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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