Government borrowing refers to the borrowing by a government from within the country or from aboard. In other words, the loan taken by the government is known as government borrowing. So, government borrowing is the total amount of money that a country's central government has borrowed to fund its spending on public services and benefits.
According to Philip E. Taylor, “Government debt arises out of borrowing by the treasury from banks, business organizations and individuals.”
According to Findlay Shirras, “A national debt is a debt which a state owes to its subjects to the nationals of other countries.”
The government raises the debts for the different purposes. The main purposes for the public debts are as follow:
When the debt is raised within the country it is called internal debt. This concept of internal borrowing was started in the 1930s to fight against the depression as recommended by J.M. Keynes. It is taken by the government with the central bank, commercial bank, financial institute, private and government organization.
The major sources of government internal borrowing are as follows:
The Central bank is the banker of the government. When the government needs money and issue bonds, the central bank purchase them. The Central bank also deposits the amount in the government account.
The basic function of the central bank is to accept deposit and provide loans. A commercial bank does also provide loans to the government. They purchase securities issued by the government.
The government also raises the borrowing from the non-banking financial institution by selling their securities to them.
Individuals also purchase the securities issued by the government. Thus, the purchasing power is shifted from the general people to the government.
The government can also borrow the loan from the external sources. It is taken at the time of war, famines, earthquake, and natural disasters. The main sources of the external sources are foreign government and international government. It can be explained more as:
The government can borrow loans from other governments. Such received loan is called the bilateral loan. Usually, developed country provides such type of loan called soft loan with low-interest rate to the developing countries for the development of infrastructure of the country.
International Financial Institutions like World Bank provides funds to different countries. The member countries can borrow from these institutions for a short term and long term for the development projects.
A budget generally is a list of all expenses and revenues. It is an annual financial plan of the government revenue and expenditure. It is also known as the statement of the financial plan of the government. Budget is the instrument through which the government controls the entire economy.
According to Bastable, “The term budget has come to mean the financial arrangement of a given period, with the usual implication that they have been submitted to the legislature for approval.”
According to World Bank, “The annual budget is usually the authority for the public spending. It is ideally one year’s slice of a medium-term expenditure plan.”
In brief, a budget is a detailed plan of operations for some specific future period.
The qualities of a good budget are as follow:
Budgeting for the government is an enormously complex process. The process of a budget formulation may vary from the government to government and country to country. Some of the common steps of the budget formulation are as follow:
In the first stage, the planning authority collects the estimated of expenditure and possible income from concerned ministries, departments and local offices of the government and then, discuss with the concern ministries.
It is the second step of budget formulation. After determining the amount expenditure for the next year planning authorities determines the different priorities area on the basis of available resources and needs.
It is the third stage of the budget formulation. The planning authorities after making a review of the project, it selects the projects to include in coming budget. Planning authorities review the financial cost of the project and submission to the budget department.
In the fourth stage, new tax policies are proposed by the finance minister of the government with discussing the experts and stakeholders.
In the fifth stage, the budget office gives the final shape of the budget. It is completed before fiscal year commences. It is presented to parliament by the finance minister and discussed in parliament by its member only after approval from the parliament budget get final shape, otherwise, it needs amendment.
The final step of the budget formulation is the authorization of the budget by the legislature. After a long discussion on a budget, it is passed and authorized by the head of the state. After the authorization, it is distributed under the heading and development expenditure.
(Jha, Bhusal and Bista)(Karna, Khanal and Chaulagain)(Khanal, Khatiwada and Thapa)
Jha, P.K., et al. Economics II. Kalimati, Kathmandu: Dreamland Publication, 2011.
Karna, Dr.Surendra Labh, Bhawani Prasad Khanal and Neelam Prasad Chaulagain. Economics. Kathmandu: Jupiter Publisher and Distributors Pvt. Ltd, 2070.
Khanal, Dr. Rajesh Keshar, et al. Economics II. Kathmandu: Januka Publication Pvt. Ltd., 2013.
The major sources of government borrowing are as follow:
The sources of external borrowing are:
The qualities of a good budget are as follow:
Process of Government Borrowing