A deficit in the balance of payments (BOP) occurs when a country's total imports of goods, services, and capital are greater than its total exports, This deficit signifies that a country is spending more on foreign trade than it is earning, leading to borrowing or using foreign reserves to bridge the gap.
Causes of BOP Deficit :
1. High Imports: Excessive import of goods like oil and machinery without corresponding exports.
2. Low Exports: Reduced competitiveness in global markets, leading to lower demand for domestic goods.
3. Capital Outflows: Investment outflows to other countries or repayment of external debt.
Impact: Persistent BOP deficits can deplete foreign exchange reserves, weaken the currency, and lead to economic instability.
