So how come government fund the Fiscal Deficit?
Government can fund its Fiscal Deficit by the following ways:
Including all these techniques, Government borrowing is the most widely used funding mechanism used by Government to fund the fiscal deficit. This is done by issuing government bonds and treasury bills to the investors. Mainly different financial institutions including banks and insurance companies, trusts, different funds including mutual funds and other country’s sovereign wealth funds across the world invest in the government bonds and treasury bills. The coupon and yield rate is decided by the interest rate and credit rating of the country. The country risk premium is also being added to the same for the foreign investors.