Hello all.
I have a question concerning negative balance of payments.
Why is it necessary that a country running a trade deficit must borrow from its trade partners?
I understand that in this situation it spends on foreign goods more, than it receives from its export, and this gap must be financed, but why not from domestic savings? If businesses, households and government all have a massive amount of savings from prior periods what are the barriers for them to finance its own current trade deficits?
Imagine Norway with its sovereign funds of enormous size when the price of oil is zero. Will its companies immediately run towards its trade partners for import financing? Why isn’t there a possibility to borrow from these funds (provided that there is an agreement on the terms)? I personally believe that there is such a possibility. What are your thoughts?