What are state and municipal loans? What are they needed for? In this article, we will look at the concepts and main features inherent in these financial instruments.
Surely you have all heard such concepts as "state credit" and "municipal credit". But what it is, and how they differ, not everyone knows. Let's try to figure it out.
What is a government loan?
The definition tells us: a state loan is a set of economic relations between the state and individuals or legal entities on the issues of education, distribution, use of a centralized fund of funds on terms of repayment, urgency, payment for performing the functions of participants in such relations.
At first glance, it is rather difficult and not very clear what this means in practice. In simpler terms, a state loan is a financial transaction between the state or its subject and an individual legal entity or individual.
Or we can also say that this is the use by the state of temporarily free funds of individuals and legal entities, which is regulated by the rules of financial law.
More often the state is the borrower than the lender. It can also be a guarantor - if it independently repays loans taken by individuals and legal entities, or fulfills their other obligations.
The essence of the state loan
The amount of tax revenues and other income received by the budget is limited by law. At the same time, the state almost always needs additional funds. This is where the state loan comes to the rescue when the authorities conclude an agreement with a legal or natural person that has free funds on attracting them for the needs of the state. This form of state credit is called internal.
Also, a state loan can be external - in the event that funds are received from other states or international organizations.
Features of the state loan
The state loan has a number of features that distinguish it from other budget receipts:
- is a one-time transaction (as opposed to taxes and fees charged on an ongoing basis);
- is voluntary and selective (while taxes and fees are paid by the overwhelming majority of citizens);
- funds are attracted on a reimbursable and repayable basis;
- as follows from the previous paragraph, finance moves in two directions: forward and backward;
- has a certain period established by law, during which the loan obligations must be repaid.
What is a municipal loan?
A municipal loan is a monetary relationship where the municipality is the creditor or debtor.
In this case, the second side can be:
- individuals,
- legal entities,
- state and municipal bodies of a different level,
- international organizations,
- foreign states.
In terms of its main features and functions, a municipal loan is similar to a state one.
The value of state and municipal loans
State and municipal loans can help cover the budget deficit, reduce inflation, support small and medium-sized businesses and, as a result, increase employment. In addition, thanks to this type of financing, it becomes possible to regulate micro and macroeconomic processes, as well as to influence social and monetary policy.
