Redemption of public debt

(A) REDEMPTION OF INTERNAL DEBT

• Repudiation of debt.
• Conversion of loans.
• Utilization of budgetary surplus.
• Terminal annuity.
• Refunding.
• Compulsory reduction in rate of interest.
• Additional provision of
• Sinking fund.

. Capital levy.

(B) REDEMPTION OF EXTERNAL DEBT

​

Redemption of public debt

Redemption of public debt means repayment of a debt. Public debt is to be repaid by the govt. with the time fixed for its repayment just as the private individual or organization has to repay the loan.

(A) REDEMPTION OF INTERNAL DEBT

• Repudiation of debt. it means that the govt. refuses to pay the interest as well as the principal. In such cases govt. do not recognize its obligation to pay the loan.
• Conversion of loans. it means that the govt. refuses to pay the interest as well as the principal. In such cases govt. do not recognize its obligation to pay the loan.
• Utilization of budgetary surplus. When the govt. earns a surplus in the budget, it must be utilized for paying the debt. Surplus occurs when public reserve exceeds the public expenditure.

​

​

• Terminal annuity. In this method govt. pays off the public debt on the basis of terminal annuity into equal annual installments including interest along with principal amount.
• Refunding. It implies to issue of new bonds and securities by the govt. in order to repay the matured loans. It is thus a process of replacing maturing securities with new one.
• Compulsory reduction in rate of interest. Another method of debt redemption is the compulsory reduction in rate of interest. During the period of financial crisis, rate of interest is unilaterally reduced on the basis of compulsion.

​

​

• Additional provision of. Generally new taxes are imposed to collect the revenue. These funds can be utilized to repay the loans as well as interest. With this method, redistribution of income can be easily transferred from tax payers to the hands of bond holders.
• Sinking fund. In this system, the govt. establishes a separate fund known as sinking fund. A fixed amount of money is credited by the govt. to this fund.

.Capital levy. This method has been the most controversial method of debt repayment. Capital levy provides for imposing all at once tax on all the capital value possessions of the people.

​

• B) REDEMPTION OF EXTERNAL DEBT

The redemption of external debt may be made by the way of accumulating the necessary foreign exchanges to pay for it. This would be very carefully be invested in those industries who have high productive potentialities and will promote exports to a greater extent directly and indirectly.