INTRODUCTIONDEBT MANAGEMENT:Process of involving a designated third party assisting a debtor with repayment of his/her debt2 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 PLANA 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 DMP PROS- It stops creditors calls Reduces interest rates and monthly payments Flexibility Solution to Bankruptcy CONS- Fees and charges Not acceptable to creditors DMP cannot write-off the debts Secured loans cannot be paid by using DMP
PUBLIC DEBT Debt 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
PRODUCTIVE DEBT Public 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 DEBT It 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 DEBT Debt 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 DEBT Debts 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 DEBT Maturity 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 DEBT These 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 DEBT The 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 DEBT It 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 DEBT These 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
CONCLUSIONEffective 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