Net Borrower

Net Borrower
See also
Customer deposits Bond Bank Redenomination Cash and cash equivalents Repatriable Creation of money Bills Payable Capital flow Paper asset

Net Borrower (D. McTaggart, C. Findlay, M. Parkin 2013, p. 535) - A country that takes for temporary use more from the rest of the globe than it is giving to the globe is termed a net borrower. Likewise, a net lender is a region that lends more to the globe than it is taking from it. Accordingly, to that, the country with a current excess record is a net lender and the net borrower is a country with a deficiency.

Examples of net borrowers countries

Exemplary countries that historically were net borrowers or to this day are (D. McTaggart, C. Findlay, M. Parkin 2013, p. 535), (A. Datar 2010, p. 84):

• The country that has been a net borrower the most since World War II is Australia. Only at the 1990s more than $350 billion was borrowed by Australia. United States is named the biggest net borrower since the 1980, with an exclusion of just one year, 1991, U.S. borrowed an astonishing sum of $7.5 trillion - comparable to half of year's United States GDP.
• Since India was a net borrower between 1956/1957 and 1968/1969, it is acceptable to suppose capital receipts to be imitated in the current account deficit; if not, the enlightenment might be that India encountered struggles in buying goods from Eastern Europe and had to rack up idle balances, which in effect constitute a waste of credit financing. An examination of India's transaction with the countries of Eastern Europe and the rest of the world reveals distinctions, although India was a net borrower from both classes.

Augmented net borrowing

Increased net borrowing adds to general government data off-budget quasi-fiscal activity, mainly infrastructure. The projections were built on the basis of information on funding (below-the-line). The calculation requires many hypotheses to fill in data gaps, highlighting the uncertainty surrounding the estimates. We add off-budget financing by LGFVs to the general government deficit in order to calculate increased net borrowing. Because off-budget funding comes from the financial markets, we can use market data to construct estimates. In particular, we add borrowing from trust firms, commercial banks and the corporate bond market to local government financing vehicles (Y. Zhang, S. Barnett 2014, p. 10).

Net borrowing in business cycle

There are two marks that should be mentioned about the business cycle (G. Harcourt, P. Kriesler 2013, p. 467):

• All over the time, the process of capacity utilization led by household net borrowing, swinging up as the economy emerged from recession. The driving strength was the rise in residential investment. This trend was not clear as it emerged from the recent recession, casting hesitation on the pace of the rehabilitation.
• Secondly, government net borrowing is countercyclical due to tax receipt adjustments and procyclical expenses powered by automatic stabilizers like unemployment insurance along with aware fiscal procedure shifts.

Advantages of Net Borrower

Net borrowing can be advantageous for countries in certain situations. A net borrower can benefit from the following advantages:

• Access to capital: Net borrowing allows countries to access capital from the global market in order to finance domestic investments and infrastructure. This can help accelerate economic growth and development, enabling countries to finance projects that would otherwise be impossible.
• Favorable terms: Nations may also be able to negotiate more favorable terms than those available from domestic lenders. This can include lower interest rates and longer repayment periods, making it easier for countries to access the capital they need.
• Diversified sources of financing: Net borrowing provides diversified sources of financing, allowing countries to spread their risk and reduce their dependence on any one lender. This can help countries avoid the risk of defaulting on their debt if the lender is unable to provide the necessary funds.
• Increased international influence: Net borrowing can also help countries increase their international influence. By accessing capital from foreign lenders, countries can demonstrate their ability to attract capital from the global market. This can help to improve their reputation and credibility in the international community.

Limitations of Net Borrower

Net Borrower has some limitations that must be taken into consideration when assessing a country’s financial situation. These limitations include:

• The net borrower measure does not take into account capital flows such as foreign direct investment and portfolio investment which can be significant sources of financing for a country.
• Net borrowers can have access to other forms of financing, such as through borrowing from international institutions and other countries.
• The net borrower measure is also limited by the fact that it does not capture the underlying dynamics of the country’s economy. For example, a country’s current account balance may be negative, but its overall economic health can be positive.
• The net borrower measure does not take into account the level of development or the underlying quality of the assets held by the country. This is an important factor when assessing the country’s creditworthiness and its ability to repay its debts.
• The net borrower measure does not consider the impact of exchange rate changes and capital movements on a country’s external debt. These factors can have a significant impact on the country’s ability to repay its debts.

Other approaches related to Net Borrower

In addition to the traditional definition of a net borrower, there are several other approaches which help to better understand the concept. These include:

• The ability of a country to service its debt: A net borrower is a country that takes on more debt than it can comfortably service.
• The balance of payments: A net borrower is a country which has an overall balance of payments deficit.
• The current account balance: A net borrower is a country which has a current account deficit.
• The total external debt: A net borrower is a country whose total external debt exceeds its total external assets.

In summary, a net borrower may be defined as a country which has a current account deficit, a balance of payments deficit, a total external debt greater than its total external assets, and an inability to service its debt.

References

• Coates D., Smith K. (2012)., The Oxford Companion To American Politics, Tom 2, Oxford University Press, p. 309
• Currie D. (2016)., Country Analysis: Understanding Economic And Political Performance, Routledge, p. 151
• Datar A. (2010)., India's Economic Relations With The USSR And Eastern Europe 1953 To 1969, Cambridge University Press, New York, p. 84
• Harcourt G., Kriesler P. (2013)., The Oxford Handbook Of Post-Keynesian Economics, Volume 2: Critiques And Methodology, Oxford University Press, USA, p. 467
• McTaggart D., Findlay C., Parkin M. (2013)., Economics, Pearson Australia, Australia, p. 535
• Winkler B., Riet A., Bull P. (2014)., A Flow-Of-Funds Perspective On The Financial Crisis Volume II: Macroeconomic Imbalances And Risks To Financial Stability, Palgrave Macmillan, p. 289
• Zhang Y., Barnett S. (2014)., Fiscal Vulnerabilities And Risks From Local Government Finance In China, International Monetary Fund, China, p. 10

Author: Wiktor Woźny