In Macroeconomics, a balance of payments or balance of trade deficit is where the total imports (M) received by an economy exceed that of exports (X). The balance of payments is a component of aggregate demand where it takes the form of (X-M), therefore meaning that when imports exceed exports, there is a net outflow of income and demand from the economy, reducing Aggregate demand and potentially halting demand led economic growth as a result. A balance of payments deficit, though not always damaging if a country can rely on foreign direct investment, tends to be harmful as imports are a withdrawal from the circular flow of income whereas exports are an injection. This means that when imports exceed exports, a negative multiplier effect can take place, lowering demand for labour on the domestic front, meaning firms will not only reduce investment (I), but may make job cuts or fail to employ more workers, this will reduce consumption as people will have lower incomes, again reducing aggregate demand, and so on. Essentially, a balance of payments deficit, though not always harmful in the short run, can be damaging in the long run as it means countries cannot rely on domestic, export led growth and can fall victim to a negative multiplier effect, causing a fall in aggregate demand and GDP in the long run.
See Also
Balance of Payment (BOP): Definition, Types and ImportanceTrade Surplus and Deficit: Difference, Definitions & CausesWhat Is a Surplus? Definition, Reasons, and Consequences3 Ways a Country Pays for Its Growth