Government debt may increase even if a surplus is realised in a particular year, and it may fall even when there is a deficit. There are three possible explanations for this. First, the government can incur debts in order to fund financial assets, which do not count towards the government balance. For example, the government may issue loans, purchase shares or deposit money in bank accounts. Second, according to statistical guidelines, cash paid and received in a particular calendar year may be recorded in another accounting year, with the effect that this does not impact the balance of the reporting year, but does impact financing, or vice versa. Finally, debt valuation may offer an explanation. There may be a premium paid on debt issued, for example.
Back to article