Sources of Finance for a Deficit Budget:

The main sources of finance for government fiscal deficit are:

(i) Internal borrowing: This involves raising loans from the bank and non-bank public within the country. This could be through the sale of government securities.

(ii) External borrowing from Bilateral Creditors: A bilateral credit is provided by one government to another. Such credits are intended for development projects in the recipient country.

(iii) External borrowing form Multilateral Creditors: This involves raising of loans from international institutions funded by member nations. They include the World Bank, International Monetary Fund (IMF), African Development Bank (ADB), etc.

(iv) External borrowing from Paris and London clubs: These are official and commercial creditors respectively. The Paris club is formed by governments of some advanced industrialized countries, while members of London Club are commercial banks mainly in industrialized countries.

(iv) Drawing down on external reserves: An external reserve is like saving of a country. The government may decided to draw from the external reserves to meet the discrepancy between revenue and expenditure.

(vi) Printing of currency: Instead of borrowing, a country may decide to print more money currency to finance fiscal deficit. But most countries rarely adopt this option because of its inflationary consequences.