A net borrower is a government or entity that spends more money than it takes in over a period of time. The term is typically used in reference to sovereign nations, but can also apply to companies, households, or individuals.
A government that is a net borrower must finance its deficits by issuing debt, which can take the form of bonds, bills, or notes. This debt must then be repaid, typically with interest, over the life of the loan. If a government is unable to repay its debt, it may be forced to declare bankruptcy.
In the case of sovereign nations, a net borrower nation is sometimes referred to as a "debtor nation." This is because the nation's government has incurred debt that must be repaid to creditors. A debtor nation may also be referred to as a "borrowing country." How is net lending calculated? The calculation of net lending (or net borrowing) by the government sector is generally done by taking the total amount of money the government sector raises through taxation and other receipts and subtracting from this the amount of money the government sector spends. The resulting figure is the government sector's net lending (or net borrowing).
What does net borrowing mean? Net borrowing is the total amount of money the government borrows in a fiscal year, minus any repayments that are made during that same period. The resulting number is the net amount of new debt that the government has added over the course of the year.
The government borrows money through the sale of Treasury securities, which are basically IOUs that the government promises to pay back with interest. When the government repays some of its debt, it does so by redeeming (cashing in) these securities.
So, net borrowing is the difference between the money the government raises by selling new securities and the money it spends redeeming old securities. If the government spends more money redeeming securities than it raises by selling new ones, then it has a net borrowing of zero for that fiscal year.
What is net lending and net borrowing?
Net lending and net borrowing are two terms used to describe a government's fiscal position. Net lending is when a government's revenue is greater than its expenditure, resulting in a surplus. This surplus is then used to lend money to other sectors of the economy. Net borrowing is when a government's expenditure is greater than its revenue, resulting in a deficit. This deficit is then financed by borrowing money from other sectors of the economy.
Why do we add net borrowing in FCFE? Adding net borrowing to FCFE essentially removes the impact of government spending and debt from the calculation, which provides a more accurate representation of a company's true cash flow. Without this adjustment, FCFE would be overestimated and would not provide an accurate picture of a company's true cash flow.
Is Canada a net lender? In short, no.
According to the OECD, as of 2015, Canada's government debt-to-GDP ratio was 90.9%. This is higher than the OECD average of 79.8%, and places Canada 28th out of the 34 member countries.
In addition, the Canadian government ran a budget deficit of $17.8 billion in the 2015-2016 fiscal year. While this is an improvement from the previous year's deficit of $24.3 billion, it still means that the government is spending more than it is taking in.
There are a number of factors that contribute to Canada's government debt and deficits, including an aging population, high healthcare costs, and a decline in revenue from natural resources.