Causes of Disequilibrium:
A disequilibrium in balance of payments of a country may be either a deficit or a surplus. When the demand for foreign exchange exceeds its supply there is deficit in balance of payments and when the supply of foreign exchange exceeds its demand there is surplus in balance of payments.
The various causes of disequilibrium in balance of payments are explain below-
(a) Cyclical fluctuation: Business fluctuations induce by the operation of the trade cycle may also disequilibrium in a country’s balance of payments. For example, if there occurs business represents in foreign countries it may countries it may easily cause a fall in exports and exchange a earning of the country concerned.
(b) Capital movement: A massive inflow of foreign capital into a country is followed by unfavorable balance of payments. A large outflow of capital is accompanied by a favourable balance of payment.
(c) Price changes: If there is inflation in the country, prices of export increase as a result exports fall. At the same time the demand for imports increase, resulting a disequilibrium in balance of payment.
(d) Import of services: Under develop countries import services from develop countries for which have to pay a huge amounts of money. It leads to a deficit in balance of payment.
(a) Political instability: Political instability may lead to a large capital outflows and reduce the inflows of foreign funds.
(b) Political disturbance: Frequent changes in the government indiquate support to the government in parliament also discourage inflows of capital.
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