Budget Balance
Budget balance refers to the difference between a government's total revenues and total expenditures within a fiscal year.
Meaning in Practice
The budget balance includes tax revenues and public spending such as infrastructure, defense, and social programs. A positive balance indicates a surplus, while a negative balance indicates a deficit. It is a core measure of fiscal policy stance.
Why It Matters
The budget balance affects debt accumulation and fiscal sustainability. Large deficits may constrain future policy flexibility. It is closely monitored by investors and international institutions.
Market Impact
Deteriorating budget balances can pressure sovereign bond markets and weaken investor sentiment. Strong balances may improve creditworthiness and lower borrowing costs. Currency movements often reflect fiscal credibility.
Example
If annual government spending exceeds revenue, the resulting deficit increases public debt levels.