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Foreign currency reserves are used for development purpose but when

payments are made from foreign currency reserves then expenditure on


different sector of economy reduces due to decrease in foreign currency
reserves. So when we purchase from foreign country then import increases
then exports, so balance goes to deficit. It effect on economy like production
reduce, employment level reduce, export reduce. Then we depend upon
loans from other countries and then payments made for that loan and
balance of payment goes to deficit.

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