balance of payment disequilibrium occurs when total receipts are not equal to total payments of a country.
It should be noted that the balance of payment equilibrium can exist. There is equilibrium balance of payment it the total receipts from other countries equals total payments to other countries.
Types of Balance of Payment Disequilibrium
1. Balance of payment surplus
There is balance of payments surplus whose the total receipts from all other countries exceed the total payments to other countries during a given trading period. This situation gives rise to what is referred to as favourable balance of payments. The reporting country in this case is financially strong in its international trade transactions.
Effects of balance of payments surplus
(1) Increase in economic activities: There will be an increase in economic activities, since surplus enables the citizens of a country to have more funds at their disposal.
(2) Greater net income: A balance of payment surplus means a greater inflow of earnings from abroad. This will lead to a higher level of net income at home through the operation of the multiplier effect.
- Inflationary tendency: Balance of payments surplus must be well managed by the government so that it will not result into inflation.
- Debit retirement: Balance of payments surplus situation can help a country to retire (pay-off) previously accumulated debt.