Balance of payments deficit, Balance of payments deficit may be defined as a situation which occurs when the combined receipts on the current and long term capital accounts of a country are less than the corresponding payments. In other words, balance of payments deficit occurs when a country’s expenditure flows are more than the country’s income flows.
Types of balance of payments deficit
- Temporary balance of payment deficit: This type of deficit, also called
short term deficit, is the type which can easily be corrected or adjusted within a short term. They do not pose serious problems. They can be financed or paid for by the use of reserves or international borrowing.
- Fundamental or chronic balance of payments deficit: This is also called long term deficit and this cannot be corrected or adjusted within a short term and it usually has adverse effect on the country’s reserves.
Causes of Balance of payments deficit
The causes of balance of payments in Nigeria for example include:
- This makes Nigeria dependent on food
imports and imported inputs for her agro-allied industries.
- Low level of technological development
makes the country a greater importer of advance technology.
- Inadequacies in export promotion strategies: Export promotion strategies to encourage more earnings for the country are grossly inadequate.
- Political instability: Political instability discourages export drive but encourages massive importation of goods and services.
- This attitude encourages the government
to engage in massive importation of all kinds of goods into the country.
- This can go a long way to deplete the external reserves and use all earnings to settle external debts.
- Existence of import-dependent industries: These industries reduce the country’s earnings as they demand for the scarce foreign exchange to enable them to procure machines and raw materials from abroad.
- Poor social and economic infrastructure: Poor social and economic infrastructure contribute
greatly to low capacity utilisation in the industrial sector e.g. bad roads, irregular supply of electricity, water and poor telecommunications