Question
Explain the meaning of balance of payments deficit.
Solution
The deficit in the BOP is governed by the balance of autonomous transactions in the BOP. The BOP would show a deficit if the autonomous receipts are lesser than the autonomous payments. As autonomous receipts implies a receipt of foreign exchange and autonomous payments implies a payment of foreign exchange, so, it can be said that BOP would show a deficit if the foreign exchange receipts are less than foreign exchange payments. In other words, the BOP deficit would be reflected in a depletion of foreign exchange reserves of the country.
