Fiscal deficit, also known as a budget deficit, is a situation where a government's total expenditures exceed its total revenues (income) in a specific period, typically a fiscal year. In other words, it is the difference between what the government spends and what it earns through taxes, fees, and other revenue sources.
A fiscal deficit arises when a government needs to finance its spending through borrowing, which can be achieved by issuing government bonds or other forms of debt. Governments often incur fiscal deficits to fund various programs, public services, infrastructure projects, and social welfare initiatives, especially during economic downturns or when facing unforeseen expenses.
While a fiscal deficit can help stimulate economic growth and support the economy during challenging times, persistent and large deficits can lead to concerns about the government's ability to manage its finances effectively. High fiscal deficits may result in increased public debt, leading to interest payments on that debt, which can strain the government's financial resources and lead to economic instability.
Governments typically aim to strike a balance between providing necessary public services and maintaining fiscal discipline. They use various fiscal policies and measures to control deficits, such as increasing tax revenues, reducing expenses, promoting economic growth to boost revenues, and implementing budgetary reforms.