4.6 Balance of Payments Questionbank

Albania is a country in Southeastern Europe with an estimated population of about 2.8 million in 2022. The Albanian economy has been transitioning from a centrally planned system to a market-based system and has experienced positive real GDP growth in recent years. Tourism is a significant contributor to Albania’s GDP, and the government has intensified efforts to promote the country’s attractions along its Adriatic and Ionian coasts.

In 2022, Albania’s unemployment rate was around 12%, partly due to structural challenges in the economy. The government operates a progressive personal income tax system, with rates ranging from 0% up to 23%. Corporate income tax is set at 15%. Value-added tax (VAT) on most goods and services stands at 20%.

Albania’s trade balance remains negative, as the country’s main exports (textiles, footwear, and mineral fuels) have not kept pace with imports (machinery, food, and manufactured goods). The government has embarked on several infrastructural projects to attract foreign investment and reduce transport costs, including a newly announced US$200 million investment in highways. Economists estimate the marginal propensity to consume (MPC) in Albania to be about 0.8.

Table 1: Selected Macroeconomic Indicators for Albania

Table 2: Tourism Data in Albania (2022)

Poland has experienced steady economic growth in recent years, supported by a diverse industrial base, significant agricultural production, and growing service sectors. The country is a major producer of apples, exporting large quantities to neighboring European countries. The government imposes several taxes, including value-added tax (VAT) and progressive personal income tax. In 2022, policymakers considered pursuing expansionary monetary policies to stimulate the economy amid signs of a possible slowdown.

Table 1 shows selected macroeconomic data for Poland from 2019 to 2022.

Table 2 outlines Poland’s major tax rates.

Poland’s Gini coefficient stands at 0.305, reflecting moderate income inequality. Estimates suggest that the average marginal propensity to consume (MPC) in Poland is approximately 0.75. Table 3 provides recent data about the Polish apple market.

In 2021, the total export revenue from Polish apples stood at 500 million PLN. By 2022, this figure had risen to 600 million PLN. These trends highlight Poland’s continued importance in the international apple market.

Country X has been experiencing fluctuations in its trade balance, economic growth, and taxation policies. The government is considering various measures to improve macroeconomic stability. The following tables provide data on key economic indicators.

Table 1: Balance of Payments

Table 2: Price Elasticity of Demand (PED) for Selected Goods

Table 3: Taxation Revenue and GDP

Italy is the Eurozone’s third largest economy. Although it experienced a sharp contraction in 2020 due to the global pandemic, economic recovery followed in 2021 and 2022, partly driven by an upturn in manufacturing and consumer spending. Italy’s unemployment rate, however, remains higher than the European Union average. Income inequality, measured by the Gini coefficient, is moderate but still a concern for policymakers aiming to promote inclusive growth.

Italian coffee culture remains a vital part of domestic consumption. Table 2 provides data for the market for coffee beans. Despite fluctuations in demand and price, Italy’s coffee imports and exports of processed coffee products continue to be important for the country’s trade balance.

In 2021, Italy’s exports of manufactured goods such as machinery and vehicles led to a small trade surplus, as shown in Table 3. The government also relies on progressive income taxes to finance public spending. Some economists argue that a well-designed policy could improve both growth prospects and income distribution.

Table 1: Selected Macroeconomic Data for Italy

Table 2: Market for Coffee Beans in Italy (Hypothetical Data)

Table 3: Italy’s Key Trade Data (2021)

Poland has experienced steady economic growth in recent years, supported by a diverse industrial base, significant agricultural production, and growing service sectors. The country is a major producer of apples, exporting large quantities to neighboring European countries. The government imposes several taxes, including value-added tax (VAT) and progressive personal income tax. In 2022, policymakers considered pursuing expansionary monetary policies to stimulate the economy amid signs of a possible slowdown.

Table 1 shows selected macroeconomic data for Poland from 2019 to 2022.

Table 2 outlines Poland’s major tax rates.

Poland’s Gini coefficient stands at 0.305, reflecting moderate income inequality. Estimates suggest that the average marginal propensity to consume (MPC) in Poland is approximately 0.75. Table 3 provides recent data about the Polish apple market.

In 2021, the total export revenue from Polish apples stood at 500 million PLN. By 2022, this figure had risen to 600 million PLN. These trends highlight Poland’s continued importance in the international apple market.

Current account deficit poses a challenge to Pakistan’s economy

Pakistan’s president has raised concerns about the increasing current account deficit, which grew to USD 12.12 billion in 2016/17 from USD 4.86 billion in 2015/16. This deficit is driven by rising imports and declining exports. Due to low prices of the imported goods in foreign markets, the president has proposed restricting the import of luxury, non-essential goods through quotas, aiming to mitigate the issue and reduce dependence on external borrowing.

The governor of Pakistan’s central bank supports the president’s concern, emphasizing that excessive non-essential imports contribute to the deficit and require borrowing from abroad. However, he noted that 32% of imports consist of capital goods essential for the growth of small and medium enterprises (SMEs), agriculture, and construction.

Central bank advisors have suggested depreciating the rupee to address the trade deficit. The currency operates under a managed exchange rate system and is estimated to be overvalued by 20%. However, the central bank governor warns of the negative effects of depreciation, such as higher inflation.

Pakistan’s economic growth reached 5.3% in 2016, its highest in a decade, with an estimated increase to 6% in 2017. The government believes that boosting SME loans from 7-8% to 15-17% of total business loans will further enhance economic growth.

In addition to the current account deficit, fiscal policy decisions have led to a budget deficit, increasing public debt to 62% of GDP in 2016. The central bank recommends limiting public debt to 60% of GDP.

Table 1: Pakistan’s Current Account Data

Table 2: Key Economic Indicators

A country, Econland, has been experiencing significant trade imbalances, with a persistent current account deficit. The country has an overreliance on imported manufactured goods while its primary exports include raw materials such as agricultural produce and minerals. The government has introduced a protectionist policy to restrict the importation of specific goods by imposing tariffs and quotas.

In addition to trade imbalances, Econland faces sluggish GDP growth, increasing income inequality, and fluctuating tax revenues. The government is evaluating fiscal and monetary policies to stimulate growth while maintaining economic stability.

Table 1: Trade Balance of Econland (in USD Million)

Table 2: Price Elasticity of Demand (PED) for Selected Imported Goods

Table 3: Tax Revenue and GDP Growth in Econland

Table 4: Gini Coefficient and Income Distribution

Cuba is an island nation in the Caribbean with a long history of state-led economic policies and a continued trade embargo imposed by the United States since 1960. The Cuban economy is heavily dependent on two key sectors: sugar and tourism. Sugar has traditionally been Cuba’s largest export, accounting for over 70% of export revenues, although inefficiencies and outdated technology have constrained growth in output. Meanwhile, tourism has become an increasingly important source of foreign exchange, representing nearly 24% of the nation’s gross domestic product (GDP). However, environmental concerns have arisen from rapid growth in visitor arrivals, including water pollution and congestion in popular coastal areas.

Cuba’s real GDP grew modestly from 2021 to 2022, although high inflation and global supply chain disruptions presented serious challenges. The government has attempted some economic reforms, including allowing limited private enterprise and trying to attract modest amounts of foreign direct investment (FDI). Nevertheless, significant barriers to trade remain in place due to the decades-long embargo, as do restrictions on access to many imported goods.

The Cuban government operates a progressive tax system to finance public healthcare, education, and subsidized food programmes. Alongside this, it has announced a new subsidy plan to boost sugar production and modernize processing facilities. Policymakers hope that these measures will generate both export revenues and improved economic prospects.

Below are selected data from the Cuban economy:

Table 1: Key Macroeconomic Indicators for Cuba (2021–2022)

Table 2: Demand for Sugar in Cuba

Table 3: Tourism in Cuba

Table 4: Selected Cuban Tax Rates

The Effects of Exchange Rate Volatility on Tourism in Turkey

Turkey faced a sharp depreciation of its currency due to decreased foreign investment and a widening trade deficit. The government of Turkey expects that the currency depreciation will make travel to the country more affordable for foreign tourists, thereby boosting tourism revenues and supporting the economy. Tourism is a critical sector for Turkey, accounting for nearly 10% of GDP, and the government is eager to stimulate this sector to recover from the economic slowdown caused by global supply chain disruptions.

Despite the anticipated benefits, the depreciation has also led to inflationary pressures, as the prices of imported goods such as fuel and food have risen. Domestic consumers are facing higher prices for everyday goods, leading to reduced purchasing power. The government has warned that while the depreciation might benefit the tourism sector, it may exacerbate income inequality as lower-income households suffer more from rising prices. Additionally, inflation might eventually reduce the purchasing power of tourists, offsetting some of the gains made through cheaper travel.

Table 1: Economic Indicators Over Two Years

Table 2: Percentage Change in Key Indicators

Article Extract:

"Turkey's government is optimistic that the recent depreciation of its currency will enhance the competitiveness of its tourism industry by making the country more affordable for foreign visitors. While tourism revenue has risen, concerns over inflation have surfaced, particularly regarding the cost of imported goods and the impact on domestic consumers. The depreciation could also put upward pressure on wages and lead to higher costs of living, especially for low-income groups. The government faces the challenge of balancing the benefits to the tourism sector with the broader economic consequences of inflation and income inequality."