Difference Between Deficit and Debt
Deficit in a country’s economy is the excess of expenditure or spending by government over its income and revenues it is calculated for a particular period and represents the amount that needs to be borrowed whereas the Debt is the total sum of money already borrowed by the government from other countries or lenders to accommodate the expenditure and it represents the total amount borrowed and still outstanding.
Deficit and debt are often a result of each other. Whenever there is a budget deficit the government of that country borrows funds from another country in order to fulfil that deficit of the country which makes the country somewhat self-reliant and in that way, it becomes easy for a country to operate things.
- Deficit generally refers to the difference between the sources of the funds and the expenditure of the government. In a budget, there is either surplus or deficit. A deficit occurs when the country exceeds the expenditure over its revenues like taxes and other revenue receipts. In developing nations for example countries like India, a budget deficit signifies the growth of the country
- Debt, on the other hand, refers to the country debt or the national debt of a particular country and the money the country has borrowed from its associates as a result of a deficit. The debt the country borrows can come from various international organizations like the International Monetary Fund or the World Bank. Debt is like the balance between the revenue of the government and the expenditure that the government is expected to occur in the coming year or has already taken debt on the deficit that the government is experiencing
Deficit vs Debt Infographics
Let’s see the top differences between deficit vs debt.
- Debt is taken from International Institutions or from other developed nations from which the country has a good relationship with. Whereas, on the other hand, a deficit occurs from internal factors and no external forces are responsible for the deficit of the government.
- Debt might not be considered a good factor, but it is not always a bad factor for the economy if the country has raised debt for capital expenditure whereas if the country has raised more debt to repay the interest or the principal instalments of the present debt that the country has already availed then debt can be considered as an ominous figure and may indicate a weak economy. On the contrary fiscal deficit of the government is often associated with a good growth of the economy and is often a sign of prosperous growth and development
- Debt can be expressed as an accumulated deficit of the country over the years whereas deficit is often referred to as the country’s current-year deficit or the difference between the country’s expenses and revenue in a year
- Deficit spending often results in the speeding and increased growth in the economy of the country whereas on the other hand debt plays a major part in slowing down the economic progress of the country as interest payments and other expense piles up to slow down the progress
Deficit vs Debt Comparative Table
|It does not lead to any principal or interest payment to external parties||Debt demand interest repayments and principal repayments of the money borrowed from lenders and other financial institutions|
|In Deficit there is no external party which is involved in the process and deficit is totally internal there is no obligation which exists||Debt there is often an external party which is involved and there exist an obligation to repay the borrowed money from the party|
|A deficit of the government generally applies to a single year||Debt generally refers to the all of sum owed by the government|
|It is often Structural and Cyclical||Debt can be borrowed from external as well as internal sources|
|A deficit can remain constant over the year of the government if the government carefully spends the money over the year||Debt amount cannot be constant over the years as it can vary because of the interest and the principal payments as the loan can be taken and repaid over the years|
|It is not dependent on debt However if the country borrows continuously from financial lenders it can result in a deficit all the time.||It is a resultant of a deficit. Whenever there is a deficit the annual budget of the country the country needs to take debt.|
Both debt and deficit, in the long run, damage the economy because of the higher interest rates on the debt repayments. The regular deficit over a period of many years can also hamper growth. The budget deficit in a situation of recession is good but it affects negatively in the long run as the government devotes most of the revenue to pay the mandatory cost of social security. It has less money on hand to invest and do capital expenditure which increases the employment rate in the country and stimulates growth.
The USA has the largest fiscal deficit of all, clearly, it is not easy to run a developed nation. The government major spending there is the payment of the social security cost which is a mandatory cost for the government. In developing nation India is running on a fiscal deficit of around $90 billion dollars which is roughly around 3.3% of the gross domestic product of the country.
This has been a guide to Deficit vs Debt. Here we discuss the top 7 difference between them along with infographics and comparison table. You may also have a look at the following articles –