Debt Financing
Debt Financing

Summary/Abstract: The budget, as a centralized instrument for the implementation of fiscal policy, usually performs the functions of allocation, stabilization and distribution. Whether it is about national economies or supranational entities like the European Union, the budget represents the most important factor of fiscal cohesion. Market economies are characterized by differences in levels of economic development. Different levels of economic development pose an objective challenge to fiscal policy bearers. The largest fiscal allocations are directed to the public sector, which is not expected to directly fertilize fiscal income, but primarily to fulfill social needs. Obviously, with the development of modern countries and with the increase in standards, expectations regarding the quality of public services also grow. Parliamentary democracies are under constant pressure to satisfy public needs, from a critical public. Enabling the availability of the level of services guaranteed by the Universal Declaration of Human Rights puts the authorities in charge of managing public finances in an unenviable position. Societies at a lower level of economic development strive to reach richer, more developed societies and, due to insufficient fiscal revenues, resort to debt financing of public finances. Developed societies in an effort to maintain the level of development and achieved dominance also multiply expenditures for public finances. For the above reasons, the creators of fiscal policies from local, national to multinational levels are reaching for different forms of debt financing. Global economic crises caused by various causes, which were connected to each other, with deficit financing of the budget in different currencies and debt monetization by the ECB, certainly encouraged a high rate of inflation in the European Union, which spread throughout the European economic area. Due to the largest volume of foreign trade exchange with the countries of the European Union, and the attachment of the domestic currency to the euro, the impact of externalities is multiplicative and cannot be stopped only through discretionary fiscal policy measures. For a long time, the professional public has advocated the need to change the course of the monetary policy of Bosnia and Herzegovina, that is, the existing “Currency Board”. It is an indisputable fact that for the effective management of economic policy, it is necessary to use a cocktail of fiscal and monetary instruments.

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