Disequilibrium in Balance of Payments: Balance of payments always balances in the accounting sense. The overall account of the balance of payments necessarily balance or must always be in equilibrium. It is because of the reason that balance of payment is prepared in terms of credits and debits based on the system of double entry book-keeping Under the system, the two sides are kept equal.
Causes behind Deficit in BOP: Deficit in BOP is caused by a variety of factors which are given below:
(1) Huge Development Expenditure: When a backward country starts various development schemes often needs the imports of machines, raw materials, etc. This raises the country's import bill and consequently its BOP becomes adverse.
(2) Population Growth: A country with a high rate of growth of population often faces an adverse balance of payments because the total demand for goods and services within the country cannot be met out of domestic production
(3) Inflation: Inflation may also cause deficit in the balance of payments Exports decrease as a result of inflation and at the same time the demand for imports increases 4) Change in Foreign Exchange Rates: When the external value of the domestic currency goes up, imports become cheaper and exports dearer.