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Question
Explain the concept of 'deficit' in balance of payments.
Solution
Explain the concept of 'deficit' in balance of payment
The BOP has two components, current and capital account. By deficit in the current account, we mean that the export of goods and services falls short of the imports of goods and services. Whereas, the Capital account of a country will show a deficit if there is a net capital outflow from the country. So, we can say that a BOP will be in a deficit if the imports of the country are higher than exports and if the capital outflow of the country is more than the capital inflow.
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