Cutting the PSBR
to 2.5% of GDP would meet a target first set in 2013, when the PSBR
was squeezed by about 2 percent of GDP with little pain.
Thus, although total asset accumulation of the economy continues to stay above its benchmark level, the crowding-out effect of PSBR
on the funds available for production causes the total capital stock to stay below its level under 'PSP'.
These institutions, whether on the boundary of the state or well within the public sector, face a common problem of how to modernize infrastructure and incentive structures in the presence of the strict public-sector spending controls which seek to limit the public-sector borrowing requirement (PSBR
The two budgets of 1993 programmed substantial fiscal consolidation over FY 1994/95 and 1995/96,(27) with the goal of reducing the PSBR
from 7 per cent of GDP in FY 1993/94 to balance in the medium term.
With government wage expenditures gobbling up more than 60% of budgetary revenue and with other outlays increasing markedly, the public-sector borrowing requirement (PSBR
) expanded significantly, crowding out the private sector.
Notwithstanding the need to finance a general government net PSBR
of around 5 per cent of GDP, the world bond market rally, lower domestic short-term interest rates and lower domestic inflation expectations led to a significant fall in Australian bond yields and lower long-term real interest rates in 1993.
The extent of failure to bring the govemment's house in order is clearly shown in the public sector borrowing requirement (PSBR
): instead of coming down from about 15 per cent of GNP in 1992 to the 9 per cent programmed for 1993, the PSBR/GNP ratio even rose further to an estimated 16.3 per cent, the highest ever recorded.
Public sector borrowing requirements (PSBR
) are calculated from the year-to-year changes in the outstanding liabilities of the public sector (public financial institutions, central government, local government and public corporations), as defined in the Flow of Funds accounts (Bank of Japan).
The public sector borrowing requirement (PSBR
) declined by almost one-third, to 10.9 per cent of GDP in 1992.
In the event, the outturn for the EBR was 2 per cent and that for the PSBR
3 per cent of GNP, thanks largely to the cyclical buoyancy of the economy.
Capie and Webber rightly characterize the PSBR
approach as reflecting the way economists and policymakers in postware Britain have tended to view the world, particularly in its emphasis on government borrowing and private-sector lending as the critical behavioral relationships governing money supply growth.