Categories
Economics

The Budget and National/Public Debt

A budget may be defined as a financial statement of the total estimated revenue and the proposed expenditure of a government in a given period, usually a year.

TYPES OF BUDGET

  1. Balanced Budget: There is balanced budget if the estimated government revenue is equal to the proposed expenditure for a given financial year.

Balance budget = Y  = E

Y = Income

E = Expenditure

  1. Budget Surplus: There is a budget surplus if the proposed government expenditure is less than the estimated government revenue during a financial year.

Budget surplus = Y > E

  1. Budget Deficit: There is a budget if the estimated government revenue is less than proposed expenditure for a given financial year.

Budget deficit = Y < E

IMPORTANCE / USES OF BUDGET

  1. To allocate resources from one sector of the economy to the another.
  2. It is used as a tool to curb inflation and deflation
  • The government uses it as a medium to communicate governments economic objectives and policies to the citizenry.
  1. It is used to foster economic growth and development
  2. It provides standard for measuring performance.
  3. It is also used to correct balance of payment deficit.

NATIONAL OR PUBLIC DEBT

National or public debt refers to the debt a country owes to its citizens or other countries or organisations such as the international monetary fund (IMF) and the World Bank.

Public debt or public borrowing is considered to be an important source of income to the government. If revenue collected through taxes & other sources is not adequate to cover government expenditure government may resort to borrowing. Such borrowings become necessary more in times of financial crises & emergencies like war, droughts, etc.

SOURCES OF BORROWING

Government can borrow from internal and external sources

Internal Sources: These are sources of borrowing within the country. The government can take loans from the following people or institutions;

  1. Rich citizens
  2. Commercial banks
  3. Central Bank
  4. Mortgage bank
  5. Insurance
  6. National provident fund
  7. Development bank

External Sources: Government can take loan from organisations outside the country i.e. international organisations or countries

The sources are as follows:

  1. International Monetary Fund
  2. World Bank
  3. Africa Development Bank
  4. Paris club
  5. Foreign government like Britain, Japan, France and USA.

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