(a) What is balance of payments deficit? (b) How is it financed?

Explanation

(a) Balance of payments deficit means that payments in respect of imports of goods and services plus autonomous capital out flow is greater than receipts in respect of exports of goods and services plus autonomous capital inflow.

(b) Some of the means to finance balance of payments deficit are:

(i) Running down external reserves and SDRs

(ii) Drawing on IMF (Borrowing from IMF)

(iii) Short-term credit from various sources (borrowing)

(iv) Purchase of goods on credit

(v) Sale of foreign investments

(vi) Increased export of goods and services (export promotion)

(vii) Grants and aids from friendly countries.