11.1.2—Policies and balance of payments

Policies for a current-account deficit include demand reduction, supply-side competitiveness measures, exchange-rate adjustment, import controls, export promotion and measures affecting saving and investment.

A deficit caused by excess demand calls for a different response from one caused by weak productivity or a temporary investment boom. Each policy has effects on inflation, employment, growth, distribution and trading partners.

Tighter fiscal policy may reduce import demand during an overheating boom; improving port infrastructure may help a structural export problem without deliberately suppressing household demand.

Improving the current account is not automatically the highest macroeconomic priority, and reducing imports by making households poorer is not a cost-free success.