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)

ECONOMIC DEVELOPMENTS AND CHALLENGES IN VANUATU

(1) Vanuatu is a small archipelago nation in the South Pacific, consisting of over 80 islands. Despite its relatively small population of approximately 320,000 people, the country has shown steady economic growth in recent years. In 2019, Vanuatu’s nominal GDP reached US$950 million, but tourism-related disruptions caused by global events in 2020 and 2021 have posed significant economic setbacks. Additionally, rural communities remain reliant on subsistence agriculture, and the government is focused on introducing policies to foster both macroeconomic stability and inclusive growth.

(2) Tourism is the backbone of Vanuatu’s economy, accounting for more than 40% of GDP in 2019. However, the tourism industry was severely impacted by travel restrictions in 2020, leading to an estimated contraction in real GDP of 7%. Inflation remained moderate at around 3% in 2021, due in part to subdued demand and government measures to stabilize food prices. The authorities are closely monitoring the exchange rate of the vatu against major currencies to support export competitiveness and manage imported inflation.

(3) On the microeconomic front, small-scale farming and fishing dominate local livelihoods. Many households engage in subsistence agriculture, producing staple crops like taro and cassava. Recent government programs offer microcredit to smallholder farmers, aiming to increase efficiency and diversify agricultural output. In 2021, about 2,500 farmers benefited from these loans, collectively raising production of cocoa beans and kava, two key export products. Nonetheless, the challenge of inadequate transport infrastructure persists, limiting market access and driving up costs.

(4) Internationally, Vanuatu has aimed to reduce trade barriers. The country became a World Trade Organization (WTO) member in 2012, contributing to lower tariff rates, currently averaging 9% across key imports. In 2021, Vanuatu’s merchandise trade balance was slightly negative, primarily due to higher imports of machinery and intermediate goods required for infrastructure projects. The government hopes the easing of administrative barriers will inspire greater foreign direct investment (FDI), especially in tourism and fisheries. According to official estimates, FDI inflows rose to US$55 million in 2021, although most of these investments concentrated on hospitality projects near Port Vila.

(5) Over the past few years, Vanuatu’s Ministry of Agriculture has championed climate-resilient farming methods. In 2020, an estimated 18% of rural households adopted drought-tolerant seeds and new irrigation systems to mitigate climate risks, supported by international donors. While these initiatives have marginally increased production costs, they also have the potential to enhance productivity and reduce vulnerability to cyclones and droughts.

(6) Concerns over income inequality have drawn attention to inefficiencies in the delivery of social services. Although the official Gini coefficient is not publicly reported annually, the government acknowledges uneven distribution of income, with urban centers such as Port Vila attracting higher wages and better services. Rural electrification programs and community-based healthcare projects have been proposed to reduce disparities, though progress is gradual given fiscal limitations.

(7) In line with ongoing development plans, the government has embarked on a new “Tourism Transformation Strategy,” introduced in late 2021, aimed at diversifying tourist offerings beyond coastal resorts. Officials foresee growth in eco-tourism activities such as trekking and cultural tours, tapping into the rising global demand for sustainable travel. Additionally, the forecasted resumption of regular cruise ship visits in 2022 is expected to bolster small businesses that cater to incoming tourists. The Ministry of Finance anticipates that these policies could lead to an annual real GDP growth rate of approximately 5% by 2023, provided external conditions remain stable.

(8) While the medium-term outlook is optimistic, Vanuatu faces the long-term challenge of balancing environmental sustainability with ambitions for continued growth. Policy efforts target infrastructure development—particularly in transport and digital connectivity—to integrate rural producers into broader markets and lessen reliance on a limited range of commodities. With strategic planning and wider partnerships, officials hope Vanuatu can enhance economic resilience, accommodate a rising population, and reduce poverty more effectively.

Table 1: Selected Macroeconomic Indicators for Vanuatu (2018–2021)

Table 2: Sectoral Contribution to GDP in 2021

Economic Developments in Uzbekistan

Uzbekistan, located in Central Asia, has undergone significant economic reforms since 2017, including currency liberalization, tax reforms, and measures to attract foreign direct investment (FDI). Historically reliant on cotton exports and gold mining, the country has started diversifying into emerging sectors such as automotive and tourism. Between 2018 and 2022, real GDP growth averaged 5.5% per year, supported by increasing remittances from Uzbek workers abroad and rising domestic consumption. However, inflation reached 10% in 2021, driven mainly by higher food prices and imported goods.

The government has prioritized infrastructure development, investing in roads, railways, and energy grids. Such projects have attracted a number of international firms, particularly from China and Russia. Yet, small and medium-sized enterprises (SMEs) in Uzbekistan argue that high interest rates and limited access to capital inhibit their competitiveness. To address this, the Central Bank of Uzbekistan has eased monetary policy gradually, aiming to lower borrowing costs for businesses.

Despite reforms and steady growth, poverty remains a pressing concern. Official data indicate that nearly 11% of the population lived below the national poverty line in 2020, a figure the government aims to reduce to 7.8% by 2025 through poverty-targeted social programs. In rural areas, a cycle of low incomes, limited job opportunities, and inadequate healthcare has trapped many households in persistent poverty. To break this cycle, government policies have focused on expanding vocational training, improving rural education, and providing microfinance to small-scale farmers.

Agriculture continues to play a significant role in Uzbekistan’s economy, accounting for over 25% of total employment. Wheat and cotton farmers benefit from state procurement policies, although reforms aim to reduce direct government involvement and move toward more market-based pricing. While these measures have improved efficiency, concerns about water scarcity and the environmental impact of intensive cotton cultivation persist. The government also subsidizes fertilizer and irrigation technology to boost agriculture yields, which has partially alleviated rural poverty but raises questions about long-term sustainability.

On the international front, Uzbekistan has taken steps to improve trade relations with neighboring countries through tariff reductions and simplified customs procedures. As a landlocked country, it relies on joint infrastructure projects across Central Asia to drive export growth. Exports include natural gas, cotton, gold, and an increasing volume of textiles and foodstuffs. FDI inflows have accelerated as the government strengthens legal protections for foreign investors, though volatility remains a risk due to global economic shifts and geopolitical tensions in the region.

Income inequality is a growing focus for policymakers. While official surveys suggest moderate improvement in the Gini coefficient since 2015, critics argue the informal sector obscures true disparities. Remittances from migrant workers—predominantly in Russia—have helped households combat poverty but also highlight Uzbekistan’s dependence on external labor markets. In response, the government is encouraging labor-intensive manufacturing and tourism to create domestic employment opportunities.

The Central Bank maintains a managed float of the Uzbek som, occasionally intervening to stabilize exchange rate fluctuations. Recent data show gradual appreciation of the currency as export revenues climb. Nonetheless, the significant share of the population living on subsistence farming underscores the importance of inclusive growth. Policies that bolster human capital—such as investments in education, healthcare, and vocational training—are viewed as critical to sustainable development.

Going forward, analysts see opportunities for Uzbekistan to leverage its strategic location as a transit hub between East and West. However, challenges such as ensuring water security, upgrading outdated infrastructure, and reducing dependence on extractive industries remain. Whether the current pace of reforms can translate into long-term, diversified growth will depend on the government’s ability to balance macroeconomic stability, social needs, and international integration.

Table 1: Selected Macroeconomic Indicators for Uzbekistan (2018–2022)

Table 2: Poverty, Employment, and Development Indicators

Table 5 shows selected items of the balance of payments for Laylaland in 2020. Figures are in millions of US dollars (US$).

Table 5

Laylaland has a current account deficit of US$1865 million.

Chia seeds are an agricultural good produced in many countries and priced in US dollars (US$).

Figure 1 illustrates the market for chia seeds in a small country called Nofiberland. D is the domestic demand and S is the domestic supply for chia seeds. Chia seeds can be initially imported at the current world price of US$15.00 per kg. Sw is therefore the world supply faced in Nofiberland with free trade. To protect Nofiberland producers, the government decides to impose a US$6.00 tariff on chia seed imports. St is therefore the world supply faced in Nofiberland after the tariff is imposed.

Figure 1

Quinoa is a great source of protein and is thus considered a “super food”. As a result, the demand for quinoa in advanced economies has lately been rising very fast while global supply has not changed. A small country called Proteinland gets 80 % of its export revenues from exporting quinoa to advanced economies.

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

Study the following extract and answer the questions that follow. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Australia and Japan 1 In 2018, Australia signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)*. The agreement creates the third largest free trade area in the world, covers nearly 500 million people and is worth more than US$12 trillion. The members of the agreement have stated that economic integration and free trade is important to help foster good political relations and inclusive growth for all nations. 2 The trade agreement will aim to gradually eliminate most trade protection within the member countries. The agreement will see tariffs eliminated for Australian cheese and beef exports to Japan, and increased quotas for the export of rice to Japan from 4400 to 8400 tonnes. Nikkei Asian Review reported that "Fast-food restaurants in particular are embracing the import as a way to cut costs to cope with rising wages." Additionally, Japanese food manufacturers will be able to lower production costs for rice-based meals and benefit from increased stability of input prices. The benefits from the agreement for Japan's economy are projected to exceed US$70 billion, but some industries would be negatively affected. 3 Japanese farmers are worried about the increase in imported food from Australia. Furthermore, the Japanese government is concerned about the effects of the CPTPP on Japan's food self-sufficiency—Japan relies on other countries for over 60% of its food. In response to these concerns the Japanese government has offered support for domestic farmers to diversify production into other crops. The government also plans to subsidize the rice farmers through the initial phase of lowering trade barriers. 4 The agreement is said to be worth more than US$37 billion to Australian agricultural exports. It is hoped that CPTPP and the falling value of the Australian dollar will help Australia to reduce its current account deficit, but some economists have argued that this can take a long time. According to some estimations, the short-run price elasticity of demand (PED) for Australian exports is 0.2 and the short-run PED for imports in Australia is 0.4. However, the long-run PED for Australian exports is 1.1 and the long-run PED for imports in Australia is 1.3. 5 There have also been concerns about the CPTPP from trade unions in Australia. They argue that it deregulates the labour markets and gives corporations from other countries an ability to take legal action against governments for implementing laws that raise wages or protect the environment, if the foreign corporation can prove that the law hurt their commercial interests. One university lecturer said that the future costs to the taxpayer could be significant if foreign companies take the Australian government to court. 6 The trade agreement would allow workers from other countries to work in Australia without employers being required to check if Australian citizens are available to fill the jobs before the migrant workers are employed. It is estimated this may risk 39000 jobs in Australia. Furthermore, environmental activists have expressed concerns that the negative environmental and social effects of the agreement have not been well considered. This may lead to conflicts with Australia's commitment to the United Nations' Sustainable Development Goals. * The CPTPP includes eleven member countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.