What is balance of payment deficit and what are the causes of the deficit?

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justaguide | College Teacher | (Level 2) Distinguished Educator

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Balance of payment refers to the monetary transactions that involve a nation and all the other countries in the world. When the money coming into the nation is more than the money going out of the nation there is a balance of payment surplus and when the money going out exceeds the amount of money coming in there is a balance of payment deficit.

Balance of payment can be broadly divided into current account and capital account. Current account includes the net amount received due to trade, net earnings made outside the country and transfer of money. Capital account is the net movement of money due to change in ownership of assets.

When the sum of current account and capital account is negative, there is a balance of payment deficit. This is the case when the nation is spending more than it is earning from other nations. Balance of payment deficit can be due to many causes, some of which are imports far exceeding exports, capital outflow from the nation due to investors finding better growth prospects abroad than within the nation, a large debt that the nation has for which it has to pay interest, etc.

I am not aware of the eight specific causes for balance of payment deficit that you were refering to.

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