By contrast, in the case of a public sector deficit, the investor's confidence is based not so much on any knowledge about the rate of return, if any, from the expenditure to which the funds are destined, as on faith in the government's ultimate ability to raise money through taxation, if necessary, at some future date in order to service its borrowings. Such a prospect of higher taxation might, among other things, serve as a dampener on financial confidence. •  Third, there may be a fear that public sector borrowing will crowd out worthy corporate sector borrowing from the financial markets, to the detriment of the economy as a whole, although to the extent that a public sector deficit has its counterpart in a corporate sector surplus (or reduced deficit), the corporate sector’s borrowing requirement will anyway have been reduced. •  Fourth, in some cases a public sector deficit may be financed by a reduction in net foreign currency assets. For instance, the government may resort to foreign borrowing because the local financial market is not mature enough to supply the funding. Or, exceptionally, as in the case of Hong Kong, the government may raise the funds by running down accumulated foreign currency investments. The respective build-up of foreign currency liabilities or reduction in foreign reserves may raise concerns in the context of net national wealth, national economic security, credit ratings, and so on. Moreover, foreign currency borrowing exposes the government to financial loss in local currency terms should the currency depreciate.
If there is a suspicion – whether or not well founded – that a public sector deficit is inclined to the former category, it will be judged less helpful to the long-term health of the economy and thus tend to weaken  BIS Review 70/2002  1  financial confidence. A sizeable underlying public sector deficit may anyway be regarded as a sign of fundamental weakness in an economy, if it signifies too heavy an involvement of government in the running of the economy. It is these types of consideration which have led to the emergence of various recommendations and rules about fiscal deficits. There is, for example, the "golden rule" of the UK finance minister, Gordon Brown, which he first espoused in 1997, stating that, over the cycle, spending of a current (as opposed to capital) nature should be balanced by revenues, and borrowing should only be countenanced to cover capital expenditure. In Europe there is the supposedly sacrosanct cap on the fiscal deficit of each of the member countries of the euro-zone, at 3% of GDP. And in Hong Kong there is the Basic Law (Article 107), stating that Hong Kong should strive to achieve a fiscal balance and avoid deficits. •  Second, the financing of private sector deficits is subject to market discipline, in that those who provide finance do so on the calculated expectation that the investment will generate sufficient internal returns to repay them in due course.