Budget deficit refers to a situation where a government spends more money than it collects in revenue. In other words, the government is operating in a state of negative cash flow, with expenses exceeding income. This shortfall is typically financed through borrowing, either by issuing government bonds or borrowing from other countries. A budget deficit can occur for a number of reasons, such as increased government spending on social programs, infrastructure development, or national defense, or a decline in tax revenues due to economic downturns or tax cuts.
A budget deficit can have both short-term and long-term consequences for a country’s economy. In the short term, a budget deficit can stimulate economic growth by increasing government spending and injecting money into the economy. This increased spending can lead to increased demand for goods and services, which can in turn create jobs and stimulate economic activity. However, in the long term, a budget deficit can lead to higher interest rates, inflation, and a weaker currency. Additionally, as the government becomes more indebted, it may have to divert funds away from other important areas, such as education or healthcare, in order to service its debt obligations.