Off-Budget Borrowings

An off-budget borrowing is a loan raised outside the government's budget through another entity, but whose repayment burden falls on the government. For fiscal accounting purposes, the key consideration is the substance of the repayment obligation, not merely whether the borrower is a government department, public enterprise or special-purpose vehicle.

What makes a borrowing off-budget

The characteristic arrangement combines borrowing by a separate entity with expenditure undertaken on behalf of the government and debt servicing supported by government resources.

• A public enterprise or special-purpose vehicle raises a loan or issues bonds rather than the government borrowing directly through its budget.
• The funds finance government expenditure, such as infrastructure investment or expenditure that would otherwise require budgetary provision.
• The government undertakes to service the principal, interest, or both, including through grants or other budgetary transfers earmarked for repayment.
• Routing a loan through a legally separate entity does not, by itself, remove its fiscal character when the government bears the repayment burden.

What does not automatically qualify

Neither public ownership nor government backing alone makes every entity's debt an off-budget borrowing of the government. The financing arrangement and repayment responsibility must be examined.

• A public enterprise borrowing for its own commercial operations and servicing the debt from its own earnings is not automatically undertaking government off-budget borrowing.
• A government guarantee ordinarily creates a contingent liability: the government must pay if the specified contingency occurs, rather than necessarily servicing the loan from the outset.
• A guarantee may accompany an off-budget borrowing, but the guarantee alone is not the decisive test.
• An ordinary subsidy or grant to an enterprise does not, by itself, establish that all its borrowings are government obligations.

Implications for fiscal accounting

Off-budget borrowing can finance public expenditure without the borrowing and corresponding spending appearing in the government's headline budget aggregates when undertaken. It can therefore understate the government's effective financing requirement and shift repayment obligations into future budgets.

• A comprehensive fiscal assessment must identify government-serviced debt outside the budget alongside directly recorded government debt.
• Disclosure of extra-budgetary resources, repayment commitments and guarantees helps distinguish existing repayment burdens from contingent risks.
• The economic identification of an off-budget borrowing should be distinguished from its formal recording: inclusion in reported deficit, debt or borrowing ceilings depends on the applicable accounting and borrowing rules.