Management of public debt�

• Public debt management refers to debt policy formation that seeks to achieve certain objectives and the implementation of such a policy. It also refers to various authoritative decisions. Public debt management is the methods which are adopted by the govt. through the process of floating, refunding and repayment of public debt. In other words, it is the management of the govt. regarding public debt so that it must not have any inflationary or deflationary effect on the economy. Anyhow, some of the various reasons for the necessity of public debt management are highlighted below:
• (i) The increase or decrease of public debt has its effect on the working of any economy.
• (ii) The policy of public debt plays an important role in the formation of economic policy of the country.
• (iii) The economic development of a nation may foster or hamper due to the changes that occur due to the utilization of public debt.
• (iv) It is necessary to know the conditions which are essential for the implementation of planning policies.
• (v) It gives the knowledge of the actual amount of requirements for the implementation of a certain policy.

Objectives of public debt management

• (i) Public debt management must sub serve the economic policy of the govt. During the period of depression it should help to raise the purchasing power and effective demand in the economy and vice versa in inflation.
• (ii) In the time of war and for economic development, it should provide sufficient funds to meet requirement of the economy.
• (iii) It should be undertaken in such a way that it must be the most beneficial for the activities of the govt.
• (iv) It should not have any adverse effect on the economic condition of the country.
• (v) It should also be undertaken in such a way as to strengthen the money market.

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Principles of public debt management�

• To quote prof. phillip E. Taylor, three general principles of debt management can be identified as:
• (a) The policies pursued must be able to extract from the public without undue coercion.
• (b) The extraction of loan able funds from the market and its repayment when debt is retired should not frustrate the smooth growth of the economy.
• (c) It should be so placed as to minimize the need to enter the market when it is inconvenient to do so.

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• However, the principle of public debt management is elaborated as under:
• 1. Minimum interest cost of servicing public debt.
• The first and foremost principle of debt management should be that the interest rates on the govt. obligations should be kept as minimum as possible. The structure of interest rates on securities on different maturities’ should be determined in such a manner so that it may out less burden on the economy.
• 2. Satisfaction of the investors.
• It is agreed that public debt should be managed in such a manner that it must satisfy the needs of the investors. Such interests of the investor are concerned with the types of securities and issued. Therefore, without fulfilling the aspirations of the investors, the govt. may find hardship to issue securities.

• 3. Funding the short term debt into long term.
• Another principle of debt management is that it should help to convert short term borrowings. But at the same time it must take proper precaution that economic stability is disturbed at all.
• 4. Public debt must be in co-ordination with fiscal and monetary.
• For the proper implementation of the development schemes in the economy co-ordination of public debt policy with fiscal and monetary policy must be there. In the long run, it would lead to maintaining economic stability and economic growth.

• 5. Proper adjustment of maturity.
• The ideal principle of debt management is that it must have proper adjustment of maturity with a view to bring high degree of liquidity in the market. Thus, monetary authority should work out a scheme which does not induce the holders of the debt to monetize their debt obligations before maturity time.
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