The Primary Deficit is zero in which of the following situations?
A. Fiscal Deficit is zero.
B. Interest payment is equal to Fiscal Deficit.
Show answer & explanation
Correct answer: B
Explanation
The correct answer is option 2 i.e. Only B.
Primary Deficit is the Fiscal Deficit minus Interest Payments on previous borrowings. It reflects the borrowing requirements of the government excluding interest obligations. Mathematically:
Primary Deficit = Fiscal Deficit − Interest Payments
So, when Interest Payment equals the Fiscal Deficit, the Primary Deficit becomes zero. This indicates that the government's current expenses (excluding interest payments) are fully covered by its revenue, and it needs to borrow only to pay interest on past loans. Hence, Option B is correct. Option A is incorrect because a zero fiscal deficit doesn’t necessarily mean the primary deficit is zero.