Balance of Payments Deficit Law and Legal Definition

Balance of Payments Deficit is an imbalance in a nation's balance of payments in which payments made by the country exceed payments received by the country. This is also termed an unfavorable balance of payments. It is considered unfavorable because more currency is flowing out of the country than is flowing in. Such an unequal flow of currency will reduce the supply of money in the nation and subsequently cause an increase in the exchange rate relative to the currencies of other nations. This then has implications for inflation, unemployment, production, and other facets of the domestic economy. A balance of trade deficit is often the source of a balance of payments deficit, but other payments can turn a balance of trade deficit into a balance of payments surplus.