good day everyone good day sir I hope you are all feeling great today by the way my name is Juliana Cassandra nesio from bsba FM4 a and our group group six will be discussing public borrowing and before we dive in into the discussion let us first watch a short video clip about public borrowing so I hope you will learn something about our topic and without further Ado let us begin [Music] wow what a house maybe a little much for me [Music] though okay this is probably more like what I can afford unless I could borrow the money to get something a little bigger perfect but borrowing means that I could be in debt and for a lot of people that can be intimidating but debt is really just a way of borrowing money with the promise of paying it back with interest that sounds okay right unless I would take out the big loan that I couldn't pay back people take out loans all the time to buy houses cars to pay for school all sorts of things and it's not just people companies also borrow and governments do it too when a government borrows it's called public debt or sovereign debt governments raise this money by issuing bonds and then selling them to the public with a guarantee that they'll pay them back just like people countries need money to buy or build stuff that their income mostly tax revenues won't entirely pay for governments should invest their money wisely in things that help their citizens think of Education or healthare governments can also invest in things that will generate revenue or grow the economy like infrastructure projects governments can also use the money to reduce taxes or they can give it directly to its citizens who need the support so why are economists sometimes concerned by public debt well for all the benefits that these funds can bring there are also risks let's take two countries to demonstrate here's country a and here's country B now let's say both of them have borrowed roughly the same amount of money at roughly the same time but looking closer we can see they have very different economies notably in size measured by their gross domestic product or GDP let's look at their debt levels again but this time as a percentage of their GDP and wow you see the difference same debt but very different outcomes countries are able to manage their debt when they borrow a reasonable amount relative to their ability to pay it country A's economy is big enough to pay the interest on the debt if country B cannot pay things back well it gets harder to convince investors to lend you more money and that is scary because it only gets harder from there if an economic crisis hits one of these guys will have the funds they need to respond the other is going to need some help the trick here is for governments like country B to invest the money they borrow wisely which can help keep debt manageable so where does that leave me in my new house well first I need to adjust my own budget I don't need that that that you're going definitely gone and second debt isn't about living beyond my means it's about borrowing a reasonable amount relative to my ability to pay it even if I do Splurge every now and again so what is public borrowing public borrowing is a process by which a government obtain funds to cover the budget deficits or to finance a public projects or services so it only takes place if the government does not have enough fund to sustain the needs of the people and their that state or to finance certain infrastructure development or public services that the government can fund so public borrowing can influence the nation's economy by affecting the interest rates and inflation and it often involves the balancing short-term financial needs with long-term fiscal sustainability so what about public debt so public debt is the total amount of money that the government owes to the creditors internally and externally it represents the accumulation of all the past borrowings of the government that has not yet been repaid so public debt includes the various Financial Obligations such as the bonds the loans or other instrument that the government use to raise funds for public spending whether for infrastructure for social programs or other budgetary needs so managing a public debt is crucial for maintaining an economic stability as excessive debt can lead to a higher interest payments reduce public spending and potential Financial crises which the government would want to prevent so to further elaborate public debt and public borrowing are closely related but it both have a distinct Concepts so public borrowing simply refers to an act of acquiring funds by issuing the government bonds or other Securities to cover the budget shortfalls or to finance a project while the public death on the other hand is a total amount of money that the government owes to the creditors as a result of the past borrowings so to put it simply the public borrowings is the process of raising new funds while the public death represents the accumulation of this borrowed amounts over time which reflects the overall obligation of the government that they need or must repay so there are several types of public Deb first is internal Deb so these are the Deb owed to the creditors within the country this includes the loans taken from domestic banks financial institutions or individuals through the government bonds Securities or other instruments the second one is the external debt so this are the debt owed to a foreign creditors including the international financial institution like the international monetary fund or the World Bank uh as well as the foreign governments and foreign investors who purchase the government bonds so this type of debt is a subject to Foreign Exchange risk the third one is the productive debt so this type of Deb is incured to finance a project or investment that generate economic growth or can produce a return that helps to repay the death so an example of this includes the infrastructure projects like roads Bridges schools and hospitals which can enhance the productivity and stimulate the economic development of the country or the state the fourth one is the unproductive debt this are the debt that is incured for the purpose that do not generate a direct economic return or create an asset that can help the country repay the debt so this includes the borrowing for day-to-day transactions of government like expens like salaries pensions or defense spending which do not produce any additional income or asset within three so the next one is the compulsory debt so this type of debt is rarely used and is raised by the government through mandatory contributions or Force loans it typically takes place during emergencies like War since whenever there's a war there's a shortage in funds for military purposes so the people under that state are given the are mandated to give a contributions for military purposes so another one is the voluntary debt so this kind of debt is willingly subscribed by the individuals or institutions such as the government bonds where for example an investor is voluntarily lend their money to the government in exchange for an interest payments over time then next one is the redeemable debt so these are the debt that the government promises to repay on a fixed date so this includes the bonds and loans with the fixed maturity date so it typically means that your money was safe in this kind of debt as you are promised to pay by the government on a specific date while the next one which is the irredeemable debt is or also known as Perpetual debt is the debt that has no maturity date and the government only pays the interest of it indefinitely without being required to repay the principals another one is short-term debt so this type of debt must be repaid within a short period of time typically less than one year so governments often res resort to short-term debt to cover temporary short budget shortfall or manage the cash flows or address the immediate financial needs so it includes instruments like treasury bills the short-term notes or other similar Financial instrument that are issued with a commitment to repay the principal and interest rate within a short time frame and lastly the long-term death so these are the death with a longer maturity period usually it exceeded one year so this includes the government bonds and loans used to finance the long-term projects such as the infrastructure projects Investments and other activities or initiatives that require substantial substantial funding and have a longer off period of course there's a reason why the government would up to or resort to public borrowing or to have a public debt firstly to cover up the budget deficits so governments often experience situation where their expenditures exceeded the government's revenue from taxes fees or from other sources leading to a budget deficit so this could be due to the increased spending on public services social welfare programs or unforeseen events like natural disasters or economic downturns which reduces the tax revenue new so instead of immediately raising the taxes or cutting essential Services which could have an adverse effect on the economy and effect on the public welfare the government would resort to borrow instead so this borrowing helps them maintain the level of Public Services pay the salaries and fulfill other obligations without disrupting the economy of the country so it is a tool to smooth out the fluctuations in revenue and expenditures over time the next reason is to finance public infrastructure so infrastructure development such as building roads Bridges airports pools and hospitals requires a substantial investment so this project are capital intensive and often cannot be financed from annual budget alone so by borrowing the governments can secure the necessary funds to undertake this large Project without the delay so infrastructure Investments are typically considered a productive investment because they create assets that contribute to a long-term economic growth of the country for example a better transportation networks reduce the cost of moving goods and people thereby it boosts the trade and economic activity so the benefits of this Investments are via realized over many years making the long-term borrowing an appropriate financing method another reason is economic stimulus during period of economic recession or slowdown public sector is spending often declines leading to A reduced economic activity or higher unemployment rates to counteract this the government may borrow to finance the stimulus measures such as increasing the public investment providing tax cuts or offering direct financial assistance to individuals and businesses this borrowing funded spending injects money into the economy it helps to boost demands create jobs and prevent deeper recessions the idea is that the increased economic activity generated by the stimulus will over time increase the tax revenues and help pay back the barrowed funds the next one is managing cash flow so the government experience timing differences between when the revenues are collected as well as when the expenditures are due to manage this mismatches and ensure that they can meet their financial obligations on on Time the government May resort to short-term borrowing this type of borrowing provides liquidity allowing the government to have to smooth out rather the cash flows and avoid the payment delays it is a common practice especially in the situation where Revenue collection is seasonal or subject to timing uncertainties financing existing debt so governments often have an existing debt that is coming due for repayment rather than paying off this debt with current revenues which might strain the government budgets the government may choose to refinance by issuing a new debt so this process involves borrowing new funds to pay off the old debt often at more favorable interest rates with extended repayment terms so refinancing can helps reduce the overall cost of Debt Service improve the cash flows and manage the death more efficiently and effectively it is a Strate strategy used to maintain the fiscal stability and avoid the potential economic disruptions that might arise from large and sudden repayments also one of the reason why the government op the public borrowing is to respond to emergencies so emergencies like natural disaster pandemics war or other crisis can require immediate and substantial financial resources that far exceeded what is available in the government's budget in such cases borrowing is often the quickest and most effective way to mobilize the necessary funds for instances during the pandemic like the covid-19 a government needed to increase the health care spending provide the economic support to affected individuals and businesses and invest and public health measures so borrowing enables the government to respond swiftly to this needs without having to delay the action while waiting for the tax revenues or re reallocating funds from from other critical another reason is investment in Social programs so social programs such as Education Health Care Social Security or unemployment benefits are critical for promoting social welfare and economic stability however this programs can be expensive particularly in times of economic stress or demographic changes so borrowing allows the government to fund these programs without cutting other essential services or raising the taxes abruptly so by investing in human capital through the Education Health and Social protection the governments can enhance productivity reduce the poverty and promote social cohesion so the long-term benefits of this Investments often justify the initial borrowing the next one is is destabilizing the financial system so financial crisis can destabilize an economy leading to bank failures credit freezes and economic construction to prevent or mitigate such risk or crisis government may borrow to provide liquidity to Banks support financial markets or bail out key institution that are critical to the economy's functioning So This Bar can restore the confidence in the financial system it prevent the pic and ensure the smooth operation of credit markets by stabilizing the financial system the government can help avoid more severe economic downs and pro protect the jobs savings and investment lastly to support the monetary policy so public borrowing can support the government's monetary policy objectives such as controlling the inflation managing the exchange rates or influence the interest rates for example by issuing the government bonds a government can influence the money supply in the economy when the government borrows by selling bonds it takes out the money into the circulation which can help control the inflation so conversely repaying the debt can inject the money into the economy while the government borrowing can impact the interest rates high levels of borrowing might lead to higher interest rates while the low levels might have the opposite effect so managing this variables is crucial for maintaining the economic stability so consequently public borrowing is a versatile tool that the government's use to manage Financial challenges invest in long-term growth and respond to crisis as well as support the broader econ economic objectives it allows for flexibility and fiscal management but it must be balanced with considerations of long-term Financial Financial or fiscal sustainability and now let's proceed to the primary sources of public baring first the government funds these are the securities issued by the government investors they include treasure bonds Nots and bills with different maturities and interest rates second is treasure bills or du bills short-term Securities with maturities of less than one year they are sold at discount and redeemed at face value next is the treasury modes by T Nots medium term security with matties ranging from 1 to 10 days they pay interest every 6 months next is treasury BS three funds long is a longterm Securities with maturities greater than 10 years they also pay interest every 6 months mons another sources of public bwing is the municipal BS issued by local or state comments to finance public projects it can be General obligation bands or Revenue BS another is international loans governments can borrow from International financial institutions such as the international Monti fund or the World Bank next is the bank loans governments can secure loans from commercial Banks or central banks though this is less common compared to issuing Banks and lastly private sector loans occasionally governments can may borrow from private investors or entities um overall each sour has its own implications for government finances and economic stability public borrowing can have various impacts on the economy and economic grow depend in on how it is managed and utilized and here are some key effects first the stimulates economic R when power funds are invested in productive infrastructure education and health they can lose economic row by enhancing productivity and increasing future economic output second is crowding out high levels of public paring can lead to crowding out where government borrowing competes with private sector borrowing for f potentially raising interest rates and reducing private investment the third one is the inflationary pressure if the economy is near full capacity increase PowerWing can lead to higher aggregate demand which may cause inflation if Supply does not keep Pace fourth is increase government debt resistant powering increases national debt which might lead to higher future taxes or reduce government spending it can also increased the use of default or financial instability if not managed prudently next is the interest payments governments must pay interest on Pate funds high debt levels can lead to substantial interest payments which may divert resources away from productive Investments and public services next one is the debt sustainability if borrowing is used to finance Investments That generate returns exceeding the cost of debt it can be sustainable and beneficial however excessive or poorly managed baring can lead to debt sustainability issues affecting investors confidence and economic stability next is the exchange rate effects large scale borrowing especially from foreign stresses can impact the exchange rate if foreign borrowing leads to higher demand for foreign currency it can devalue the domestic currency affecting trade balances and inflation and lastly the long-term Crut the impact on long-term Crut depends on whether the powered funds are used effectively productive Investments can lead to higher growth in the future while borrowing for current consumption can have less positive long-term effects overall the impact of public bwing and economy is complex and context dependent relying on factors like the purpose of the in the current economic conditions and the management of debt and now to measure and analyze public debt the indicators include the debt to GDP ratio debt servicing ratio and distinctions between cross and net debt the debt to GDP ratio compares the total amount of debt to the country's economic out group showing how poome the debt is relative to economic performance the debt servicing ratio reveals what portion of government revenue is spent on paying off Deb interest and principle gross debt includes the total debt without subtracting Financial assets while net debt provides a clear picture by subtracting this assets analyzing debt sustainability assess if the country can handle its debt obligations over long term evaluating the impact of interest rates helps understand how borrowing cost affect fiscal Health while examining how that influences economic growth reveals potential constraints on investment and economic activity additionally reviewing the tech composition such as currency and creditor types provides insights into the risk and vulnerabilities associated with the debt this met metrics together offer a comprehensive view of how well a country manages its public Deb and explo the economic implications the debt burden refers the cost of repaying borrowed money and can significantly impact the financial health of the borrower if debt isn't managed well or if the borrower takes on too many loans it can lead to worsening situation like potentially resulting in Deb spiral where debt continues to grow this concept applies not only to individuals and companies but also to countries when a government Barrow money it's called public debt or sovereign debt this debt can be internal rais through bonds issues with a country or external borrowed from foreign sources like other governments Banks or International organizations external debt is particularly challenging because it can put a strain on Count's finances when a nation has high foreign debt it can struggle to invest in critical areas like infrastructure healthc care or educations as much of its tax revenue goes to death repayment this can hinder the country's long-term economic growth to assess whether someone can afford more debt financially institutions use death burden ratio this ratio Compares total monthly death per payments to personal total income helping determining if they can manage additional loans in the Philippines the Department of Finance explained that out of 5 trillion budget for 2024 only 12.1% is allocated for paying of debt and Loans this includes interest payments and lending money to others interest payment or cost of borrowing have been going down this means that government has more money to spend on important things like education and infrastructure in 2024 interest payment will take up only 11.6% of the budget which is um good news because it frees more funds for other priorities the do also clarified that when the government pays back the original amount borrowed the principal it doesn't count as a new expense this is because it's just fulfilling the old obligation not adding to new debt the government's plan is to lower the country's debt compared to its economic output and reduce a budget deficit over the next few years by improving tax collection introducing new tax measures and they believe they can increase revenue and reduce Deb spend spending a lot on death payment can limit the government's ability to invest in other areas like creating jobs or improving infrastructure this can increase Financial Risk if not manage carefully over time having too much debt can hurt a country's economic growth slow down growth of the economy reduce the value of investment and profit and many leads to higher taxes in the future to pay up the de this can result in slower growth and lower standard of living because there is less money available for important area like Health Care education and infrastructure the E economy also becomes more vulnerable to financial crisis when a lot of money is used to pay off debt businesses have less to spend on improving operation like producing more products Goods marketing or hiring more employees this situation can also lead to higher debt levels lower investment and adcase in about of companies all of which U increase the risk of financial trouble ever borrowed money to invest in property like house blood vehicle or even extra funds for your business when starting a business they often had to stretch their budgets to seize opportunities but let's face it that can be a scary word it's a constant reminder of our financial obligation but is it really as terrifying as it sounds that is essentially borrowing money with a promise to pay it back plus a little extra as it it sounds simple but it can be unless of course you borrow more than you can have done and that's when the things get truly scary imagine your country is planning a massive infrastructure Project New Roads Bridges schools it's a large scale project that needs a lot of funds taxes might cover parts of the cost but often there's a gut so what do they do they borrow of course taxpayer would agree to double or at least increase their taxes as this would also means a deduction from their take C salary the idea is to invest their borrowed money twice spe build things that create jobs improve lives and boost the economy maybe even cut taxes or give money directly to the people need it sounds good but here's the million dollar C do they always use it wisely this often result in underfunded programs deteriorating facilities and decline its service quality consequence of that burden can also result in increase taxes it's for the government to generate the necessary Revenue to repay the debt governments often Restort to increase taxes this can take various forms such as the income taxes sales taxes or corporate taxes higher taxes Ru disposable income for individuals which is the DAT salary and profit or net income in terms of businesses that hindering consumption and investment third guarding out of private investment when governments borrow heavily they increase the demand for funds competing with the private sector and when the government borrow a lot it takes money away from businesses this create a shortage of money and when there's less money available for everyone the cost of our money or the interest rate goes up and we can Rel this to the law of supply and demand and this will result to higher interest rates making it harder for businesses to grow while borrowing can be a powerful tool it's double edge sword like an individual carrying too much credit card debt a nation burdened by excessive borrowing face severe consequences now let's explore the potential challenges that both citizens and the nation's economy might face consequences of debt burden in fiscal constraints government Deb causes significant limitations on the nation's Financial Resources due to heavy Financial Obligations this is manifested in several ways first it can reduce government spending essential Services we are all aware that the primary obligations of a government is to provide essential services like educations healthare and infrastructure however a substantial portion of the bu buet is diverted towards servicing the debt leaving limited funds for the crucial areas as I mentioned earlier businesses often borrow money to expand and hire new people if it's too expensive to borrow they'll be less likely to do this and because of this a slow business environment is slows down the overall economy this has a rival effect on taxes as businesses that are growing and hiring generate less income and therefore F few taxes additionally when unemployment Rises due to economic slowdown the government collect less income tax this reduce tax revenue that limit public spending on essential services and it further impacting economic grow now let's proceed to the cons quence of Deb burden in economic the fiscal constraints imposed by Deb have far reaching consequences for the overall economy these constraints rle through the economy that will only means that the impact was spread and affecting other sectors in terms of economic instability a high level of Deb can make an economy vulnerable to shocks such as Financial crisis or economic downturn the fear of theol can lead to investors uncertainty Capital pip and currency depreciation second it can reduce the GDP growth or gross domestic product the diversion of resources towards debt servicing reduce government spending on productive sectors of the economy this can staple economic grow as investment in infrastructure economic and research and development are crucial for long-term Prosperity also this can cause deterioration of living standard the combination of rued government spending and higher taxes can significantly impact the quality of life for Citizens access to Quality Education Health Care and public services diminish leading to a decline in overall wellbeing last but not least this can cause to increase risk of insolvency in extreme cases a government may become unable to meet its debt obligation leading to insolvency this can have catastrophic consequences including economic collapse and social unrest now in terms of social implication as beyond the economic impact Deb burden also has profound social consequences like this can cause intergenerational inequality meaning the burden of debt is often passed on the future Generations they inherit a higher tax burden and limited access to public services creating an unfair Advantage for previous generation that can also cause business constraints as a high level of debt can create a challenging business environment increase taxes higher interest rates and reduce government spending on infrastructure and support program can hinder businesses grow and job Creations another one is this can lead to vulnerability to economic shocks as a highly indebted economy is more susceptible to the negative impact of economic shock shocks such as recession or natural disasters these events can exacerbate financial difficulties and lead to social unrest by understanding these consequences policy makers and citizen can appreciate the urgent need for sustainable debt management and the importance of prioritizing long-term economic health a good example of this is Imagine two two countries country a and Country B both borrowed $100 billion but looking closely we can see that country a with a $1 trillion GDP is a bigger economic size as measured by GDP for Country a paying back the debt is like paying off a small loan with a high income for Country B it's like trying to pay off a huge loan with signing salary this makes a big difference in how easily they can manage their debts so why does this matter well when we have a solid economy it's easier to convince lenders to give you more money meaning more opportunities to improve economic health but if you are struggling and if an economic crisis hits a country with healthy Financial fion is better equipped to weather the storm but take note while economic size as measured by GDP is a crucial factor in determining a country's ability to manage debt is not the only one other factors could influence its actual debt repayment capacity one of these is government efficiency the government effectively manage its finances and resources this can significantly impact debt management so whether you're booming econom or a developing Nation managing debt wisely is crucial because it's the key to stable financial future so the real question is is the public debt as debt is a burden on the future Generations but before we answer that question and dig deeper into that matter let us first hear some thoughts from a government employee and a citizen of this country Mrs Odessa is public debt a burden to the Future Generations well it depend reduced income [Music] and then or [Music] groceries so purchasing power so tal public debt is a burden but if if you look at it in the future and government Deb for for example project generate income for example invest then future it means additional income [Music] andit future Generations so it depends government [Music] Deb so it could be a burden if it is not spent wisely benefit beneficial future Generations So based on our research so we found this article from the concered Coalition where it explores the implications of the national de particularly how it affects future Generations so it emphasizes that while current Generations May benefit from government spending Finance through borrowing the long-term consequences can be detrimental to those with inherit these debts so this article presents some key arguments so first is the intergenerational burden so the article argues that national debt effectively shifts the financial burden onto future taxpayers so current spending financed by debt means that future Generations will face higher taxes or reduce government services to pay off this debt so in this article various economic models are reference are used to illustrate how how increased national debt can lead to lower levels of capital investment this reduction in investment can stiffle economic growth ultimately affecting living standards of the future generation and second key argument is the opportunity cost so the concept of opportunity cost is Central to the article's argument when the government borrows money it may divert resources away from the more from more productive uses leading to less efficient econ economic outcomes so this misallocation can hinder growth and Innovation so the article also suggests that high levels of national debt can crowd out private investment as Government borrowing can lead to higher interest rates this in turn can limit the resources available for businesses and entrepreneurs further impacting economic growth so the third um key argument is the role of policy makers so the article calls for policy makers to adopt more fiscally responsible practices it stresses the importance of balancing budgets and making informed decision about spending and borrowing to avoid passing on an unsustainable debt burden to Future Generations so the article emphasize the need for long-term economic planning so the article advocates for policies that prioritize sustainable fiscal practices over shortterm gains in conclusion the article um presents that well national debt can provide immediate benefits to current generation it poses significant risk and burdens for future Generations so the authors urge for a reevaluation of borrowing practices and the commitment to fiscal responsibility to ensure a stable economic future so by addressing these issues proactively policy makers can help mitigate the adverse effect of national debt and secure a better economic landscape for those who come after us so this comprehensive analysis serves as a call to action for both policy makers and the public to recognize the long-term implications of national debt and to work towards sustainable economic Solutions So based on the article public debt can be a burden on future Generations in several ways so first is increased tax ation so high levels of public debt may require higher taxes in the future to service the debt and prevent default so this can limit the economic opportunities and disposable income of younger Generations so second is reduce government spending so that servicing cost can crowd out government spending on Education Health Care and infrastructure which are crucial for the long-term well-being and productivity of future Generations so so third is economic instability so excessive public debt can lead to economic crisis such as currency devaluation and high inflation which can have severe consequences for future Generations so four is intergenerational inequity so the burden of repaying public debt may fall disproportionately on future Generations while the benefits of the spending financed by the debt may have been enjoyed by earlier Generations so here are some factors to mitigate the burden so first is productive investment so if public debt is used to finance productive investment such as in education infrastructure and research and development it can boost economic growth and improve the living standards of future Generations second is economic growth High economic growth can reduce the relative burden of public debt over time as the economy expands and generates more Revenue to service the debt so so third is debt restruct restructuring so governments can negotiate with creditors to restructure the debt such as by extending repayment periods or reducing interest rates to is the burden on future Generations so next is intergenerational transfers so government can Implement policies that transfer resources from older to younger Generations such as true pension reforms or targeted investments in Education and Training to offset the potential negative effects of public debt so to conclude the impact of public debt on future Generations is complex and depends on various factors including the purpose of the debt economic conditions and government policies while excessive public debt can be a burden it is not always clear-cut case and governments can take measures to mitigate its potential negative effects on the future generations and that's all for today thank thank you very much for listening bye