Factors to consider before the government decides whether to borrow internally or externally

Business studies study module

This refers to how the government spends the finances it has raised on behalf of its citizens.

Categories of government expenditure

  1. Recurrent expenditure
  2. Development expenditure
  3. Transfer payments.

Recurrent expenditure

This refers to government spending that takes place regularly e.g. payments of salaries to civil servants, fuelling of government vehicles e.g.

Every financial year, the government must allocate funds to meet such expenditure.

Recurrent expenditure is also known as consumption expenditure.

Development expenditure

This is also referred to as capital expenditure .It is government spending on projects that facilitate economic development. Such projects includes construction of railway lines, roads, airports, rural electrification e.t.c

Once completed expenditure on such projects ceases and may only require maintenance.

Transfer payments

This is expenditure on things/people who do not directly contribute to a country’s national income. Such expenditure include money spent on famine relief, pension, bursaries e.t.c

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