For a State as for a business, debt arises from the shortfall between revenue and expenditure. That shortfall is called a budget deficit in the case of a State and a cash deficit in the case of a business. Debt, or borrowing, finances it.
As long as the deficit persists year after year, borrowing continues and the debt grows.
Barring some exceptional operation, it can only fall when revenue exceeds expenditure — that is, for a State, in a situation of budget surplus.
Three types of public administration debt are generally distinguished within a country:
that of the State proper, generally called the public debt;
that of local authorities;
that of other public administrations and arms of the State.
How debt is constituted
Managing the public debt consists of ensuring that the State holds enough in its accounts to meet its commitments — that is, of being continuously satisfied that new borrowing can readily be raised in order to:
finance the excess of expenditure over revenue, so that every item of expenditure provided for and authorised by the finance act can be paid;
repay existing debts falling due, that is the borrowings of previous months or years.
