Usachev V.A. Levchenko Y.I.

Donetsk National University of Economics and Trade

named after M.I. Tugan-Baranovsky

Public debt management problems and its service

The important element in macroeconomic management strategy is to reduce the size of the budget deficit. Modern economic thought has many concepts of budget deficits, to measure the effectiveness of fiscal policy and its impact on the economic system. The most important ones are:

- the overall budget deficit, which is also called "actual" or "cash" formed government expenditures that exceed government revenues and subsidies;

- external deficit is equal to the external state expenditures excluding government revenues from external sources;

- intestine deficit - a total deficit "negative" external deficit;

- operating deficit is defined as the overall deficit excluding interest payments inflationary share;

- the primary deficit is the difference between the value of the total sum of all the deficits and interest payments;

- the current budget deficit surplus produced current state income excluding current expenditures.

Debt financing of deficit budget leads to the accumulation of public debt, which should serve. Debt service associated with the payment of interest thereon and the gradual repayment of principal.

Debt is an important element of the cycle "income - expenses." When the economy grow revenue, then grow and savings that should be used by households, firms and government. Creating a debt - a mechanism by which savings are passed economic agents carrying costs. If households and firms are reluctant to borrow, the private debt is growing fast enough to absorb the growing amount of savings. So that the economy is not moved away from the full employment of resources, all savings should be used by the state government debt growth.

Public debt is the total amount of accumulated government debt holders of government securities, which is the sum of past budget deficits for the withdrawal of budget surpluses. Public debt consists of internal and external debt of the state. Internal public debt - debt of the state to households and companies of the country, who own securities, issued by her government. External public debt is a debt of the state to foreign citizens, firms, governments and international financial organizations.

The main reasons for creating and increasing public debt are:

- increase public spending without a corresponding increase in revenues;

- cyclical downturns and automatic stabilizers of the economy;

- tax cuts to stimulate the economy without a corresponding adjustment (decrease) in government spending;

- the impact of political business cycles - excessive government spending before elections in order to gain popularity among voters and retain power.

There is a positive correlation between the size of the budget deficit and public debt. The budget deficit increases the national debt, and the debt increase, in turn, requires additional expenditures on its maintenance and thereby increases the budget deficit.

In volume deficit occurring all changes in the value of government debt, including due to the influence of inflation. It is therefore essential that public debt as measured in real, not only in nominal terms.

The budget deficit is the difference between government spending and income.

The absolute size of the debt is not very indicative of macroeconomic indicators, as debt increases with increasing GDP, and its value affects inflation. More informative are the ratios of debt, namely:

- the ratio of debt to GDP;

- the ratio of debt service to GDP.

The relative value of government debt ("debt / GDP") depends on factors such as the level of the real interest rate, which is determined by the amount of payments on debt, growth rate of real GDP and total primary budget deficit. Reduction of debt relative to the economy is possible only if the growth rate of real interest rates will low for real GDP growth and the share of the primary budget surplus to GDP ratio will increase.

The degree of the impact of public debt on domestic demand and aggregate supply, foreign trade balance is fully determined by the structure of government revenue and expenditure. Depending on the nature of the effects of debt on the economy, they are divided into short and long term. Short - a budgetary implications deficit known as the problem of "crowding out". Long-term - economic effects of public debt, known as "the burden of debt."

Management of external debt is divided into three stages: fundraising, its location (use) and repayment of debt. Accordingly, the system of external debt of the country means managing all stages and includes:

- analysis of creditworthiness - a country's ability to borrow;

- assessment of solvency - the ability to service debt;

- control level of external debt;

- control the composition of external debt.

For this purpose, the indicators of debt - debt indexes that measure different components of external debt. The standard debt indicators are:

- the ratio of the size of the debt (paid or unpaid) to exports and to GDP;

- the ratio of debt service payments to exports and government revenues;

- debt service ratio (the ratio between the amount of debt service payments and the value of exports of goods and services).

Effectiveness of external debt is largely determined by other economic policies. Return on invested capital, and hence the size of the external loans depends on trade policy, exchange rate policy, pricing, as well as monetary and fiscal policy. In turn, the level of external debt and terms of debt largely determine the nature of economic policy in the country.