The Fiscal Policy and the Public Debt - Cause of the Budget Balance

Public debt is defined as the overall state obligations to its creditors. The public debt is closely related to the budget deficit, since they are opposite sides of the same coin. Thus, public debt is a set of different forms of borrowings that are made by the state in order to achieve certain budgetary goals. The public debt is directly related to the budget deficit, as the state increases the public debt when the budget deficit appears. However, the budget deficit occurs over time whereas public debt is the state of indebtedness at a certain time. Therefore, it is dealt with the categories that are in the cause-effect relationship. The state borrowing is determined by its macro-economic policies, political relations, social policy and social conditions. Repayment of the public debt is the state’s budget obligation. The government's ability to repay debt depends on the existing market conditions and trends of key economic variables (inflation, interest rates, exchange rates, the movement of budget incomes and expenditures, the current balance of payments).Public debt sustainability is defined as the ability of the state is to meet its long term financial obligations to creditors, while maintaining a balance between budget incomes and expenditures.