Many developing countries have suffered balance of payments crises, often as a result of large terms of trade shocks or “sudden stops” in the capital account. Many African countries suffered BOP crises in the 1980s while the 1990s saw BOP crises in emerging market economies; in Latin America, East Asia and the former Soviet Union.
The costs of BOP crises, in terms of lost output, bankrupt firms and foregone budget revenue, are usually very high. The lesson we have learned from past episodes of external shocks is that it makes sense to put in place a strategy to protect our economies from the risk of a BOP crisis.