Negative impact of high fiscal deficit

Subject: Economy

Context:

Government deficit is possibly the most dominating issue in the global financial markets these days.

Concept:

• A high government deficit leaves little for the private sector for investment and puts upward pressure on interest rates—also referred as crowding out.
• But in an open economy, the country can always import capital to naturalize the impact of reduced saving because of higher deficit. But, again, import of foreign capital would result in appreciation of the currency, affecting exports and growth.
• It has threat of a ratings downgrade.