Thursday, June 7, 2007

Government Deficts and Fiscal Deficits

Don't get confused over Government deficit and balance of payments deficit.

Fiscal Deficit

This is when government spending is greater than taxation revenues. It is measured by PSNCR. Public sector net cash requirement. A fiscal deficit is also know as government borrowing.

Current Account deficit.

The Current account of the balance of payments, measures trade in goods, services and investment incomes. Therefore, a deficit implies the value of imports is greater than exports.
  • Note this current account deficit is not due to the government.
  • A deficit on the current account means that there will need to be a surplus on the financial / capital account component of the balance of payments.
  • Balance of Payments

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