Question

Suppose that a government has had several years of general-fund surpluses. Is this necessarily a sign of financial strength?

Answer 1

Answer:-

The fiscal strength of a government can not be assessed merely by checking its general fund. General Fund surpluses can be offset by deficits in other funds. Therefore, General Fund surpluses are not, by themselves, a guarantee of fiscal strength. Moreover, General Fund surplus is a “Residual Account” dependent on the composition of the government’s assets & liabilities. Therefore ,an Analyst must consider the extent to which the individual assets and liabilities contribute to, or detract from, overall fiscal strength. For example, a government may have extensive deferred charges on its balance sheet. These, however, will not generate cash and can not be used to satisfy obligations.