2. PRESENTED BY,
Dipu Thomas Joy

3. INTRODUCTION
DEBT MANAGEMENT:
Process of involving a designated third party
assisting a debtor with repayment of his/her debt
2 types of third party companies:-
 Fee charges
 Free or low cost services

4. 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

5. DEBT MANAGEMENT PLAN
A 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. ELEMENTS OF PUBLIC DEBT
MANAGEMENT
 Refunding
 Conversion
 Surplus budget
 Sinking fund
 Terminable annuities
 Additional taxation
 Capital levy
 Surplus balance of payments

13. TYPES OF PUBLIC DEBT
PRODUCTIVE DEBT
& UNPRODUCTIVE
DEBT
FUNDED VOLUNTARY DEBT
& UNFUNDED & COMPULSORY
DEBT DEBT
REDEEMABLE
INTERNAL DEBT
& IRREDEEMABLE
& EXTERNAL DEBT
DEBTS
SHORT-
TERM, MEDIUM-
TERM
&
LONG-TERM DEBTS

14. 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

15. 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

16. 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.

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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.

23. 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.

24. 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

25. 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

26. 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.

27. METHODS OF FINANCING PUBLIC
DEBT MANAGEMENT
PAY –AS- YOU
USE FINANCE
PAY- AS- YOU
GO FINANCE

28. 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

29. CONCLUSION
Effective 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