Trade Tour - Lusaka Railway [ Biz/ed Virtual Developing Country ]

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Zambia's Balance of Payments Situation

Next issue - Zambia's Trade Policy >>

The balance of payments on current account records a country's foreign currency transactions through international trade. The size of this balance is an indicator of the country's international competitiveness. The current account balance is divided into two sections:

the balance of trade records the foreign exchange earnings from the trade in goods.
the invisible balance does the same for the transactions resulting from the trade in services.

In addition, other flows such as foreign aid and interest payments are also included in this account. These last two will be dealt with in more detail when you visit the International Monetary Fund later on in this field trip and when you undertake the Aid Tour.

The graph below shows Zambia's balance of trade performance. Over time it has fluctuated between a trade deficit and a trade surplus. However, for most of the 1990s it has recorded a deficit.

Graph: Balance of Trade

While many MDCs get substantial earnings from the export of services such as banking, insurance, and tourism and consequently operate an invisible trade surplus, LDCs such as Zambia often operate an invisible trade deficit.

('000 Kwacha)	1990	1991	1992	1993	1994	1995	1996	1997	1998
Exports of services	79,000	83,400	83,600	97,100	107,400	130,000	120,000	111,100	110,000
Imports of services	480,000	305,900	284,500	294,100	314,000	324,000	261,000	376,400	264,000
Invisible balance	-401,000	-222,500	-200,900	-197,000	-206,600	-194,000	-141,000	-265,300	-154,000

In the1990s the balance of trade and the invisible balance have both contributed to the country's balance of payments current account deficit.

	1990	1991	1992	1993	1994	1995	1996	1997
% of GDP	-13	-17	-26	-16	-13	-14	-14	-12
Current a/c bal. ('000 US$)	-388,300	-513,000	-752,900	-471,800	-397,800	-464,000	-426,000	-437,500

Clearly these deficits on the trade and invisible balance give indicators about the country's trade performance. Three questions need to be addressed

What accounts for these deficits?
What is the implication of these deficits to the country?
What policies are needed to solve them?

Next issue - Zambia's Trade Policy >>


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