Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Net Lending

What it is:

Net lending is an economic measure of whether governments are either providing financial resources to other sectors of the economy or using resources from other sectors of the economy (the latter is called net borrowing).

How it works (Example):

The formula for net lending is:

Net Lending = Revenue - Expenditures

Or, more precisely:

Net Lending = (Net Savings + Net Capital Transfers) - (Value of Acquisitions - Disposed Nonfinancial Assets - Fixed Capital Used)

In the simplest terms, if a government receives $1 trillion in revenue and has $250 billion in expenditures, it is a net lender of $750 billion. That is, it has $750 billion to use to buy bonds issued by other countries. It could also return some or all of those funds to taxpayers, or increase government spending on other areas (infrastructure, social programs, etc).

Why it Matters:

Intuitively, governments (like companies) must meet all of their obligations before considering whether any money is left to invest or return to taxpayers. Thus, net lending is a measure of the financial impact a government has on the economy, and furthermore, the world.