PRINCIPLES OF PUBLIC DEBT MANAGEMENT

• PUBLIC DEBT MANAGEMENT
  PRINCIPLES OF PUBLIC DEBT MANAGEMENT
• MEANING AND DEFINITION OF PUBLIC DEBT MANAGEMENT

1. THE OBJECTIVE OF THE MGMT OF THE PUBLIC DEBT REFERS  TO THE AIM OF THE METHODS OF BORROWING FUNDS AND THE REPAYMENT OF LOANS BY THE GOVERNMENT SHOULD NOT HAVE ADVERSE EFFECT ON THE ECONOMIC SITUATION OF THE COUNTRY.
2. THE PUBLIC DEBT MANAGEMENT IS CONCERNED WITH THE DECISIONS REGARDING THE FORMS OF PUBLIC DEBTS ISSUED,TERMS ON WHICH NEW BONDS ARE SOLD,MATURING DEBT ARE REDEEMED OR REFUNDED,THE PROPORTION IN WHICH THE DIFFERENT FORMS OF PUBLIC DEBT SHOULD BE ISSUED,THE PATTERN OF MATURITIES OF THE DEBT ITS OWNERSHIP ETC
3. MGMT OF PUBLIC DEBT IS CONCERNED WITH THE STRUCTURE OF THE PUBLIC DEBT
4. MGMT OF THE PUBLIC DEBT IS CONCERNED WITH REFUNDING,FLOATING OR RETIREMENT OF THE PUBLIC DEBT

• SIGNIFICANCE OF METHODS OF PUBLIC DEBT MGMT

1.     METHOD OF BORROWING FUNDS AND REPAYMENT OF LOANS SHOULD HELP TO MAINTAIN ECONOMIC STABILITY.

2.     IT SHOULD REDUCE INFLATIONARY OR DEFLATIONARY SITUATIONS,

3.     IF THE GOVERNMENT REDUCES THE ITS PUBLIC DEBT THROUGH DEFICIT FINANCING OR FROM PAST SAVING THE EFFECT WOULD BE INFLATIONARY

4.     IF TAXATION IS INCREASED TO REPAY THE LOANS TO BANKS,THE EFFECT WILL BE DEFLATIONARY

5.     ROLE OF PUBLIC DEBT MGMT WOULD BE TO ADOPT METHOD WHICH MAY NOT CAUSE INFLATION OR DEFLATION

6.     IN INFLATION THE GOVT INCREASES ITS DEBT BY INCREASING THE RATE OF INTEREST AND VICE VERSA. AGAIN THE SURPLUS COLLECTED BY WAYS OF TAXES MAY BE USED IN PAYING THE DEBTS IN DEFLATION AND ADDITIONAL TAXES MAY BE IMPOSED DURING INFLATION.

• PRINCIPLES OF PUBLIC DEBT MANAGEMENT
• THE INTEREST COST OF SERVICING PUBLIC DEBT MUST BE MINIMIZED:-THE INTEREST COST OF SERVICING PUBLIC DEBT SHOULD E KEPT AT MINIMUM BECAUSE THE GOVERNMENT HAS TO IMPOSE ADDITIONAL TAXES OR THE RATES OF EXISTING TAXES HAVE TO BE RAISED. IF THE INTEREST COST IS MINIMUM THE GOVERNMENT WILL HAVE TO IMPOSE SMALLER AMOUNT OF ADDITIONAL TAXES. IF CENTRAL BANK OF THE COUNTRY IS INDUCED TO KEEP THE INTEREST RATE LOW BY THE MEANS OF MONETARY OPERATIONS
• SATISFACTION OF THE NEEDS OF THE INVESTORS:-

1. MANAGED IN SUCH A WAY THAT NEEDS OF THE INVESTOR WITH REGARD TO TYPE OF THE GOVERNMENT SECURITIES AND TERMS OF ISSUES ARE SATISFIED.
2. DIFFICULT TO MANAGE IF THE NEEDS OF THE INVESTORS ARE NOT SATISFIED AS IT WILL CAUSE DISTURBANCES IN THE SECURITY MARKET

• FUNDING OF SHORT TERM DEBT INTO THE LONG TERM DEBT:

1. ARGUED THAT SHORT TERM DEBT INTO THE LONG TERM DEBTS BUT ECONOMIC STABILITY IS NOT DISTURBED
2. THE POLICY WOULD TEND TO RAISE THE LONG TERM RATE OF INTEREST AND DEMAND FOR LONG TERM FUNDS WILL HAVE TO BE INCREASED,THIS WILL INCREASE THE BUDGET EXPENDITURE IN THE FUTURE AND ON THE SAME TIME IT WOULD REDUCE THE DEMAND FOR SHORT TERM WOULD FALL. IT WILL CREATE UNEMPLOYMENT AND RECESSION.
3. IT SHOULD BE MANAGED IN SUCH WAY THAT NO UNDUE RISE IN LONG TERM INTEREST WHICH MAY ADVERSELY AFFECT THE RATE AND VOLUME OF PRIVATE INVESTMENT

• PUBLIC DEBT POLICY MUST BE CO-ORDINATED WITH FISCAL AND MONETARY POLICY:-REPAYMENT OF THE DEBT,THE CONVERSION OF EXISTING DEBT AND THE TERMS ON WHICH THE NEW SECURITIES SHOULD CONTRIBUTE TO GROWTH AND STABILITY
• MATURITY,DISTRIBUTION AND KIND OF DEBT HOLDERS

1. IF A LARGE PROPORTION OF THE TOTAL DEBT IS SHORT TERM DEBT AND A HIGH PROPORTION OF THE TOTAL DEBT IS HELD BY BANK,HIGH DEGREE OF LIQUIDITY AND CREATE INFLATIONARY SITUATIONS WHEN ANTI INFLATIONARY POLICY IS DESIRED.
2. THE HIGH LIQUID DEBT MAKES THE CONTROL OF INFLATION DIFFICULT. ALSO THE PURCHASE OF SUCH DEBT WILL NOT BE EFFECTIVE TO CONTROL THE INFLATION.
3. BUT THE HIGH LIQUID DEBT HELD BY THE INDIVIDUALS CAN BE USED AS ANTI INFLATIONARY DEVICE BY RAISING THE PRICE OF SECURITIES THERE BY INCLUDING THE PEOPLE TO CONVERT THEM INTO CASH FOR INCREASING THEIR AGGREGATE EXPENDITURE