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Why can't they just take loans like most Western countries do to balance their budget? The UK has been running at a deficit (£55 billion in the last budget) sin

by fyfy18 6y ago

Why can't they just take loans like most Western countries do to balance their budget? The UK has been running at a deficit (£55 billion in the last budget) since 2002. Based on my back of the napkin math, the UK would need to export it's oil (yes, the UK is a net exporter of oil) at $350/barrel to cover that.

mdemare 6y ago
There are only a handful of countries that can borrow in their own currency, and borrowing in another currency is very risky.
rckoepke 6y ago
> Based on my back of the napkin math, the UK would need to export it's oil (yes, the UK is a net exporter of oil) at $350/barrel to cover that. In a vacuum this isn't really a good-faith argument. It can be used to illustrate limited concepts, as another user did in this thread, but it's not really a valid point in general for anything. That's because the question of "what price of oil does [country] need?" only makes sense for countries where the supermajority of their GDP is based on resource extraction. UK to Iran is not a great comparison because only 4.5% of UK's exports are crude oil. https://oec.world/en/profile/country/gbr/ https://oec.world/en/profile/country/gbr/ Second, trade only makes up 30% of the UK's GDP, meaning it can and does better leverage its domestic production to meet domestic needs. Lastly, the UK has not been nearly as dependent on exports to balance foreign reserves as Iran is. Due to its uncommon status as a global financial hub, I think it has other ways to ensure it can continue to finance trade.
quintushoratius 6y ago
> Why can't they just take loans like most Western countries do to balance their budget? Who, exactly, is going to loan them money? If Iran were a person they'd have a sub-600 credit score while seeking a no-documentation car loan. Nobody in their right mind is going to loan them money for non-predatory rates. When we talk about a country taking out loans, we're frequently talking about bonds and, if you're not the US, actually talking to banks via the IMF. Are you going to buy Iranian bonds? Consider the following: - Which asset(s) do you think Iran will use to pay you back? Keep in mind that their largest asset - oil - has a rocky track record. - Loans are more likely to be paid back by a stable government. How stable do you expect Iran to be over the next 10-30 years? How likely is another Arab Spring? - Taking the above into account, what kind of interest rate would be adequate? Is it higher than the Iranians are likely to pay? How much higher is it than they can afford right now?

by fyfy18 6y ago

mdemare 6y ago

There are only a handful of countries that can borrow in their own currency, and borrowing in another currency is very risky.

rckoepke 6y ago

> Based on my back of the napkin math, the UK would need to export it's oil (yes, the UK is a net exporter of oil) at $350/barrel to cover that. In a vacuum this isn't really a good-faith argument. It can be used to illustrate limited concepts, as another user did in this thread, but it's not really a valid point in general for anything. That's because the question of "what price of oil does [country] need?" only makes sense for countries where the supermajority of their GDP is based on resource extraction. UK to Iran is not a great comparison because only 4.5% of UK's exports are crude oil. https://oec.world/en/profile/country/gbr/ https://oec.world/en/profile/country/gbr/ Second, trade only makes up 30% of the UK's GDP, meaning it can and does better leverage its domestic production to meet domestic needs. Lastly, the UK has not been nearly as dependent on exports to balance foreign reserves as Iran is. Due to its uncommon status as a global financial hub, I think it has other ways to ensure it can continue to finance trade.

quintushoratius 6y ago

> Why can't they just take loans like most Western countries do to balance their budget? Who, exactly, is going to loan them money? If Iran were a person they'd have a sub-600 credit score while seeking a no-documentation car loan. Nobody in their right mind is going to loan them money for non-predatory rates. When we talk about a country taking out loans, we're frequently talking about bonds and, if you're not the US, actually talking to banks via the IMF. Are you going to buy Iranian bonds? Consider the following: - Which asset(s) do you think Iran will use to pay you back? Keep in mind that their largest asset - oil - has a rocky track record. - Loans are more likely to be paid back by a stable government. How stable do you expect Iran to be over the next 10-30 years? How likely is another Arab Spring? - Taking the above into account, what kind of interest rate would be adequate? Is it higher than the Iranians are likely to pay? How much higher is it than they can afford right now?