Ways of Financing Deficit Budget And Their Effects - SS2 Economics Lesson Note

A deficit budget can be financed in several ways, including borrowing from domestic or international sources, printing more money, or increasing taxes. Three concepts are considered in governments' attempt to finance deficit budget and they include:

Debt Burden

Debt burden in the context of a country refers to the amount of debt that a country owes to creditors or lenders, and the extent to which that debt is a burden on the country's economy. Borrowing to finance a deficit budget can lead to a high debt burden, which means a country has to allocate a significant portion of its budget towards debt servicing. This can limit a country's ability to invest in social and economic development projects.

 

Debt Relief

Debt relief is a measure taken to reduce the burden of debt on a country. It can be granted by international organizations, such as the International Monetary Fund (IMF) or the World Bank, or through certain types agreements with other countries. Debt relief can free up resources for a country to invest in development projects.

 

Debt Payback

Debt buyback is another way to reduce the debt burden. This involves a country repurchasing its own debt at a discounted price, which can be beneficial in reducing the overall debt burden. However, it requires significant financial resources, and the savings from debt buyback may not be significant in the long term.