Current Account Deficit Meaning

Current account deficit is the term used in respect of countries balance of payment situation, it happens when country imports of goods and services exceed its exports of goods and services and therefore there is a shortfall in terms of payment which the nation has to make to outside world. A higher amount of current account deficit is a bad sign for any country as it has an adverse effect on foreign exchange and currency of the country leading to overall downgrade by rating agencies for the economy as a whole.

2 comments… add one

  • K R Natarajan

    Can you please explain the following with an example

    A higher amount of current account deficit is a bad sign for any country as it has an adverse effect on foreign exchange and currency of the country leading to overall downgrade by rating agencies for the economy as a whole.

    • Vinish Parikh

      A current account deficit mean country is debtor to outside world and since this debt has to repaid at some point of time, if country has used the money for consumption purpose rather than investment purpose then its puts a serious question on repaying ability of the country in future which in turn results in currency depreciation and subsequent downgrade.

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