Microeconomics - Privatization
Essay Writing; IGCSE
Case Study: Example 1 :
A country has raised almost $10bn of revenue by selling its public sector assets. Recently, it has sold one of its shares in a bank. The revenue raised from the sales was transferred to its Fiscal Budget and used for various other purposes. Some of those include interest payment of national debt and investments made in the pension fund.
Using the data, analyze the possible benefits of Privatization for the country.
A possible method to writing the essay (Analysis) -
Before we get into the benefits of privatization let me present my understanding of privatization.
Privatization is an act of selling a firm or an activity owned and controlled by the Government to private investors or businesses. In the process, the ownership of the organization or the firm changes from public or Government to private individual(s) owner(s).
Though privatization does not take place often it is done when the government needs funds or is willing to increase the efficiency of an organization or a firm.
The possible benefits of privatization are stated below;
The sale of previously Government-owned assets can help a government to deal with budget-related issues such as budget deficits causing prolonged national debt. National debt may cause a crisis in the economy.
As a result, a Government of a country tries to avoid national debt. To avoid national debt, Government sells its assets. By selling Government-owned assets the government may not have that much debt in the future and would therefore reduce interest payments on the national debt.
In the case study, the Government of the country might have tried to do the same as it is mentioned that the country has raised $10bn in revenues by selling its public sector assets. As a result of that, the country is able to fund its interest payment on the national debt along with funding the pension fund without increasing the tax burden on the people and businesses, which otherwise would have not been possible.
Not only that the raised $10bn in revenues would also allow the government to support the other elements of government spending such as education and healthcare.
On the contrary, the government might also go for increasing the efficiency of the public sector firms to make them competitive against other private competitors leading to improvement of their revenues. This could also be helpful to fund the budget deficit or may pay back the national debt and increase spending on education and healthcare facilities.
0 Comments