public finance – managing public debt

7/29/2019 Public Finance Managing Public Debt

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Public FinanceManaging Public

Debt

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Flow of the Presentation

Introduction

Causes for Public borrowing

Types of Debt

Methods of Public debt Redemption

Role of the Various Agencies managing public debt

Recent Scenario of public debt

Solution to managing the public debt

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Introduction

Public Finance is important source of the income for

government

Public finance is the key to study government

stabilization policies

In this world nothing can be said to be certain, except

Death & Tax

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Causes for Public Borrowing

Build up infrastructure like roads, railways, bridges,

power plants

Government lending significant amounts of capital

funds to the private sector for investment in planned

development projects

Resorted to for meeting temporary as well as long

term deficits.

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1. Market LoanThe maturity period of 12 months or more.

2. Bonds

National Rural Development Bonds(NRDB) and Central

Investment Bonds.

Maturity 3 to 10 years.

3. Treasury Bills

Purchased by commercial banks and others.

Period of 91 day and 364 day.

4. Special Floating and Other Loans.

Internal Debt 5


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5. Special securities issued by RBI.

Loans for a period of maximum 12 months from RBI.

6. Ways and Mean Advances.

Loans for a period of three months from RBI.

7. Securities against small savings.

Since 1999-2000, under the new accounting system,

national small savings have been converted into theCentral Government securities

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External Debt

A. Long term debt

World bank, International -

Monetary fund, Asian-

Development Bank(ADB)

B. Short term debt

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Methods of Public Debt

Redemption Refunding

Conversion

Surplus Budget

Sinking fund

Terminal

Additional Taxes

Capital levy

Surplus balance of payments

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Role of various agency in public

debt management RBI

Finance Ministry

Public Debt Management Agency

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Role of RBI in Public Debt

Management Improving Efficiency of the economy and overall growth

To use public policy instruments to improve equity

RBI is the largest single holder of central governmentsecurities

Prevent the government from borrowing from othersources at a higher rate of interest.

Impose credit control on time to time Keep the SLR, CRR ratios at reasonable level.

Regulates the banking structure through imposition ofliquidity restrictions regarding credit supply.

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Role of Public Debt

Management Agency Management and execution of the borrowing program

Management of the debt portfolio

Reporting to the Ministry of Finance on the development

of the public debt and submitting proposals in connection

with debt management policy and debt structure

Providing financial advice

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Role of the Finance ministry in

Public Debt Management Determining the specific borrowing instruments

Designing the medium-term public debt management

strategy within which the daily management public debtportfolio and its risk will be managed.

Negotiates the loan agreements, agreements related to the

transactions on derivative products and other related

documents

Collaboration with other relevant Agencies, collects,

processes on borrowing and public debt operations

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Recent Scenario

Years Public debt (in % GDP)

2005 59.7

2006 53.8

2007 52.8

2008 61.3

2009 57.3

2010 55.9

2011 48.5

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Recent Scenario of Public Debt 14


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Managing Public Debt

1.Reduction in Primary Deficit

2. Reduction in Growth of current expenditure

Reduction in the government's consumption expenditure

for its staff.

Reduction in subsidies.

Liquidation of public debt.

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3. Raising efficiency of borrowing Programs of Central

Govt.

The RBI has played a major role in improving the

efficiency of borrowing programmers of the Central

Government4. Reforms in Debt Management of States

state government loans continue to be on old pattern and

procedures

5. Foreign institutional investors and Public debt

Foreign Institutional Investors have been permitted to

invest in government debt.

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6. Consolidated Sinking Fund (CSF)

The CSF has the objective of breaking the vicious cycle of

rise in repayment, burden of public debt

7. Improving the state of debt market

8. Disinvestment Policy

Disinvestment will enable the government to raise funds,

which can be utilized to repay a part of the public debt

9.Proper Monitoring of Expenditure

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Thank you

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public finance – managing public debt

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