Is Budget Deficit Harmful to the Economy

2839 Words12 Pages
1.0 Introduction One of debated topics in the economy is the policy debate on government budget deficit. The debate is whether government budget deficit is harmful to the economy or not? Some economists have said yes and others might say no. It all depends on the economists’ opinions and judgments. In this position paper, the topic will be ‘Is budget deficit harmful to the economy’. Here, the budget deficit will refer to the government budget and not the private firm or an individual. First of all, what is the meaning of budget deficit? By definition, a budget deficit is a common economic phenomenon, generally taking place on governmental level. Budget deficit occurs when the spending of a government exceeds that of its financial savings. On the other hand, it means the amount of spending exceeds its income over a particular period of time. Why it is important to understand the impact of budget deficit to the economy is related to whether it is harmful to the economy or not. The issue on budget deficit is important because it is with regards to the government policy and decision making. It reflects on how the country’s government spends efficiently as it is highly correlated to the economic growth. On the other hand, the government policy on budget deficit is also important in the political point of view of a country. In Malaysia, the government has been on budget deficit since 1999 until 2011. It is also budgeted that in 2012, the budget deficit will be 4.7% of GDP. According to the data from the Ministry of Finance, the highest budget deficit is in the year 2010 (ranging from year 1999 to 2011); 7% of GDP equivalent to USD 13.3 billion. This is due to the continuing effort of Malaysian Government to boost the economy after the financial crisis in late 2008. Figure 1.0 shows the Malaysia Government Budget for the period of 1999 until 2011. The figure shows
Open Document