This paper attempts to examine the effect of one of the major internalrnimbalances-budget deficit- on the similarly imbalance-the curr.ent.rnaccount deficit, both theoretically and empirically. Theoretically. It is found difficultrnto establish a direct relationship between the budget deficit and the current account.rnBut a number of indirect channels through which the effect of the budget deficit on therncurrent account is mediated have been identified. The indirect nature of the channelsrnhas bared us from hypothesizing the extent of the effect and the time period that itrncould take.rnEmpirically, the granger causality tests revealed that not only does the budgetrndeficit cause the current account deficit but also the current account deficit is found torncause budget deficit. While it is interesting to find that current account deficits canrncause budget deficits as well, finding a valuable theoretical support for thisrncausation has remained elusive. The two stage least square regression and lime seriesrnmodeling exercise results showed that budget deficit does have u strong andrnsignificant effect on the current account deficit both in the short and long run.rnApproximately, more than half of the change in the budget deficit is found to spill overrnto the same direction change in the current account deficit. This findings of the study,rnthus, strongly supports the notion that fiscal adjustment should be taken as arnprerequisite for current account imbalance adjustment