Government finance statistics: deficit-debt relation

The financial accounts of the general government sector 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. 

Generally, the movement in government debt can be linked with the government balance: in case a deficit is observed, one would expect to see an increase in debt, in case of a surplus, some of it could be used to repay debt. However, this is not necessarily the case. Deficits can also be financed by the sale of financial assets, or alternatively, debt can be raised to finance the acquisition of financial assets. Therefore, in addition to the surplus/deficit, a strong co-movement of the net acquisition of financial assets with the evolution of quarterly debt exists. The incurrence of liabilities not covered in the definition of the general government gross debt (mainly 'other accounts, payable'), as well as valuation differences and discrepancies, also play a role in explaining the change in debt.

Source dataset: gov_10q_ggnfa, gov_10q_ggfa, gov_10q_ggdebt

In the third quarter of 2023, the financing of the deficit (2.5% of GDP), explained the main part of the change in gross debt (3.1% of quarterly GDP) of the euro area. At the same time, the effects of the net acquisitions of financial assets (-0.2% of GDP) were fully offset with the effects of net incurrences of liabilities not included in Maastricht debt (0.2% of GDP). Other adjustments comprise notably certain revaluations of debt, adjustments between transactions and the change in stock at face value as well as discrepancies (0.6% of GDP). This information comes from data on quarterly government finance statistics published by Eurostat today. The article presents a handful of findings from the more detailed Statistics Explained article.

In the quarters of 2020 and 2021, 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 acquisitions of financial assets.