Deficit financing

The net income statement is used to compute the annual net income or deficit of a project. The statement differs from the cash fbw schedule because it shows incomes and costs and not revenues and expenditures by period. The accrual concept is used in which income from operations is associated with the costs needed to produce the income during the same period. In financial analysis for feasibility studies, it is usually assumed that inventories are the same at the beginning and end of each year. The derivation of costs, revenues, and investments are shown in Figure 21.2. The income statement is related to the balance sheet statement as shown in Figure 21.3 such that the annual profit (or loss) increases (or reduces) the net worth of the company. The balance sheet statement shows the accumulated wealth of a company (assets) and how these assets are financed fliabilities). By definition both sides are equal. 

Social insurance net of contributions (that is, amount corresponding to tax-financed coverage of the deficit in the social insurance systems)... 

Technically, a fifth option is to create money to cover deficits. However, experiences like those of Latin America in the 1970s and early 1980s have shown printing money to be such an inflationary, inefl cient, and inequitable source of financing that all prudent governments have discarded it as an option. 

However, Zimbabwe was not spared tbe economic crises that swept across African countries from tbe mid-1980s. Expansion of social services without rising revenues led to budget deficits, forcing tbe government to abandon tbeir initial resistance to economic structural adjustment programmes (AfDB, 1998). On tbe advice of tbe IMF and technocrats in the Ministry of Finance, the country embarked on a structural adjustment programme in 1991. Disastrous economic outcomes included deindustrialization, unemployment and deterioration of the health care system (AfDB, 1997 Brett, 2005 Richardson, 2005). 

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