Question

a) The Minister of Finance suggests that the COVID-19 has affected the fiscal gap. Explain how the COVID-19 affects the fiscal balance of the government for the year.

Answer 1

Covid-19 has affected the fiscal gap by increasing the debt payment and interest rate which were overdue on to the economy and it has also lead to decrease in the value of domestic currency so the payables are higher.

Due to unfolding of covid-19, there is a depreciation in the domestic currencies of various countries, as this has sparked a wave of uncertainty and the businesses are shut so it has impacted the domestic currencies adversely and it has led to widening the gap of fiscal deficit so there is a widening of fiscal gap.

There are more factors which are by-products of Corona such as a lot of unemployment and lack of demand as well as an impending recession and shutdown of economy are major factors which have led to widening of fiscal gap.