Municipal debt is the debt obligations of the municipality in aggregate. This includes guarantees issued to other borrowers. In our article, we will consider the concept of municipal debt, structure, types, restructuring, and also touch on issues of service and management.
Structure
Municipal debt is a category that is unconditionally and fully secured by all property forming the municipal treasury. It is advisable to designate the category structure as a group of debt obligations in accordance with the established budget legislation in force in the country and types of debt obligations. They may occur as obligations associated with:
- securities of a municipality (they are also called municipal securities);
- loans received by the municipal structure from credit institutions;
- budget loans attracted to the local budget from other budgets included in the budget system of the Russian Federation;
- guarantees of the municipality (their second name is municipal guarantees).
It is worth considering that the debt obligations of the municipal structure are not able to exist in other forms, with the exception of the above.
Volume
The volume of municipal debt is made up of the following elements:
- Nominal amount of debt related to municipal securities.
- The volume of debt is of primary importance for budget loans that are attracted to the local budget.
- The volume of the main debt on loans received by the municipal structure.
- The volume of debt under the relevant guarantees.
- The volume of debt obligations other than those indicated that are not paid.
Varieties of Obligations
Municipal debt is a category that has a certain classification. So, the debt obligations of the municipal structure are long-term (from 5 years inclusive), medium-term (from 1 to 5 years) and short-term (less than 1 year).
The procedure for the termination of debt obligations of municipalities that are denominated in the currency of the Russian Federation, as well as write-offs from debt are discussed in Art. 101 BC RF. Local government bodies apply all powers related to the generation of local budget revenues to repay their own debt obligations, as well as to service debt.
The concept of municipal debt management
Debt management should be understood as a set of measures that the state implements to pay income directly to creditors and repay current loans, as well as to change the terms of those loans that have already been issued. The category of public and municipal debt management should also include the definition of rules and the release of new state. valuable papers.
Management objectives
Among the goals of public and municipal debt management, it is important to note the following:
- Economic: maximum reduction in the cost of those external loans that are involved; renewal of debt and (or) improvement of refinancing factors; reduction of general costs associated with servicing external debt; increase in the effectiveness of using the attracted resource potential.
- Political: maintaining the political system in a normal state.
- Social: ensuring social stability, financing social-type programs in a timely manner.
- Ensuring state security. It is important to clarify here that the increased burden of external debt obligations can adversely affect the country's economic security.
Stages of management. Substantiation process
Consider the stages of public and municipal debt management. The management cycle in this case consists of five stages. On each of them specific tasks are overcome. Among them, we note the most important.
Firstly, this is the implementation of the process of substantiating the maximum volumes of municipal debt (both internal and external), the maximum volumes of external and internal borrowing, the maximum amount of providing guarantees, as well as the creation of external and internal borrowing programs. It is important to note that at this stage, the size of the debt burden of future periods in aggregate, including the external and internal debt, as well as the types of upcoming borrowings, is laid. That is why such activity is considered as strategically important for the country.
Creation of an issue program
Secondly, this is the formation of a program for issuing municipal and state securities, as well as determining specific parameters for future borrowing in accordance with the terms of circulation, the level of probable profitability, the procedure for paying income, restrictions on owners, the procedure for placement and other conditions that make absolutely every loan as attractive as possible for investors who can be both residents and non-residents. In particular, the absence or presence of “peaks” in debt payments, as well as the receipt of resources in order to repay previously made borrowings in the order of their refinancing, in a timely manner, depends on the quality of work at this stage.
Third stage
Thirdly, this is the placement of bonds and, of course, the regulation of quotations for municipal and state obligations on the secondary debt market (municipal apartments, for example). The impact on quotes on bonds of municipal and state significance involves the regulation of the budgetary effectiveness of borrowings, as well as the size of the current debt (both internal and external).
Final stages
The fourth stage is characteristic of the period of development of the Russian Federation after the collapse of the USSR. This stage is associated with the implementation of activities, the need for which is determined by the relevance of crisis situations or bad debts. If the government cannot organize the servicing of municipal debts and repay them, then it begins negotiations with creditors regarding the revision of payment schedules and the maturity dates of debt obligations. Following the discussion, the parties can take one of the following decisions:
- Deferral of payments.
- Full or partial debt relief.
- Debt restructuring.
- Early redemption of obligations.
- Securitization and so on.
The final stage is the implementation of the initial or modified payment schedules. It is advisable to include repayment and servicing of municipal and state debts of internal and external nature.
Instruments
Municipal debt is a category that requires full management. That is why it is advisable to list the tools for its implementation. So, subjects (state and municipal bodies) widely use different methods. Their use is due to the fact that in some cases there are circumstances that prevent the return of debt obligations and related interest in a timely manner. That is why there is a need to defer payment of debt or change the terms of the loan.
Market instruments used to manage public debt include the following: debt refinancing, debt restructuring, and debt extension. It is advisable to consider each of them separately.
Debt restructuring
Using this method, the debtor can achieve a review of the original service schedule and repayment of municipal and state debt. According to the new schedule, the debtor has a grace period during which only interest is paid. In addition, the repayment period of the amount of cash, which is the main debt, is increasing. Debt restructuring is often accompanied by the write-off of part of the cash of the main debt, as well as the consolidation of debt issued earlier.
By consolidating loans, it is necessary to understand the change in their conditions (usually compulsory) associated with the terms. Usually there is an increase in the circulation period of loans that were issued by converting current liabilities and converting short-term loans to long-term ones.
The technique is mainly used for managing the debt crisis. As a result of the restructuring, additional financial resources appear in order to ensure economic growth and pay off public debt in the future. Nevertheless, at the same time, limiting access to sources of resources, in particular, to international financial markets, is becoming relevant.
In accordance with the Civil Code of the Russian Federation, debt restructuring is regarded as a termination of obligations based on an agreement. It should be clarified that we are talking about debts forming a state or municipal debt. Moreover, it is relevant to replace them with other debt obligations, which provide for fundamentally different conditions for repayment and servicing (Article 105 of the Civil Code of the Russian Federation).
The specified procedure can be implemented with a partial reduction (write-off) of the main debt. It must be borne in mind that the costs of servicing restructured debt are not included in the cost of servicing debt obligations in the current financial year, if the corresponding amount is included in the total volume of restructured debt.
Debt extension
The extension of state and municipal debt, unlike restructuring, involves the extension of the commitment period. It is carried out to facilitate payment. Extension is a tool that is not used to manage state. debt, in the budget legislation of the Russian Federation there is no such form.
Refinancing
Refinancing should be understood as the repayment of old debt through the adoption of new obligations. It is worth noting that in relation to government loans, the concept of debt refund is sometimes used. Today it is customary to use three key methods of refinancing borrowings:
- ministries of finance, with the consent of the debt holders, sell their replacement with expired redemption periods with new ones in monetary amounts that are equivalent to redeemable;
- carry out operations of an early nature related to the replacement of some obligations with others with longer repayment periods;
- arrange for the placement (sale) of new bonds and repay securities with expired redemption periods using the proceeds of cash.
Conclusion
So, we examined the concept, service, the limit of municipal debt. In addition, the categories of prolongation refinancing and debt restructuring, which act as management tools, were analyzed.
In conclusion, it should be noted that the Government of the Russian Federation and the Ministry of Finance of the Russian Federation are in charge of operational management in Russia. It is important to name the Central Bank of the Russian Federation and Vnesheconombank as agents of the Ministry of Finance. The unified management system in relation to the state debt of the Russian Federation is defined in the decree of the Government of the Russian Federation of 04.03.1997.
Debt obligations of the Russian Federation, the constituent entity of the Russian Federation, and the municipality are fully secured by the entire property complex owned by the Federation, the constituent entity of the Russian Federation, and the municipal structure. This property makes up the corresponding treasury, and the fulfillment of obligations is carried out at the expense of the funds of a budget.