What does borrowing force governments to do regarding financial planning?

Prioritizing long-term planning and capital needs is essential for governments that engage in borrowing. When a government decides to borrow funds, it commits to repaying the debt over an extended period, which necessitates a greater focus on long-term financial health and sustainability. This involves assessing future revenue streams, understanding the timing of large expenses, and ensuring that capital projects align with both the current budget and future financial obligations.

By emphasizing long-term planning, governments can better ensure that borrowed funds are used effectively for significant infrastructure projects and other capital needs that offer long-term benefits to the community. This approach allows governments to create comprehensive financial strategies that address not only immediate funding requirements but also future fiscal implications and potential revenue sources to service the debt.

In contrast, focusing on short-term projects or utilizing unplanned resources could lead to poor financial decision-making, as it overlooks the necessary diligence required when managing borrowed funds. Keeping projects under wraps until funding is secure does not contribute to effective capital planning or transparency, which are critical for maintaining public trust and effective governance.