Question: Mozambique ran a current account balance of -$607 million in 2004, i.e., a deficit.
a Explain what could cause such a deficit on the current account.
b Explain what this deficit likely means about Mozambique's capital and financial account balance.
c What might be happening to official foreign exchange reserves? Explain.
d Discuss some steps Mozambique might take in the future to reduce the size of the current account deficit. Be careful to explain how each policy proposal's specific impact in correcting the current account deficit.
e Does a current account deficit mean Mozambique has a balance of payments problem? Explain.