A deficit (from the Latin deficere, which can be translated as “lacking” ) is the scarcity, impairment or deficiency of something that is needed or considered essential. The term can be applied to different products or goods, from food to money. It is used above all in a commercial context, in the field of companies and States.
For example: “The government is concerned about the oil deficit”, “The company has a significant liquidity deficit that makes it difficult for us to pay salaries”, “The lack of qualified teachers is the main deficit of this town”.
The notion of budget deficit, which is associated with the Public Administration, occurs when the expenses specified by the State are higher than its income during a certain period of time. The public deficit, therefore, is the balance of the accounts of the various public administrations of a country, from the national to the municipal.
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That said, it should be noted that whenever the term deficit is used, one is thinking of the lack of an important good for subsistence, because one does not have enough money to buy it, and above all it is about state goods, or a deficiency in the supply of goods, from the State to the society in question; when the balance is made and in the absence of a good distribution of the budget in the acquisition of goods and services, a negative balance is reached. In any case, the term can also appear to refer to a bad management that a person makes your economy and that prevents you from accessing certain goods or services that could be essential (such as health or food, among others).
If the government can not contract more debt (that is, they do not lend it more money) and it no longer has reserves to meet its expenses, it will only be able to attack the deficit if it borrows from the country’s own central bank.
It should be noted that a State is said to have a fiscal deficit when, over a given cycle of time, it has spent more money than it has collected in a given sector of public administration. On the other hand, if we speak of a public deficit, we are referring to a deficiency in the balance of all sectors of the Public Administration.
To know the balance of the national accounts, a series of formulas and accounting balances are used that allow knowing the country’s budget deficit. These formulas take into account: on the one hand, those obligations that the State has contracted, and on the other, the payments that have been made. To know the result, the ratio is used, which allows knowing the deficit over the Gross Domestic Product.
The balance of payments (or balance of payments ) is the accounting report that is responsible for keeping track of the movement of capital and trade operations carried out by citizens of a country abroad. The difference between the income obtained from abroad and the payments made outside the national territory is known as balance.
When that difference is negative, we speak of a trade deficit. On the other hand, if the difference is positive, we are facing a situation of surplus.
Finally, it is worth mentioning a term that is related to the deficit, the trade balance, and which is also of great importance. It refers to the registration of imports and exports that a State has and the economic balance as far as these negotiations are concerned. That is, the difference in the balance of both types of transactions. If the amount of goods that the State exported is greater than the amount that it imported, it is facing a trade surplus.
To combat the deficit, the States carry out plans in the economy that include adjustments in the public sector, such as a decrease in the salaries of employees in this sector or the elimination of expenses that are considered superfluous, among other implementations.