WASSCE Economics · Public Finance and Taxation
Public finance: government revenue, spending, budgets and debt
By the WASSCE Tutor team
Updated 12 November 2026 · 7 min read · Prepared against the WASSCE syllabus.
Every year the Minister of Finance stands in Parliament and reads the budget: how much the government will spend on schools, roads and salaries, and where the money will come from. That annual plan is the heart of public finance, and it affects prices, jobs and growth across the whole economy.
Learning objectives
By the end of this lesson you should be able to:
- define public finance and state the objectives of government spending
- describe the main sources of government revenue
- distinguish recurrent from capital expenditure
- explain balanced, surplus and deficit budgets and how a deficit is financed
- explain public debt and fiscal policy
What is public finance?
Public finance is the study of how the government raises revenue, how it spends it, and how it manages its debts, together with the effects of these activities on the economy.
Objectives of government spending:
- Providing public goods that markets do not supply well: defence, police, justice, roads.
- Providing merit goods: education and health care.
- Redistributing income to reduce poverty and inequality.
- Promoting economic growth and development: infrastructure, agriculture, industry.
- Stabilising the economy: controlling inflation and unemployment.
- Correcting market failures, such as pollution.
Sources of government revenue
| Source | Examples |
|---|---|
| Taxes (the largest source) | Income tax, company tax, Goods and Services Tax (GST), import and excise duties |
| Royalties and rents | Payments by mining companies for minerals extracted |
| Fees, fines and licences | Driving licences, passports, court fines, business registration |
| Profits of public enterprises | Surpluses of state-owned companies |
| Grants and aid | Gifts from foreign governments and international organisations |
| Borrowing (loans) | From the public, banks, the central bank and abroad |
| Sale of government property | Privatisation proceeds, sale of land |
In Sierra Leone, most taxes are collected by the National Revenue Authority (NRA), set up in 2002. Important sources include income tax (PAYE on salaries), corporation tax, the Goods and Services Tax (GST), import duties and mining royalties. Grants and loans from development partners also help to fund the budget.
Government expenditure
| Recurrent expenditure | Capital expenditure | |
|---|---|---|
| Meaning | Day-to-day spending that recurs every year | Spending on long-lasting assets |
| Examples | Salaries of teachers, nurses and soldiers; office supplies; interest on debt; maintenance | Roads, bridges, schools, hospitals, power stations, irrigation schemes |
| Effect | Keeps public services running | Adds to the country's productive capacity |
Spending can also be classified by function: administration, defence and security, economic services (agriculture, roads, energy), social services (education, health, water) and debt servicing.
The budget
A budget is the government's statement of its estimated revenue and planned expenditure for the coming financial year.
| Type | Meaning | When it may be used |
|---|---|---|
| Balanced budget | Revenue = expenditure | When the economy is stable |
| Surplus budget | Revenue > expenditure | To reduce demand and fight inflation |
| Deficit budget | Expenditure > revenue | To raise demand and fight unemployment or a slump, or to fund development |
A government plans to spend NLe 18,000 million and expects revenue of NLe 15,000 million.
Deficit NLe 3,000 million, which is of spending. The government must borrow or receive grants to fill this gap.
Financing a deficit: borrowing from the public (treasury bills and bonds); borrowing from commercial banks; borrowing from the central bank (which adds to the money supply and can cause inflation); loans and grants from abroad; drawing down reserves.
Public debt
Public (national) debt is the total amount the government owes, built up from past borrowing.
- Internal (domestic) debt is owed to lenders inside the country, in local currency.
- External (foreign) debt is owed to foreign governments, banks and institutions such as the World Bank and the IMF, usually in foreign currency.
Reasons for borrowing: to finance development projects; to cover budget deficits; to meet emergencies (war, epidemics, floods); to fight a slump.
Burden of debt: interest and repayments take money that could fund services; external debt must be repaid in foreign exchange, which becomes harder when the currency falls; heavy debt can lead to higher taxes in future.
Fiscal policy
Fiscal policy is the use of government spending and taxation to influence the level of economic activity, employment, prices and the distribution of income.
- Expansionary fiscal policy (more spending, lower taxes, a deficit) raises demand to reduce unemployment.
- Contractionary fiscal policy (less spending, higher taxes, a surplus) reduces demand to fight inflation.
A deficit budget is not always "bad management". It may be a deliberate policy to fight unemployment or build infrastructure. It becomes a problem when it is too large to finance without inflation or unpayable debt.
Key points
- Public finance covers government revenue, spending and debt.
- Revenue comes mainly from taxes, plus royalties, fees, profits, grants and borrowing.
- Spending is recurrent (salaries, running costs) or capital (roads, schools).
- Budgets can be balanced, surplus or deficit; deficits are financed by borrowing or grants.
- Fiscal policy uses spending and taxes to manage the economy.
WASSCE examination focus
Expect to state the sources of government revenue, to distinguish recurrent from capital expenditure, to explain types of budget and how a deficit is financed, and to discuss public debt and fiscal policy. When asked for "reasons for government spending", link each to an objective (public goods, redistribution, growth, stability).
Quick check
- Give three sources of revenue for the Government of Sierra Leone.
- Is the salary of a government teacher recurrent or capital expenditure?
- What type of budget would help to reduce inflation?
- Why can borrowing from the central bank to finance a deficit cause inflation?
Answers: 1. Any three: taxes (income tax, GST, import duties), mining royalties, fees and licences, profits of public enterprises, grants, loans. 2. Recurrent. 3. A surplus budget. 4. It increases the money supply, raising spending faster than output.
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