The Public Sector Borrowing Requirement measures what?

• A. The shortfall between government revenue and expenditure.
• B. The amount of government debt outstanding.
• C. The annual budget surplus.
• D. The balance of payments deficit.

Answer: (A)

The question tests understanding of what the Public Sector Borrowing Requirement (PSBR) is and what it measures. The PSBR represents the shortfall between what the government (the public sector) collects in revenue and what it spends in a given period. When revenue falls short of expenditure, the public sector must borrow to cover that gap, so the PSBR shows the annual amount that needs to be financed through borrowing. For example, if revenue is 800 and spending is 1,000, the PSBR is 200, meaning the government needs to borrow 200.

This isn’t the debt stock (that would be the total government debt outstanding), nor is it a surplus figure (a surplus would occur if revenue exceeded expenditure). It also isn’t the balance of payments deficit, which relates to transactions with the rest of the world rather than the government’s own fiscal position.