Public Sector Net Cash Requirement is a term that we can meet in a superpower country such as the United States of America. This is the annual fiscal deficit that interprets the expenditures and revenues of the public sector. The Public Sector Net Cash Requirement is slightly different from the national debt due to the annual accumulation that has not been paid off.
So, the term Public Sector Net Cash Requirement is more commonly known as Public Sector Net Borrowing. This is because loans made by the state by issuing government bonds, increasing the money supply, and borrowing money from abroad have the purpose of being a public sector development fund.
Historical Public Sector Net Cash Requirement
The background of the implementation of the Public Sector Net Cash Requirement is to restore economic and state conditions after the war. At that time, many developed countries increased state deficits in order to accelerate economic recovery and develop the public sector to support economic growth.
However, over time this Public Sector Net Cash Requirement has become a burden for a country and has made the fiscal deficit increase every year. This is exacerbated because in recent years an economic crisis has occurred which has forced the slowing economic growth to reduce the level of national income compared to the increasing level of public spending.
So, to keep state spending as low as possible requires an increase in revenue from the public sector to finance this Public Sector Net Cash Requirement. Several policies, such as changes to the national interest rate, were also implemented so that the national debt would not become too large and be repaid as soon as possible.
If the state debt from the public sector is not addressed immediately, it can create a burden for the economic development of a country. Moreover, if there is a possibility of an economic crisis in the future, the national debt will actually increase and make the country frantic to finance this debt.
Public Sector Net Cash Requirement (PSNCR) is literally defined as the Public Sector Net Cash Requirement. Public Sector Net Cash Requirement is the financial level that must be maintained by the government through lending money. PSNCR is a measure to maintain the most applicable financial commitments in the UK so that the public sector can close the gap resulting from public sector activity, namely closing the gap between expenditure and income.
The public sector itself is an entity whose activities are related to efforts to produce goods and serve the public and fulfill public rights. The duties and functions of the public sector are generally carried out by the government as well as the private sector such as tax collection, transportation, communication services, education and so on. Among these tasks, there are several government tasks that cannot be replaced by the private sector, such as the government bureaucracy.
This debt is often equated with the UK’s sovereign debt, so it can be said that the larger the PSNCR, the greater the national debt and vice versa. This debt is also different from interest, namely the amount of interest that must be paid by the state on debts from other parties. However, PSNCR is related to the state budget, especially with regard to the Budget Deficit, namely the difference between the budget and the income. A large budget deficit tends to increase public debt so that it will trigger an acceleration of inflation.
Image of UK Budget Report up to October 2021
Impact of Public Sector Net Cash Requirement
The Public Sector requires loans when the budget records expenditures that are greater than revenues. PSNCR is usually denoted in ? billion and represents GDP. Generally, the government will be able to pay this debt when income is greater than expenditure. Some of the government’s efforts to finance this debt include the sale of government shares, the sale of bonds and other securities denominated in gold and treasury bills to financial institutions and the public.
However, when the PSNCR is high, the government will be adversely affected, such as a shortage of funds for investment, especially in the private sector. When the government really needs PSNCR, it is possible that interest rates should be raised to stimulate investors and other sectors to invest in the public sector or lend money to the government, this condition not only causes inflation but can also cause high taxes and increase the national debt.
The public sector net cash requirement relates to a situation faced by the government in a country where the state budget is experiencing a deficit which forces the government to take a policy of closing the budget deficit through the mechanism of making loan options to the public or issuing debt instruments offered to the public. the public in order to raise funds from the public to cover the budget shortfall they are facing.
From the explanation presented above, there are 4 important points related to the public sector net cash requirement, namely:
The value of funds that must be borrowed by the government to cover the budget deficit in a certain year
National debt policy options that must be carried out to support development due to the current budget deficit
Increase in government securities instrument securities issued in a certain year to obtain additional funds included in the budget platform.
As well as the excess of public sector spending over state revenues in various sectors in a certain year which causes an imbalance in the revenue and expenditure budget.
This policy relates to the concept of budget policy adopted by a country where the concept used is the application of a Deficit Budget Policy which is marked by the principle of budget management where the value of state expenditure is greater than state revenue. In addition, the concept of implementing a deficit budget policy occurs because the situation of routine receipts and development revenues is not sufficient to finance all government expenditures.
The public sector net cash requirement, also known as the public sector loan requirement, can be seen from the government’s financial reports which are submitted to the people’s representatives (DPR/Parliament) officially as a form of accountability to the people regarding the realization of conditions. annual government revenues and expenditures as the basis for preparing the next year’s budget planning. Based on the annual report, the figures reported by the government serve as the basis for conducting evaluations to obtain important inputs for improving the budget for the following year.
