Types of Disequilibrium in BoP

Disequilibrium in the balance of payments can be classified as follows: 

(a) Temporary Disequilibrium – Temporary disequilibrium in the form of deficits or surpluses tend to last for a short period of time. They are the result of temporary changes in the economy like - crop failure, seasonal fluctuations, the effect of weather on agricultural production, etc. Such a disequilibrium may occur once in a while and gets automatically corrected. It does not pose a serious problem for a country. 

(b) Fundamental Disequilibrium – There is no precise definition of the term fundamental disequilibrium. Economists generally define fundamental disequilibrium as - “a deep-rooted persistent deficit or surplus in the BOP of a country.” It is a chronic BOP deficit, according to IMF. It is of long-term nature and a matter of serious concern for the country. 

(c) Cyclical Disequilibrium – Cyclical fluctuations in business activity also lead to BOP disequilibrium. Cyclical disequilibrium occurs because – 

(i) Trade cycles follow different paths and patterns in different countries. 

(ii) Different countries follow different stabilization programs. 

(iii) Differences in price and income elasticities of demand for imports. 

(d) Structural Disequilibrium – Structural disequilibrium occurs due to structural changes in the economy. Some of the structural changes would include – changes in technology, changes in tastes and preferences, changes in long–term capital movements, etc.