Question

Why is trade deficit considered a form of debt owed by the country?

Answer 1

Trade deficit is situation which arise when the countries imports increases from the exports of the country. It also tells us that the country's purchasing power is more than the countries production therefore the imports are done from different countries to fulfil the growing demand.

Incresing imports in the country leads to outflow of the currency of the country to another country. And after a certain point, the country is unable to bear the price of incoming goods and takes loans and advances from the financial institution or the world bank. And hence, increasing loans leads to increase in debts. This whole process slowly and slowly leads to a heavy amount of debt for the country and results in debt owned country.