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If the primary deficit of the government is zero in a year, what does this imply?

A zero primary deficit means the fiscal deficit equals interest payments. The government borrows only to pay interest on earlier debt, and its non-interest expenditure is fully covered by its receipts, so no fresh borrowing funds current programmes.

  1. AThe government has no borrowing at all
  2. BThe fiscal deficit equals interest payments, so borrowing is needed only to pay interestCorrect
  3. CRevenue deficit equals fiscal deficit
  4. DInterest payments are zero

Explanation

Primary deficit = fiscal deficit - interest payments. If it is zero, fiscal deficit equals interest payments. The borrowing then only serves past debt interest, not current non-interest spending. Borrowing is not zero, since the fiscal deficit equals interest.

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