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Primary Deficit: Definition and Significance

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Definition: The primary deficit can be described as the difference between the fiscal deficit and the interest payments of the previous year.

When the total expenses are higher than the total income in a budget, then the difference is called a deficit. A primary deficit is calculated by comparing all receipts and all expenses except the interest paid on loans acquired in the past. Any expense related to the government borrowing money from financial institutions is also excluded from this. It has been observed by economic analysts that when the primary deficit of a country is small and its interest rates are low compared to the GDP growth rate, a country’s debt-to-GDP ratio will shrink.The fiscal deficit percentage of a country also happens to be a part of the country’s GDP. 

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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