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Government finance statistics: deficit-debt relation (Eurostat)

Government finance statistics: deficit-debt relation (Eurostat). The financial accounts of general government cover transactions in financial assets and liabilities as well as the stock of financial assets and liabilities.

The net lending(+) / net borrowing (-) (also known as surplus/deficit) together with the gross debt of the general government are among the most important indicators in government finance statistics.

While in general, government gross debt will increase in the presence of a government deficit, this is not necessarily the case in the short term. Deficits can also be financed by the sale of financial assets, or alternatively, debt can be used to finance the acquisition of financial assets.

Therefore, in addition to the surplus/deficit, a strong co-movement of net acquisition of financial assets exists with the evolution of quarterly debt. The incurrence of liabilities not covered in the Maastricht debt definition as stipulated in the excessive deficit procedure (mainly ‘other accounts, payable’), as well as valuation differences and discrepancies, play a smaller role in explaining the change in debt.

Third quarter of 2021

In the third quarter of 2021, the financing of the deficit (3.9% of GDP), explained the main part of the change in debt (4.0% of quarterly GDP). At the same time, the effects of net acquisitions of financial assets (1.9% of GDP), notably due to the large increases in deposits, off-set with the effects of net incurrences of liabilities not included in Maastricht debt (-0.9% of GDP) as well as other adjustments comprising notably some revaluations and discrepancies (-0.8% of GDP).

This information comes from data on quarterly government finance published by Eurostat.

Since the first quarter of 2020, due to COVID-19 containment measures and policy responses to mitigate the economic and social impact of those measures, the change in debt was mainly influenced by large deficits, as well as net acquisitions of financial assets.


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