have been effective or not will be thoroughly investigated.

1.4 RESEARCH QUESTIONS
1. What was the general trend on the balance of payment of Nigeria within the period under study?
2. Were export receipts sufficient to pay for imports and settlement of international obligations within the period?
3. What policy measures were adopted to address balance of payment problems within the period under study and how effective were they?
4. Did exchange rate depreciation through the operations of the foreign exchange market stimulate exports?
5. Did exchange rate depreciation discourage import?
6. Did Nigeria borrow from or lend to the international community within the period under study.
7. Did de-regulation in the economy encourage inflow or outflow of capital?
8. How effective was monetary policy in addressing international payment imbalances within the period under study.
9. Exchange control/import licensing vs. the foreign exchange market as mechanism for foreign exchange allocation, which is a better option for Nigeria?

1.5 RESEARCH HYPOTHESIS
In evaluating this research work, we postulate the following hypothesis in determining the analysis of development in Nigerian balance of payment.
1995 – 1999.
The hypothesis are formulated in both Null (Ho) and alternative (Hi).
Ho: The country in question was not able to pay her wages internationally within periods of 1995 – 1999
Hi: The country was able to pay her wages internationally within the periods of 1995 – 1999.
Ho: The monetary and exchange rate policies pursued were not effective.
Hi: The monetary and exchange rate policies pursued were effective.

1.6 SIGNIFICANCE OF THE STUDY
This research work is significant in that it set out to analyze the recent developments in the balance of payments of Nigeria. This work is extremely important in view of the severe economic problems, which this nation has had to grapple with as a result of adverse balance of payments, coupled within effective policies.
The study if fully digested will provide an invaluable information and guide to various groups in difference ways. To the mangers of the economy, a due as to the efficiency or otherwise of the monetary and exchange rate policies in addressing Nigerian balance of payment problems.
To the foreign investors, it will provide an insight into the viability of the Nigerian economy. It will provide the citizens of this country a better understanding of how the economy is managed and expectations they should have from the government.
In particular, the study will provide the authorities a good insight into the effectiveness of the policies of the past administration which will serve as a guide for future policy initiatives.

1.7 SCOPE AND LIMITATION OF THE STUDY
This study was designed to analyze the recent developments in Nigeria balance of payment from 1995 – 1999.
a. For a study of this nature to be useful to many parties at the same time, there is the need for adequate statistics to measure for instance:
i. The influence of foreign trade and transaction on the national income of the country.
ii. To determine the effect of changes in tax and tariff on foreign trade etc.
In Nigeria, the scarcity of accurate national statistics is a common knowledge. Even when they are available, the quantity, quality and turning of the supply is a major problem. This researcher did not have access to adequate statistics for the type of analysis enunciated above and consequently did not attempt to measure the indexes refereed to above.
b. Another problem encountered while conducting this research was that of differentiating the impact of one-policy measures from that of others. For instance, within the period under study, others policy measures such as income policy, trade as well as fiscal policies were at one time or another targeted at the balance of payments.
The result is that even the most rigorous analytical technique cannot sufficiently disentangle the maze of inter relationships and assign success or failure to each policy measure with a time-space dimension. What this researcher did was to adopt in a global sense a lump sum approach in evaluating the effectiveness of various policy measures on the balance of payments.
c. Another important limitation was the scarcity of books and related literature on the subject matter written with the Nigerian background. As a result of this limitation due reliance was placed on official publications and foreign.
d. A fourth and perhaps the most limiting problem encountered was the un-co-operative attitude of some academic staff of some universities and government officials who were consulted for advice.
In some cases, some of the officials and lecturers displayed amazing ignorance over the subject matter.
In other cases, they were not just willing to co-operate and for these reasons, official publications were extensively used.

1.8 DEFINITION OF TERMS
For the purpose of this research work, al terms and expressions used shall be attributed their ordinary interpretations unless otherwise stated.
However, the following terms shall mean:
BALANCE OF PAYMENT: A systematic record of economic transaction for a given period between residents of an economy and non-residents.
These transactions include the provision and receipts of real resources – goods services and income and changes in claim on and liabilities tot he rest of the world.
MONETARY POLICY: The management of the expansion and contraction of the volume of money in circulation for the specific purpose of achieving certain declared national objectives.
EXCHANGE RATE POLICY: Exchange rate policy involves choosing a foreign exchange management system and determining the particular rate which foreign exchange transactions will take place.
EFFECTIVENESS: It is defined as the attainment of pre-determined goals.

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Development In Balance Of Payment:

Analyzing developments in the balance of payments (BoP) is crucial for understanding a country’s economic health and its position in the global economy. The BoP is a record of all economic transactions between residents of one country and the rest of the world over a specified period, typically a year or a quarter. It is divided into three main components: the current account, the capital account, and the financial account. Let’s analyze each of these components:

  1. Current Account:
    • Trade Balance: The trade balance is the most closely watched part of the current account. It includes the balance of goods (exports minus imports) and the balance of services (such as tourism, consulting, and financial services). A surplus in the trade balance indicates that a country is exporting more than it’s importing, which can be a positive sign for economic growth.
    • Income Balance: This includes earnings from investments abroad minus payments made to foreign investors. A surplus here means that a country is earning more from its overseas investments than it is paying out, which can be a positive indicator.
    • Transfer Payments: This includes gifts, grants, and remittances. It’s important to consider the impact of these flows on the BoP. For example, a surge in remittances can improve the current account balance.
  2. Capital Account:
    • The capital account records transfers of financial assets across borders. It includes items like foreign aid, debt forgiveness, and the acquisition or disposal of non-produced, non-financial assets (such as patents or copyrights). A surplus in this account might indicate that a country is receiving a significant amount of foreign aid or investment.
  3. Financial Account:
    • The financial account shows the net change in a country’s ownership of foreign assets and foreign ownership of domestic assets. It includes Foreign Direct Investment (FDI), Portfolio Investment (stocks and bonds), and Other Investment (bank deposits, loans, etc.). A surplus in this account typically means that a country is receiving more foreign investment than it is investing abroad, which can be a sign of confidence in the country’s economy.

Analyzing the BoP:

  1. Current Account Surplus/Deficit: A current account surplus is generally seen as positive because it means a country is exporting more than it’s importing, which can boost economic growth. Conversely, a deficit may indicate that a country is living beyond its means or relying on foreign borrowing.
  2. Capital Flows: Examining the capital account can provide insights into the sources of external funding or investments in a country. A large influx of foreign aid or investment can impact a nation’s economic development.
  3. Foreign Exchange Reserves: A country with consistent surpluses in the current and capital accounts may accumulate foreign exchange reserves. These reserves can be used to stabilize the currency, pay off external debt, or finance imports.
  4. Exchange Rate Movements: Changes in the BoP can influence a country’s exchange rate. A large current account surplus may lead to an appreciation of the domestic currency, making exports more expensive and imports cheaper.
  5. Government Policies: Analyzing the BoP also requires considering government policies. For example, deliberate interventions in the foreign exchange market or trade policies can affect the balance.
  6. Global Economic Conditions: External factors, such as changes in global demand, commodity prices, or geopolitical events, can significantly impact a country’s BoP.

In conclusion, analyzing developments in the balance of payments is essential for assessing a country’s economic health, its ability to meet external obligations, and its overall position in the global economy. A surplus or deficit in different components of the BoP can provide valuable insights into a nation’s economic strengths and weaknesses and inform policymakers on necessary adjustments to achieve sustainable economic development.