Government finance statistics: deficit-debt relationship – Products Eurostat News
The general government financial accounts cover transactions in financial assets and liabilities as well as the stock of financial assets and liabilities.
The net capacity (+)/net requirement (-) (also called surplus/deficit) as well as the general government gross debt are among the most important indicators of government finance statistics.
While in general the gross public debt will increase in the presence of a public deficit, this is not necessarily the case in the short term. Deficits can also be financed by the sale of financial assets, or alternatively, debt can be used to finance the acquisition of financial assets. Therefore, in addition to the surplus/deficit, there is a strong co-movement of net acquisition of financial assets with the evolution of quarterly debt. The appearance of liabilities not covered by the Maastricht definition of debt as stipulated in the excessive deficit procedure (mainly “other accounts, payables”), as well as valuation differences and discrepancies, play a role less important in explaining the evolution of the debt.
Source dataset: gov_10q_ggnfa, gov_10q_ggfa, gov_10q_ggdebt
In the third quarter of 2021, the financing of the deficit (3.9% of GDP), explained most of the variation in the debt (4.0% of quarterly GDP). At the same time, the effects of net acquisitions of financial assets (1.9% of GDP), due in particular to the sharp increase in deposits, offset by the effects of net increases in liabilities not included in the Maastricht debt (- 0.9% of GDP) as well as other adjustments including in particular some revaluations and deviations (-0.8% of GDP). This information comes from quarterly public finance data released today by Eurostat. The article presents a handful of findings from the more detailed Statistics Explained article.
Since the first quarter of 2020, due to the containment measures related to COVID-19 and the political responses aimed at mitigating the economic and social impact of these measures, the change in debt has been mainly influenced by large deficits, as well as through net acquisitions of financial assets.
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