Funding Policy

Abstract

‘Full funding’ has always been stated as the general aim of the authorities’ funding policy. This policy relates to the way in which the government finances its borrowing requirement or debt repayment. The current objective of funding policy is that the public sector borrowing requirement (PSBR, or debt repayment, PSDR) should be equal to sales of public sector debt to (or repurchases of public sector debt from) the private sector and overseas plus any external flows to the public sector (chiefly changes in the foreign exchange reserves). This is termed the full funding rule. The government does not necessarily aim to achieve a ‘full fund’ during the course of a particular financial year and has argued that, in some cases, this may not be possible. If the full funding objective is achieved then the public sector neither adds to nor reduces broad money growth. In this chapter we assess precisely what the full funding rule means; how funding policy developed to meet the changing requirements of the 1980s; and how policy might develop during the 1990s.