Twin deficits refer to a situation where a country's economy faces two major deficits simultaneously:
Budget deficit: Government spending (public expenditure, debt repayment, subsidies) exceeds revenue (tax collection).
Current account deficit: The country imports more goods and services than it exports (trade deficit).
Many economists believe that large budget deficits often worsen current account deficits — government spending increases imports and pushes up interest rates, attracting foreign capital but increasing external debt.
Twin deficits can lead to rising foreign debt, currency depreciation, and threats to financial stability.
Bangladesh has experienced twin deficit tendencies, particularly when import costs are high and government spending increases.