Reduction of Government deficits has increasingly become an important issue
in fiscal policy framework of developing countries because of some reasons
like:
? Increased public debt which is costly to maintain – debt servicing is costly in
terms of high interest rates.
? Deficit financing is a disincentive to investment – especially where there is
an upward adjustment in level of taxes.
? Reduction in donor and other development partners’ role in deficit financing
support – necessitating strict budget discipline – the need for developing
countries to narrow the budget deficits in line with their tax revenue base.
? Budget deficits are inflationary, especially where government spending is on
aspects like salaries for civil servants, provision of relief food or subsidizing
loss making public enterprises, all having no direct relationship with real
output.
Gregorymasila1 answered the question on March 2, 2018 at 18:24
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