Why country borrow to finance its budget?

[Zee la kitaa]

The Government spends money to finance its various activities. The activities include building of infrastructure, defence of a country's national boundaries, provision of social services such as health, education, maintenance of security, payments of salaries for its employees and many others.

To meet these expenditures the Government needs to have financial resources (revenue). Essentially the Government would use its domestic revenue arising from tax and non-tax sources. However, these resources may not be enough to meet these expenditures.

This means that the expenditures will be greater than revenue hence creating a gap. This gap is called a deficit. To bridge this gap the Government is compelled to borrow from either domestic sources or external sources. This is referred to as Budget Financing.

Sometimes the Government may have balance of payments problems, whereby the country's exports can not pay for imports. In this case the Government may borrow to solve this problem. This is sometimes referred to as balance of payments (BOP) financing.

 

[Billie]

We gatch you homie

 

[KikulachoChako]

Asante kwa elimu mtoa mada!

 

[Alpha13]

The Government spends money to finance its various activities. The activities include building of infrastructure, defence of a country's national boundaries, provision of social services such as health, education, maintenance of security, payments of salaries for its employees and many others.

To meet these expenditures the Government needs to have financial resources (revenue). Essentially the Government would use its domestic revenue arising from tax and non-tax sources. However, these resources may not be enough to meet these expenditures.

This means that the expenditures will be greater than revenue hence creating a gap. This gap is called a deficit. To bridge this gap the Government is compelled to borrow from either domestic sources or external sources. This is referred to as Budget Financing.

Sometimes the Government may have balance of payments problems, whereby the country's exports can not pay for imports. In this case the Government may borrow to solve this problem. This is sometimes referred to as balance of payments (BOP) financing.

Why should the government pursue balance of payment? If it happens a county export more than importing is there a need to have balance of payment? Is there a critique behind?

 

[ADAM SMITH]

Why should the government pursue balance of payment? If it happens a county export more than importing is there a need to have balance of payment? Is there a critique behind?

When a country's exports is greater than imports, in economics we call it balance of payments surplus. A country can do the following when it has balance of payments surplus. 1. It can invest abroad. 2. Pay back it's debts. 3. Add to international foreign reserves.(WB & IMF). 4. It can provide loans, grants and gifts to other countries etc