Balance of Trade :-

Balance of trade is the difference between the various exports and imports of visible goods of a country
during a given period of time. If the value of visible items exports exceeds then the value of visible goods
imports then balance of trade is said to be favorable.

Balance of Payment :-

Balance of Payment is a record of economic transaction between residents of the one country and the
rest of the world during the period of one year. Under balance of payment we include visible as well as
invisible goods.

Favorable Balance of Payment :-

If the total value of imported goods and services exceeds than the total value of exported goods and
services during a year the balance of payment is said to be unfavorable. In case of opposite situation it
will be unfavorable.

CAUSES OF UNFAVORABLE BALANCE OF PAYMENT IN POOR or LESS DEVELOPED COUNTRIES :-

Most of developing countries balance of payment condition is not satisfactory. Accept few years they
facing deficit in their balance of payment. The deficit is met by the loans. The deficit is increasing day by
day.

1. Import of Machinery :-

Developing countries are importing machines and technology to improve the industrial; sector. It has
made the balance of payment unfavorable because the value of capital goods is increasing day by day
and we want to industrialize our economy.

2. Export of Raw Material :-

Exports of developing countries depend upon raw material and semi manufactured goods. The prices of
raw material are very low in the world market. So poor countries balance of payment remains
unfavorable. For instance the product of cotton reduced in Pakistan in 1995 due to virus so it also
affected adversely in balance of payment because Pakistan imported cotton instead of exporting.

3. Dependence on Agriculture :-

Many countries like India, Pakistan, Bangladesh and other developing countries mainly rely on exports of
primary goods like rice and cotton. If climate is unfavorable then production of agriculture sector
decreases which affects the balance of payment badly.
4. Payment for Foreign Services :-

Every year most of underdeveloped countries pays a lot of foreign exchange for various services like
transport, Insurance and Experts. It makes their balance of payment unfavorable.

5. Increase in the Sick Industrial Units :-

In some developing countries due to nationalization a number of units are suffering a loss. These units
are not producing goods according to their full capacity. The low production has reduced the exports
and increased the deficit of the budget.

6. Unfavorable Terms of Trade :-

Poor countries are paying higher prices of imports as compared to the prices at which it gets from
exports.

7. Poor Performance of Public Sector :-

The performance of public sector industries is also not satisfactory in developing countries. it waste lot
of foreign exchange of the country.

8. Political Unrest :-

many less developed countries are facing political unrest which is the main cause of low production.
Ultimately balance of payment remains unfavorable. In this situation investor fears to do the
investment.

9. Advanced Countries Policies :-

The import policy of advanced countries is not favorable for the poor countries. They impose restrictions
on the imports and create problems for the poor countries. They have also created unions against
developing countries.

10. Import of Oil and Fertilizer :-

Developing countries are spending a lot of foreign exchange every year on the import of oil and
fertilizer. It has increased the deficit in the balance of payment.

11. Import of Wheat :-

Poor countries are facing the food shortage problem and spending a huge amount of foreign exchange
on its import.
12. Import of Consumption Goods :-

The people of less developed countries prefer to consume the imported goods. Even people are not
ready to wear their on country cloth. This attitude has increased the imports. Cosmetics and basic
consumption goods are even imported.