Importance of Public Debt Management in India As per Reserve Bank of India Act of 1934, the Reserve Bank is both the banker and public debt manager for … 5. Several debt market crises have highlighted the importance of sound debt management practices and the need for an efficient and sound capital market.
While the responsibility for compliance with debt ceilings and for conducting debt sustainability analysis lies with the fiscal authorities, public debt managers should share fiscal and monetary policy authorities’ concerns that public sector indebtedness remains on a sustainable path.
Such indicators should be evaluated considering a wide range of scenarios. Public debt management is the process of establishing and executing a strategy for managing the government’s debt in order to raise the required amount of funding at the lowest possible cost over the medium to long term, consistent with a prudent degree of risk. Sometimes these risks can be readily addressed by relatively straightforward measures, such as by lengthening the maturities of borrowings and paying any associated debt servicing costs, or by adjusting the amount, maturity, and composition of foreign exchange reserves.
All rights reserved. Meaning: In India, public debt refers to a part of the total borrowings by the Union Government which includes such items as market loans, special bearer bonds, treasury bills and special loans and securities issued by the Reserve Bank. The public debt is how much a country owes to lenders outside of itself. Even in situations where there are sound macroeconomic policy settings, risky debt management practices increase the vulnerability of the economy to economic and financial shocks.
2. Sound risk management by the public sector is also essential for risk management by the private sector. When made public, such targets help to increase the predictability and transparency of debt management operations, and in turn reduce uncertainty for investors. […] Although government debt management policies may not have been the sole or even the main cause of such crises, the maturity structure, and interest rate and currency composition of the government’s debt portfolio, together with substantial obligations in respect of explicit and implicit contingent liabilities—not least in relation to the financial sector—have contributed to the severity of the crises. 7. Issuance of large volumes of such debt instruments has left government budgets seriously exposed to changing growth and financial market conditions, including changes in the country’s creditworthiness, when this debt has to be refinanced. Further, a debt portfolio that is robust to shocks places the government in a better position to effectively manage financial crises.
Examples of indicators that address the issue of debt sustainability include the public sector debt service ratio, and ratios of public debt to GDP, exports, and tax revenue. Poorly structured debt portfolios, in terms of maturity, currency, or interest rate composition and large contingent liabilities, have been important factors in inducing or propagating economic crises in many countries throughout history.1 For example, irrespective of the exchange rate regime, or whether domestic or foreign currency debt is involved, crises have often arisen because of an excessive focus by governments on possible cost savings associated with short-term or floating rate debt.
Debt crises have highlighted the importance of sound debt management practices and the need for an efficient and liquid domestic capital market. 9.2 Public Debt The portion of total debt which has a direct charge on government revenues is taken as public debt. What is Public Debt Management and Why is it Important. The term "public debt" is often used interchangeably with the term sovereign debt. It also includes the outstanding external debt. The objectives of public debt management are to ensure that the government’s financing needs and settling of obligations meet the medium term objective of low borrowing costs, prudent risk exposure and promotes an active domestic
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