The foreign deficit is the difference between income and expenses that a country has with respect to the outside.
The deficit originates when a country has more payments than income relative to abroad. In other words, it sends more money than it enters abroad, so it may have problems financing itself and balancing its macro-magnitudes. When we call the foreign deficit, what we mean is that in total, the country has sent more money outside of the one that has entered. However, the external deficit can in turn break down, as can the balance of payments:
- Trade deficit: Negative difference between exports and imports.
- Capital deficit: Greater investments abroad with national money than foreign investments in the country.
- Financial deficit: When citizens here send a greater number of remittances than received.
This indicates that while some items in the balance of payments may have a surplus, that is, a positive balance in favor of the country, when it comes to foreign deficit, the sum of all items is negative.
In the long term, a continuous and accumulated foreign deficit causes a country to have liquidity problems and to face payments, so to a large extent countries try to balance the accounts by supplying the deficits of some items with surpluses of others.