Deteriorating Balance of Payment

The main cause of disequilibrium in the balance of payments arises from state of the imbalance  between exports and imports of goods and services, that means there is deficit or surplus in balance of trade. When for one reason or another value of exports of goods and services of a country are smaller than the value of its imports the disequilibrium in balance of payments always occur.

The value of exports are small due to decrease and negative balance in the  exports which has led to  the low supply of goods  where those were to be exported will be small due to the heavy cost and prices of exports having services of competition in the world markets.

The main reasons of lower exports are the inflation and the rising prices in the country including the over-valued exchange rate. When there is higher rate inflation in a country leading to the higher prices of exports showing the discouragement of exports and encouragement of imports. If it is not matched by other items in the balance of payments, imbalance will surely arise