Government Deficit
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What is government deficit
The government deficit or the budgetary deficit can be defined as the excess of total estimated expenditure over total estimated revenue. When the government spends more than it collects, then it causes budgetary deficit. The budgetary deficit can be of three types:
- Revenue deficit
- Fiscal deficit
- Primary deficit
Revenue Deficit
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The revenue deficit us based on revenue expenditure and revenue receipts of thr government. It refers to excess of revenue expenditure over revenue receipts during the given fiscal year. Revenue Deficit= revenue expenditure -revenue receipts
Implications of revenue deficit
- it indicates the inability of the government to meet its current and regular expenditure in the given budget.
- a high revenue deficit gives a warning to government about that it should minimize expenditure and increase revenue.
Fiscal deficit
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Fiscal deficit shows more informative view of the budgetary imbalances. Fiscal deficit refers to the excess of total expenditure over total receipt during a current financial year.
Implications of fiscal deficit
- debt trap The fiscal deficit indicates the total borrowings of the government. Borrowing are need to be payed but also carries interest a country should pay this borrowing or they will fell in the debt trap.
- inflation The government mainly borrow from the reverse bank to meet its fiscal needs. The bank print more currency to meet the deficit requirements.
- Foreign dependence Government also borrows from foreign countries which raises its dependence on other countries.
Primary deficit
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Primary deficit refers to the difference between fiscal deficit of the current year abd interest payments on the previous borrowings. Primary deficit= fiscal deficit - interest payments
Implications of primary Deficit
It indicates how much of the government borrowing are going to meet other than interest payments. The difference between fiscal deficit and primary deficit shows the amount of interest payments on the borrowing made. So a low or zero primary deficit indicates that interest commitments have forced the government to borrow.
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