Impact of Trade Deficit on the Balance of Payments in Emerging Economies: A Comparative Study of India Indonesia Vietnam Philippines and Thailand

This research investigates the influence of trade deficits on the balance of payments (BoP) in five key emerging economies—India, Indonesia, Vietnam, the Philippines, and Thailand—during the period from 2021 to 2024. Through a comparative framework, the study analyses how sustained trade imbalances impact the current account, foreign exchange reserves, and broader macroeconomic stability. Drawing on data from international financial institutions and national central banks, the paper identifies both common trends and country-specific divergences. Findings reveal that while trade deficits can be sustainable when financed through consistent and long-term capital inflows, they become a source of vulnerability when reliant on short-term and volatile portfolio investments. In India and the Philippines, persistent deficits largely stem from structural import dependence and limited export diversification. In contrast, Indonesia and Vietnam have maintained stronger external positions by capitalizing on competitive export sectors, though both remain sensitive to global trade fluctuations. Thailand’s BoP performance has been notably erratic, influenced by its role in global supply chains and exposure to external shocks, including changes in U.S. trade policy. The study underscores the growing importance of strategic external sector management amid rising geopolitical and economic fragmentation. It concludes with targeted policy recommendations to enhance BoP flexibility, reduce import reliance, and attract stable capital flows tailored to the unique economic profiles of each country.