Governing public credit creation

Public credit programmes – the state provision of direct loans or loan guarantees – are difficult to govern. The dominant approach to governing public credit provision involves estimating the cost of public credit programmes and including these estimated costs in the budget process. This, I argue, is a mistake. The legislature uses the budget to make informed decisions about which programmes to fund and not fund. Conventional budgetary accounting, however, is technically incompatible with credit – regardless of the cost estimation procedure adopted. Consequently, using the budget to govern the public provision of credit results in the legislature making choices about what to fund and not fund based on an incomplete and inaccurate picture of the state’s fiscal capacity and the existing resource allocation. Instead, legislatures should govern the public provision of credit using an experimentalist architecture that controls credit provision through the regular reassessment of outcomes.