PRESENTED BY,Dipu Thomas Joy

INTRODUCTION

DEBT MANAGEMENT:

Process of involving a designated third party

assisting a debtor with repayment of his/her debt

2 types of third party companies:-

Fee charges

Free or low cost services

IMPORTANCE OF DEBT MANAGEMENT

Helps the borrowers to manage the huge debts

It helps in :

-debt negotiation

-debt consolidation

-debt elimination

Helps in enhancing personal financial stability

Helps the debtors to remove the pressure from creditors

DEBT MANAGEMENT PLAN

A Debt Management Plan (DMP) is a method used in

various countries for paying personal

unsecured debt

DMP deal with only unsecured debt

It is offered by debt management companies

It relieves stress of payment

It can manage finance by using effective tips

PROS AND CONS OF DMPPROS-

It stops creditors callsReduces interest rates and

monthly paymentsFlexibility

Solution to Bankruptcy

CONS-

Fees and charges

Not acceptable to creditors

DMP cannot write-off the debtsSecured loans cannot be paid

by using DMP

PUBLIC DEBTDebt incurred by government in mobilizing savings of

the people in the form of loans which are to be repaid

at a future dare with interest

It can be both internal as well as external

It is an important source of income for government

It is mainly incurred for building up economic

infrastructure, for the govt to lend capital fund to private

sector and for meeting temporary as well as long term

deficits

PUBLIC DEBT MANAGEMENT

It is concerned with forms of public debt in terms of

which new bonds are sold, maturing debts are

redeemed or refunded, proportion in which different

types of public debt should be issued , the pattern of

maturities of debts & its ownership

In India, public debt management is coordinated

through the RBI

IMPORTANCE OF PUBLIC DEBT MANAGEMENT

Public debt policy place an important in formation of economic

policy of country

Increase or decrease of public debt affect the working of any

economy

It gives the knowledge of actual amount of requirements for

the implementation of certain policies.

It helps to know conditions which are essential for

implementation of planning policies

The way of utilization of public debt affects the economic

development of a nation

OBJECTIVES OF PUBLIC DEBT MANAGEMENT

Ensure the financing needs of the government

Minimize borrowing costs

Keep risks at an acceptable level

Support the development of domestic markets

It must serve the economic policy of the govt

In time of emergences, it should provide sufficient

funds t meet the requirement of economy

PRINCIPLES OF PUBLIC DEBT MANAGEMENT

Minimum interest cost of servicing public debt

Satisfaction of the investors

Funding the short term debt into long term debt

It must be in coordination with fiscal & monetary

policies

Proper adjustment of maturity

ELEMENTS OF PUBLIC DEBT MANAGEMENT

Refunding

Conversion

Surplus budget

Sinking fund

Terminable annuities

Additional taxation

Capital levy

Surplus balance of payments

TYPES OF PUBLIC DEBTPRODUCTIVE DEBT & UNPRODUCTIVE

DEBT

VOLUNTARY DEBT &

COMPULSORY DEBT

INTERNAL DEBT & EXTERNAL

DEBTSHORT-TERM, MEDIUM-TERM & LONG-TERM DEBTS

REDEEMABLE &

IRREDEEMABLE DEBTS

FUNDED &

UNFUNDED DEBT

PRODUCTIVE DEBTPublic debt is said to be productive when it is raised for

productive purposes

It is used to add to the productive capacity of the economy.

Debts are incurred for construction of such capital assets

which yield revenue to the govt

There is a working rule is that debt should be repay within the

physical lifetime of corresponding asset

Income derived from the creation of such assets is used for

repay the debts

UNPRODUCTIVE DEBTIt is also called dead weight debt

Unproductive debts are those which do not add to the

productive capacity of the economy.

Debt is incurred to cover any budgetary deficits or for

such purposes that does not yield any income to the govt

The interest on this type of debt must be obtained from

other source of public income

VOLUNTARY DEBT These loans are provided by the members of the public on

voluntary basis

It may be obtained in the form of market loans, bonds, etc

People are free to subscribe govt securities whenever they are

floated

The Government makes an announcement in the media to

obtain such loans

The rate of interest is normally higher than that of compulsory

debt, in order to induce the people to provide loans to the

government.

COMPULSORY DEBT

Rare phenomenon in modern public finance

Raised in special situations like war or famine

Govt enforces borrowing through legal compulsion

It is also resorted at times to curb inflationary

tendencies in the economy

Govt of India introduced ‘COMPULSORY DEPOSIT

SCHEME’ in 1971

INTERNAL DEBTDebt subscribed by persons or institutions inside the

country

Include individuals, banks, business firms, and others.

Instrument include market loans, bonds, treasury bills,

ways and means advances, etc.

Repayable only in domestic currency

Internal loan only involves transfer of wealth within the

borrowing community

EXTERNAL DEBTDebts raised from foreign countries or international

institutions

Debts repayable in foreign currencies

It involves transfer of resources from foreign

countries to the domestic country

Help to take up various developmental programs in

developing and underdeveloped countries

SHORT TERM DEBT

These are unfunded debts generally incurred for a

short period of time

It must be repaid within a year

Low rate of interest

It includes treasury bills which are issued for a

currency of 91 days

MEDIUM TERM DEBTMaturity period of above one year and up to 5 years

Borrow for medium term needs, development & non

development activities

E.g. Different types of market loans

LONG TERM DEBTThese are funded debts generally incurred for a long

period of time

Maturity period of 10 years & above

High rate of interest

Raised for developmental programs and to meet

other long term needs of public authorities.

REDEEMABLE DEBTThe debt which the government promises to pay off

at some future date

Most of the debt is redeemable in nature

There is certain maturity period of the debt

The government has to make arrangement to repay

the principal & the interest on the due date.

IRREDEEMABLE DEBT

Debts with no maturity period

Govt. may pay interest regularly, but no repayment

date of the principle amount is fixed

It is also a perpetual debt

Usually government does not resort to such

borrowings

FUNDED DEBTIt is repayable after a long period of time

Funded debt has an obligation to pay fixed sum of

interest subject to an option to the government to

repay the principal

Funded debt is undertaken for meeting more

permanent needs

Money is credited by the government into this fund

UNFUNDED DEBTThese are incurred to meet temporary needs of the

government

The rate of interest is very low

It has an obligation to pay at due date with interest.

METHODS OF FINANCING PUBLIC DEBT MANAGEMENT

PAY –AS- YOU USE FINANCE

PAY- AS- YOU GO FINANCE

ROLE OF RBI IN PUBLIC DEBT MANAGEMENT

RBI has an important role to play in public debt

management

It manages the public debt of the Central and the

State Governments

It is the largest single holder of govt securities

It is entrusted with the responsibility of imposing

credit control measures

CONCLUSION

Effective public debt management is the cornerstone

of financial stability and sustainable fiscal policy.

Countries therefore need capable debt management

offices to design medium term strategies which

appropriately balance cost and risk and execute

financing transactions effectively