Government / municipal debt is the result of borrowings made to cover the budget deficit. It is formed by the sum of deficits in previous years minus surpluses. Let us consider in more detail how the management and servicing of state and municipal debt is carried out .
General information
The state debt of the Russian Federation includes obligations to:
- Legal entities and individuals (foreign including).
- Subjects of the Russian Federation.
- International financial institutions, other subjects of international law.
- By foreign states.
Public debt also form commitments:
- on state guarantees provided by the Russian Federation;
- arising from the adoption of laws on the attribution of debt of third parties to a public debt.
Nuances of terminology
In accordance with the provisions of the law, national and state debt is allocated. The first concept is considered broader. National debt consists not only of the obligations of the government of the Russian Federation, but also of the governance structures of the republics included in the country, as well as self-government bodies.
Security
It is carried out at the expense of federal property, which forms the treasury of the country. Despite the fact that credit relations are secured by the treasury, the federal budget funds are used to pay off debts ( servicing public debt).
The Budget Code contains an imperative directive for federal government agencies to exercise all powers to raise revenue to pay off obligations.
Composition
Government debt of the Russian Federation is a direct consequence of the country's credit policy. The composition is determined by the form of credit - a method of attracting free (temporary) funds at the disposal of the authorities.
As Article 98 of the BC establishes, the following are included in the amount of the state debt:
- Amounts of principal debt on loans;
- nominal amount on government securities;
- liabilities for issued guarantees.
The debt does not include the payment of interest, as well as non-interest income from government borrowing. In accordance with the BC, they are an independent form of federal budget expenditures.
Methods of managing and servicing public debt
A public debt appears when government expenditures exceed the receipt of funds, that is, a budget deficit is formed. It is covered by government borrowing. The situation is similar with municipal debt. The only difference is that borrowing is done at the local or regional level.
Public debt management is one of the directions of the state financial policy. It represents a complex of measures related to servicing a state debt, its repayment, issue, placement of loans. Management includes the regulation of the state loan market.
Management methods include:
- Refinancing. It represents the repayment of previous debt through the issuance of new loans, which involves the replacement of liabilities for which they are due to expire with new bonds or short-term debts with long-term ones.
- Conversion. It is an adjustment to the initial terms of a loan issued earlier. In particular, the profitability changes (the percentage decreases or rises).
- Consolidation. It involves extending the loan term by combining several obligations into one long-term. In this case, as a rule, the loan percentage changes.
- Unification. In this case, several loans are combined, however, this exchanges previously issued bonds for new ones. The purpose of the method is to reduce the number of types of securities, which, in turn, optimizes the work with them and reduces costs. In some cases, a regressive agreement may be exchanged. This means that several bonds issued earlier are equal to one. Such an exchange, for example, was carried out after the war to withdraw military bonds from circulation. The ratio was 3: 1 (three former to one new).
- Deferral repayment. It represents a postponement and termination of payments for a certain time.
- Cancellation It involves a complete disclaimer. This can happen for various reasons: financial insolvency, the rise to power of people who refuse to recognize the obligations of the past government, etc.
- Restructuring. It involves a review of the term for payment of interest or repayment of principal debt, a reduction in the rate, write-off of a certain part of the debt. Typically, this method is used when deteriorating solvency in the presence of signs of bankruptcy. According to Article 105 of the BC, restructuring is the termination of government obligations with their replacement by other obligations, assuming different conditions for servicing the state debt and its repayment.
- Buyout. In the secondary market for financial instruments, the debtor country may redeem its obligations.
Debt servicing activities
The main ones include:
- payments to creditors;
- provision of guarantees;
- repayment of internal / external loans;
- determination of conditions for the issue and placement of new obligations, etc.
The effectiveness of these measures depends on the validity of the decisions taken. It, in turn, is based on a thorough analysis of the structure and volume of public debt, an objective assessment of the current state of borrowing.
Normative base
The provisions governing the servicing of public debt and municipal borrowing are enshrined in article 119 of the BC.
Under it is understood the totality of operations to pay income in the form of interest or discount. The servicing of state (municipal) debt is carried out from the budget funds of the corresponding level.
Paragraph 2 of this article establishes that the Central Bank, a credit institution or other specialized financial organization performs the tasks of an agent of the Government in the implementation of these operations, as well as in the placement, exchange, repurchase, and repayment of obligations. This activity is carried out in accordance with agency agreements concluded with the Ministry of Finance. The functions of the general agent of the Central Bank performs free of charge.
As article 119 of the BC establishes, agents are paid for the tasks enshrined in the agreements signed with the Ministry of Finance from the federal budget.
The implementation by a credit institution or other specialized organization of the functions of an agent of the executive body of state power in a region of the Russian Federation is carried out in accordance with agreements concluded with the executive institution of government of the entity that is borrowing.
Contracts can also be signed with the local administration (when servicing municipal debt). In this case, the payment of agency services is carried out from the local budget.
Maintenance costs
About them it is spoken in Art. 111 BC.
The cost of servicing the state debt of the entity or municipal borrowing is planned annually. The estimate is approved by law on the appropriate budget.
The maximum amount of expenditures on servicing the public debt according to the indicators of the report on the execution of budget expenditures for the reporting period cannot exceed 15% of the total budget expenditures. In this case, costs incurred due to subventions are not taken into account.
Key principles
Public debt service is based on:
- Unconditioned. It involves ensuring accurate and timely repayment of obligations to investors and creditors without additional conditions.
- Coherence. It involves the maximum harmonization of the interests of the lender and the borrower.
- Unity of accounting. During the management and servicing of the public debt, all types of securities issued (issued) by state authorities, regional structures and municipalities should be taken into account.
- The unity of credit policy. It involves the application of a single approach to the implementation of debt management and servicing activities by the center in relation to the municipalities and regions.
- Risk reduction. The financial policy should include all necessary measures to reduce the risks of creditors, investors, and the debtor himself.
- Publicity. All interested users should receive complete and reliable information about loans in a timely manner.
- Optimality. A system of government loans should be formed in which they will be repaid with minimal risk. At the same time, operations should have the least negative impact on the economy.
Authorized Entities
In accordance with article 101 of the BC, management:
- a public debt of the Russian Federation is carried out by the Government or the Ministry of Finance authorized by it;
- state debt of the region - the highest executive institution of power or a financial institution authorized in accordance with regional legislation;
- municipal obligations - the executive and administrative body of the Moscow region (local administration), authorized by the charter of the municipality.
Conclusion
The value of the public debt determines the effectiveness of all credit operations committed by the state. The absolute indicator of borrowing, their dynamics, the rate of change characterize the state of finance and the economy of the country, the efficiency of financial organizations.
During a recession, according to the classical approach to managing obligations, it is advisable to reduce the amount of public debt. Otherwise, the debt will adversely affect both the financial condition of the country and its economy.
An alternative approach is based on the opposite concept. In accordance with it, with a decrease in business activity, the amount of loans should be reduced. At the same time, the public debt will perform the functions of a financial mechanism that helps accelerate economic development.
Government borrowing can only be useful during sustained economic growth. In periods of recession, the budget deficit can significantly worsen the country's financial condition, increase the threat of a debt crisis and lower the country's reliability rating. This, in turn, leads to a deterioration in the overall economic situation. The growth of public debt leads to real negative consequences for the financial, economic and social sectors.