consequences of BOP deficit

basically, i got a major part of my information here
http://tutor2u.net/economics/revision-notes/a2-macro-balance-of-payments-deficits.html

and the rest from ms sarah ee

here are my summarised points

BOP deficit will:
1:greatly reduce the investment and consumption confidence due to poor economic outlook, and if the country decides to increase interest rates to persuade the investors to keep investing in the economy, it'll have a negative effect on domestic investment and consumption.

2:make future growth difficult as their earnings would have to be used to repay the money borrowed previously.

3:cause a fall in employment as there is excessive foreign product consumption which results in a fall in domestic products demand and will hence result in a fall in domestic output and hence employment

4:cause the borrowing country to be influenced strongly by the lending country, both politically and economically

5:cause a downward pressure on exchange rates as there is a large supply of the currency in the foreign exchange market which may lead to imported inflation due to relatively more expensive imports, and may lead to a rise in interest rates in order to curb the inflation. while declining currency will reduce the relative price of exports and hence increase value of exports, there would be negative effect on demand, output and employment.


i hope these points will help you in your studies of BOP, because the consequence of BOP deficit is often solely "the country will be in debt", with no explanation. you can tag if you find this post useful in your studies.