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• Budget Deficit

Also known as Fiscal deficit

Occurs when the government annual amount of spending exceeds income from taxation.

When a country is running a fiscal deficit it must finance this by borrowing through the issue (sale) of new debt.

A government will normally borrow money by issuing bonds or other securities and the interest rate on this debt will depend on the willingness of lenders to offer credit, the expected rate of inflation and the risk of whole partial default.

The Government of a country with low or worsening credit ratings may need to negotiate loans from institutions such as the World Bank, The International Monetary Fund, Sovereign wealth funds or other governments/Overseas banks.