Dear Readers, I am trying to trace an important and burning topic in todays’ post. People interested and concerned with Finance and Economics are very much aware of the term ‘Financial Deficit’. Let me try to derive a simple meaning of the term so that it could be understood well. Financial Deficit arises when the amount of expenses is larger or expanded then the amount of income. For example; a country prepares its fiscal budget and allocates certain amount of money for certain areas and departments such as; Education, Agriculture, Health, Science & Technology, Security/ Defense, Food, Information, Interior Affairs, Foreign Affair, Water & Power, Development, Communication, Law & Justice etc.
Now having said all the above, in my opinion as I have done some readings and research, I developed an understanding that there are three types of budgets which the countries come across, a) the Surplus Budget, b) the Deficit Budget and c) the Balanced Budget. The Surplus Budget is a type of Budget where the expenditures are lower than the income or revenue and an amount remain in the government funds, while the Balanced Budget is a type of Budget where the expenditure and the income/ revenue are equal, (what is earned is disbursed) and the threatening one is the Deficit Budget which means that the expenses overflows or simply it can be understood that it is a type of Budget where the expanses exceed the revenues.
As per my understanding (Readers might agree or disagree), the developed countries do come across the two types of Budgets (normally), the Balanced Budget or the Surplus Budget because they plan well, so they might not face the Deficit Budget. (this is not final they may also face Deficit Budget if not planned carefully) on the other hand, my idea is that most developing/ poor countries lack appropriate planning in terms of revenue collection and budgetary planning etc.
There expenditures go beyond their revenues/ income, developing/ poor countries are normally weak in collecting the revenues as well, which is due to lack of proper planning therefore they face Deficit Budget. Again it’s not a final thought, those developing/ poor countries if plan their budget according to their revenues may have a Balanced Budget or sometimes Surplus Budget as well but it seldom happens. Similarly, a developed country might face a disastrous circumstance if not planned thoughtfully.
Let’s focus on the Deficit Budget now, as per my judgement (above understanding and knowledge) planning plays a significant role not only in Fiscal Budgeting but also in almost all the areas and zones of a country (even in the household budget). Now what happens when Deficit Budget occurs? Quite simple, have to borrow an amount to fill in the Gap between the expenditure and the revenue.
Borrowing means one has to get extra money from sources and definitely the return amount will be more than the borrowed amount due to payment of the interest on the borrowed amount so it will be an extra burden on the country which is already facing Deficit. Again, if the country is effective in increasing its capabilities or becomes more vigilant and successful in terms of it’s planning for the next fiscal year then it might come out of the disastrous situation and become stable, if not then that country will unquestionably go further down and will become economically weak.
The Deficit Budget badly effects the entire Economy of a country in terms of Inflation (the rise in prices), the growth rate of the economy streams down, it devalues the country’s currency, the import and export (trade) is effected as the international transportation rates (for import & export) flies high due to inflation and devalued currency. The Deficit Budget also has a bad effect on the value of shares (if it has with company’s outside the country) the country’s resources get devalued and most importantly the Deficit Budget thrashes the competitive strand of a country in the international market/ business. Finally, deriving the conclusion it appears eminent that a Deficit Budget (Financial Deficit) is a Massive Threat which destroys the ECONOMY.