Causes of Deficit In Balance of Payments

Economic Factors
Developing countries depend more on imports. They have to import more of machinery and technology. This brings deficit in balance of payments.
High inflation in domestic country makes domestically produced goods expensive relative to foreign goods. This leads to fall in net exports.
There may be a fall in demand for domestic country’s goods. This will also hamper the balance of trade.
Fluctuations in business cycle may adversely affect the domestic demand.

Political Factors
Instability of government causes less and less capital inflows because investors are discouraged. This creates disequilibrium in balance of payment.
Instable political scenario leads to huge capital outflows.

Social Factors
Tastes and preferences of people tend to change overtime. An unfavorable change in tastes reduces exports.