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History of cash deficit

The cash (financial) deficit has been known since human antiquity, and the first appearance of this concept was in 509 BC. In Greece, and appeared later in the era of the Abbasid state in AD 918. C. during the rule of the Abbasids. Caliph al-Muqtadir, followed by a second deficit that forced the caliph to sell his property and obtain debts from merchants; In order to provide sufficient financial liquidity to finance the deficit, and on the European continent, the deficit appeared during medieval times; This led the feudal kingdoms to impose tariffs and taxes on peasants who fled to other cities, taxes being one of the elements that led to the demise of the feudal system.

In the modern era, a cash deficit appeared in Great Britain in AD 1844. C. and the British government could not impose taxes, reason why it was forced to obtain loans from the banks to finance the deficit. Because its expenses exceeded its public financial income, in conjunction with the diffusion of the economic ideas of the Keynesian school in the countries of the European continent and developing countries in general.

cash deficit concept

The cash deficit or financial deficit, also known as the budget deficit (in English: Budget Deficit) is a deficit that appears as a result of an increase in government or commercial expenses due to the rate of financial income that pays the value of these expenses. over a certain period of time, and this results in an accumulation of debts that leads to the occurrence of deficits, The cash deficit is defined as the appearance of a deficit in the financial budget due to expenses that exceed the value of income , and this deficit Often appears in governments and can appear in various companies and establishments. Another definition of cash deficit is a situation faced by institutions that leads to financial difficulties, by not being able to pay the value of current or short-term financial obligations that they owe; Because your short-term income and resources don't cover your financial obligations.

Characteristics of a cash deficit

The cash deficit is characterized by a series of characteristics, namely:

  • The cash deficit is a financial gap that is determined on the basis of a comparison between expenses and income. This financial gap is not discovered in the normal economic environment, but requires an exceptional (extraordinary) economic environment, such as the emergence of social and political policies. agitation.
  • The cash deficit is associated with an increase in public spending related to rising prices or political turmoil. Governments are eager to continue their work to increase funds to finance investment projects and the service sector; Which contributes to increasing the amount of expenses to cover income.
  • The cash deficit appears during the fall of public income in most seasons and circumstances; This prompts governments to conserve funding.
  • The cash deficit does not push governments to stop their activities and work, but rather it pushes them to obtain loans from banks or the money market, and all these sources contribute to freeing up money for the productive and service sectors.
  • Financing the cash deficit through financial loans entails an increase in the means of payment, which translates into the emergence of pressures on the national economy determined by the apparent financial gap between supply and demand.

Causes of the cash deficit

The reasons for the emergence of a monetary deficit between countries vary and vary, and their economic situation differs between developing and developed countries. The reasons for the appearance of this deficit are often due to incorrect fiscal policies applied by governments; As a result of the discrepancy between the causes of disability that affect the countries, it is possible to summarize these reasons according to the following points:

  • Provision of social services: It is a group of social services provided by governments for free or almost free in the countries, and examples of these services are: social security, free education, health services, public parks and other services that in their most are free or for a fee, simple financing; Resulting in the appearance of pressures on public spending.
  • Defense and Security Expenditures: The need for countries to achieve security with the increase in social and economic developments that contributed to the development of defense services; Especially with developed countries that seek to impose their military control; By participating in wars that lead to increased spending related to defense and security, and constitute an element of pressure on the public treasury of countries. As for the developing countries, they are interested in building armies and equipping them with adequate weapons; This leads to an increase in the volume of expenditures, which results in the emergence of pressures on public spending.
  • Employment: the countries seek to reduce unemployment rates based on the increase in financial expenses. Developed countries provide business support with the aim of providing employment opportunities to individuals, or provide subsidies in lieu of unemployment, all of which are expenditures that lead to an increase in the deficit.As for developing countries, they are interested in employing people in SOA projects or institutions; Which leads to an increase in the wage rate, which is an element of pressure on public spending.
  • Expenses for infrastructure projects: The expenses associated with a group of projects, such as: construction of bridges, electrical installations, communications, airports, ports and other services that cannot support production, and facilitate the transportation of citizens without depending on them, but these services need large sums of money that put pressure on public spending, and developing countries often depend on loans to finance these projects; This leads to an increase in your deficit and an increase in the size of your debt.

Cash deficit treatment methods

The phenomenon of cash deficit is one of the complex phenomena and it is necessary to find suitable solutions or repair methods. Therefore, a set of ideas emerged that seek to address it, including:

  • Elimination of excess aggregate demand; Implementing adequate demand management that depends on the control of all monetary and financial variables.
  • Concern to reduce transfer costs of a social nature; Especially when it comes to the prices of food products.
  • End state support for productive units in the public sector; Specifically, those who have economic losses. 



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