Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What does a positive PSNCR indicate?

1. Public Sector Borrowing Requirement

2. Excess income over expenditure

3. Increased taxation

4. Successful revenue generation

The correct answer is: Public Sector Borrowing Requirement

A positive PSNCR, or Public Sector Net Cash Requirement, indicates the net cash needed by the public sector due to its expenditure exceeding its income. This situation arises when the government needs to finance its activities by borrowing because its revenue from taxation and other sources has not covered its current expenditure. When the PSNCR is positive, it serves as a signal that the public sector is in a borrowing position, requiring funds from external sources such as financial markets. This highlights the dependency on debt financing to manage cash flows in the public sector. In contrast, positive indicators related to surplus or successful revenue generation would typically reflect a negative PSNCR, meaning income exceeds expenses. Additionally, increased taxation could potentially reduce the need for borrowing but does not inherently indicate the cash requirement of the sector in the same way as the PSNCR does.