One measure for financing a country's balance of payments deficit is through

Step 1: Analyze the question The question asks about financing a balance of payments (BOP) deficit. This is different from correcting or reducing the deficit.

Step 2: Explain the concept A BOP deficit happens when a country's payments to the rest of the world exceed its receipts. There are two broad responses:

1. Correcting measures (long-term policies) change the underlying trade pattern. Examples are export promotion and diversification, import substitution, tariffs, quotas, and devaluation.
2. Financing measures (accommodating measures) cover the gap by obtaining foreign exchange. Examples are drawing down external reserves, borrowing from international institutions such as the IMF and World Bank, borrowing from other countries, and getting foreign grants or aid.

Step 3: Evaluate the options

• A. Export diversification: This is a long-term corrective strategy that increases foreign exchange earnings. It does not finance the existing deficit.
• B. Import substitution: This is also a corrective strategy that reduces import demand. It is not a financing method.
• C. Short-term borrowing from IMF: The IMF lends foreign exchange to member countries with temporary BOP problems, so the country can settle its external obligations. This is a direct way to finance the deficit.
• D. Internal borrowing from commercial banks: This raises naira (domestic currency), not foreign exchange. It does not directly settle an external deficit.

Step 4: Answer The correct option is C, short-term borrowing from the IMF.

Exam tip: When you see "financing" a BOP deficit, think of money from outside: reserves, IMF loans, foreign aid. When you see "correcting" or "reducing" it, think of policies such as export promotion, import substitution, tariffs, and devaluation.