Public debt causes of occurrence, methods of assessment, management. Public debt: causes, types and consequences. principles and objectives for public debt management
Introduction 3
1 The concept of public debt and its types 5 1.1 External debt of the Russian Federation 10
1.2 Internal debt of the Russian Federation 15
1.3 From the history of the issue 19
2 Causes of public debt 23
3 Consequences 28
Conclusion 34
References 36
Applications 37
Introduction
Almost all countries of the world, when carrying out economic transformations, resort to external sources of financing. The rational use of foreign loans, credits and assistance helps to accelerate economic development and solve socio-economic problems. However, the lack of a coherent state policy to attract and use external financial resources leads to the formation of external debt, which becomes a serious obstacle to economic transformation.
Interest in this topic is due to the fact that currently the problem of public debt is the key to macroeconomic stabilization in the country. The state of the federal budget, gold and foreign exchange reserves, the stability of the national currency, the level of interest rates, inflation, and the investment climate depend on its decision. In addition, taking into account the attempts of our international creditors to use the debt problem for political pressure on Russia, competent settlement of public debt becomes a factor of national security and a condition for conducting an independent foreign and domestic policy.
The roots of many of today's problems in Russia (the decline in production, inflation, the instability of the ruble, the crisis of non-payments) go back to the previously existing centralized economic system and its legacy - monopoly and technical backwardness. We will also have to pay attention to the crisis of the 90s, because Russia is still reaping its consequences to this day.
Everyone knows that a market economy presupposes the presence of a developed financial system, which is a set of financial relations and the institutions that regulate them. The financial mechanism occupies one of the most important places in the structure of any state. Through it, the state and enterprises form and use funds of funds that are necessary for their activities. But how can we achieve maximum efficiency of this mechanism in our country?
Recently, the interest of financiers in the problems of the federal budget deficit increased significantly in reason for the rapid growth of public debt. The critical cost of servicing it, given the seemingly acceptable size of the budget deficit from a macroeconomic point of view in the last three years, forces us to look for the root causes of such unfavorable dynamics.
The purpose of this course work is to consider the issue of repaying external and internal public debt. The objectives of this work are the following: studying the role and significance of the public debt of the Russian Federation, as well as the problems of managing public debt and finding ways to solve them. The main task in considering this issue is to identify the most significant problems in the functioning of the budget mechanism and consider public debt (its types, causes, methods of repayment, etc.).
1 The concept of public debt and its types.
The national, or government, debt is the total accumulated sum of all federal government budget surpluses minus all deficits that have occurred in the country. There are external and internal public debt.
The budget deficit and public debt are closely related, since, firstly, the government loan is the most important source of covering the budget deficit; secondly, it is impossible to determine how dangerous a particular size of the budget deficit is without analyzing the size of the public debt. On the other hand, to assess the size of public debt, it is necessary to study the growth of the budget deficit. That is why this work should devote an entire chapter to this issue.
Government debt and its growth greatly affect the functioning of the economy. In this regard, two dangers are seen: the possibility of bankruptcy of the nation and the danger of shifting the debt burden to future generations. Currently, public debt occupies a special place among the painful problems of modern Russian budget policy.
A significant problem for the budget system is also the practically uncontrollable and uncontrollable growth in the volume of bond issues of the constituent entities of the Federation. The consequences of this may exceed similar trends in the growth of state bonds, since territorial loans are issued mainly against the security of property and land.
Fundamental to all classifications of debt is its division into external and internal debt. Internal and external debts have significant social differences: external debt is associated (and practically means) with the debt of a person who owes money to other people (the country's debt to other countries); domestic debt – it is a debt to ourselves. Both types of debts are an objective reality of social relations.
In accordance with the recommendations of the International Monetary Fund, liabilities of government bodies denominated in both domestic and foreign currencies, held by residents, are considered as domestic debt. External debt is considered government debt to non-residents. In practice, the fact that debt holders are classified as residents or non-residents is of paramount importance in determining the structure of public debt.
This key classification in practice is supplemented by a number of classification schemes, which include: classification of debt by type of creditor (debt holder) and by type of debt obligation. Classification of debt by type of creditor plays an important role in the analysis of public debt on the functioning of the entire economy and its individual segments. Thus, when operations with government debt obligations spread to the secondary financial market, their distribution by categories of owners is determined both by the specifics of government borrowing and by the operating conditions of the credit and banking system (demand for bank loans, the amount of bank reserves, portfolio of government securities, etc.) .
Principal classification of public debt by type of lender has the following form:
· domestic debt (to monetary authorities, commercial banks, other members of the public sector, other financial institutions);
· external debt (to international organizations, governing bodies of foreign states, other external debt, including bank loans and advances, loans from suppliers).
Debt classification by type of debt obligation has important analytical significance, since it identifies the types of debt assets and characterizes the types of assets held by creditors:
domestic debt (long-term bonds, short-term bonds and bills, long-term loans not classified elsewhere, short-term loans and bills not classified elsewhere);
external debt (similar to the list of internal debt items).
The category “public debt” includes all recognized debts of the Russian Federation. Debt that forms public debt arises as a result of borrowing in cash, issuing debt obligations to pay for the assumed debts of other economic entities, and “non-monetary” issuance of debt obligations. Repayment of accumulated debt can occur in various ways: cash payments, exchange of a debt obligation for tax exemptions, refusal to pay, cancellation of debt of creditors, acceptance of debt by another body, etc.
Government debt is valued at par value because it represents the amount of outstanding obligations payable when due. Debt is a state(stock), and not movement (flow), since it is assessed at a certain date, and its change in a certain period (between dates) occurs due to net borrowing (borrowing minus repayment).
In accordance with the legislation of the Russian Federation (Article 97 of the Budget Code of the Russian Federation), public debt includes:
- credit agreements and contracts concluded on behalf of the Russian Federation, as a borrower, with credit organizations, foreign states and international financial organizations;
- government loans carried out by issuing securities on behalf of the Russian Federation;
- treaties and agreements on the receipt by the Russian Federation of budget loans and budget credits from budgets of other levels of the budget system of the Russian Federation;
- agreements on the provision of state guarantees by the Russian Federation;
- agreements and contracts, incl. international, concluded on behalf of the Russian Federation, on the prolongation and restructuring of debt obligations of the Russian Federation of previous years.
The amount of public debt in the national part of external debt depends on the dynamics of the exchange rate. If in the period between the dates of determining the debt amounts the exchange rate has changed, then the revaluation of the amount of external debt expressed in foreign currency into rubles serves as one of the factors in changing the total amount of public debt. This is especially important due to the fact that, structurally, public debt consists of two parts: the principal debt (capital) and the outstanding debt (current), which in addition to the principal also includes interest on debt amounts. To this we must add that public debt is not only the volume of borrowings by government agencies, but also the debts of extra-budgetary funds at all levels of government. Capital includes the entire set of debt obligations of the state as of a certain date; the current consists of payments on obligations that the borrower is obliged to repay in the reporting period.
It is also necessary to take into account the federal-regional structure of public debt. In practice, a distinction is made between public debt resulting from the federal government's budget debt. In fact, this debt appears in all assessments of the situation with government borrowing. But it would be more correct to talk about consolidated public debt, including the debt of regional and municipal authorities.
The greatest problems are associated with the structure of public internal debt. Thus, the aggregated breakdown of internal debt is as follows:
a) marketable debt obligations in the form of issue-grade securities;
b) non-market obligations related to the execution of the federal budget and issued to finance the resulting debts.
The main differences between these two groups of obligations include, firstly, the fact that the first of them have a certain programmatic form, are included in budget plans for a number of years, and, secondly, are associated with the need to solve current operational budgetary problems.
The number of types (forms, articles) of public debt is not stable and tends to increase (primarily due to non-market instruments). The aggravation of the budget situation also causes shifts in the structural composition of domestic debt. The critical shift includes, in particular, large GKO pyramids. Budget expenditures on debt servicing under state bonds were not actually taken into account as part of federal budget expenditures. The Ministry of Finance balanced all turnover of the GKO market, including proceeds from new issues and amounts allocated to repay old issues.
The Law of the Russian Federation “On the State Internal Debt of the Russian Federation” (1993) determined the division of public debt into two main parts (mainly for foreign currency lending) - external and internal debt, in connection with which foreign currency borrowings and obligations arising in connection with this are included to external debt, and ruble borrowings to domestic debt.
The primitivism of this approach corresponded (to a limited extent) to the conditions of the first years of reform. The reform process and the development of financial markets with the expansion of foreign exchange transactions required the search for new solutions (both for analytical and practical purposes to solve problems of classification of public debt). The problem is especially complicated by the fact that in current conditions, for a number of positions, external and internal debts represent a rather harmonious symbiosis, in particular, even associated with technical problems, when we have the practice of balancing individual indicators (especially for servicing public debt).
1.1 External debt of the Russian Federation
External public debt is debt owed to foreign countries, organizations and individuals.
External public debt arises when the state mobilizes financial resources located abroad. Holders of external debt are companies, banks, government agencies of various countries, as well as international financial organizations (International Bank for Reconstruction and Development, International Monetary Fund, etc.).
The burden of external debt is heavier than the burden of internal debt. To cover its external debt, the country requires foreign currency, to obtain which it is necessary to reduce imports and increase exports, while the proceeds are used not for development purposes, but for debt repayment, which slows down economic growth and reduces living standards.
The problem of external debt requires constant monitoring, since it can have a very serious negative impact on the development of the country in the long term. We must not forget that the deep, more than ten-year crisis in Latin America, accompanied by a long decline in production and exceptionally high inflation, was provoked precisely by large external debts.
Servicing external debt has also become a very serious problem for the Russian budget. The 1996 budget allocated $8.5 billion for debt repayment, of which approximately half went to service Russia's debts incurred after 1991 and not subject to restructuring. These expenses exceeded the amount of foreign private capital and foreign economic assistance that Russia receives from foreign banks and international financial organizations.
The volume of public external debt of the Russian Federation includes:
· the volume of obligations under state guarantees provided by the Russian Federation;
· the volume of principal debt on loans received by the Russian Federation from foreign governments, credit organizations, firms and international financial organizations.
Table 1
| Debt category | million US dollars | million euros** | ||
| 36 484,1 | 26 983,2 | |||
| Debt to official creditors - members of the Paris Club, |
902,0 | 667,1 | ||
| Debt to official creditors who are not members of the Paris Club | 1 811,2 | 1 339,5 | ||
| Debt to official creditors - former CMEA countries | 1 265,5 | 936,0 | ||
| 813,2 | 601,4 | |||
| 3 588,9 | 2 654,3 | |||
| 25 487,0 | 18 849,9 | |||
| 19 520,7 | 14 437,3 | |||
| 3 466,4 | 2 563,7 | |||
| 2 499,9 | 1 848,9 | |||
| Debt under OVGVZ | 1 775,3 | 1 313,0 | ||
| including: | ||||
| OVGVZ VII series | 1 750,0 | 1 294,3 | ||
| 841,0 | 622,0 | |||
“The volume of public external debt of the Russian Federation in March 2010 decreased by $967 million and as of April 1 amounted to $36.484 billion compared to $37.452 billion as of March 1, the Ministry of Finance website reported on Friday.
In terms of European currency, Russian public debt amounted to 26.983 billion euros as of April 1, having decreased by 504 million euros over the month.
The main debt item is Eurobonds, the debt on which as of April 1 amounted to almost $25.487 billion. The Russian Federation owes $3.589 billion to international financial organizations, $902 million to creditors who are members of the Paris Club, and $1.811 billion to other official creditors.
The debt to creditors - the former CMEA countries - is $1.266 billion, the unsettled debt of the former USSR is $813.2 million.
The debt of the Russian Federation under domestic foreign currency loan bonds (OVGVZ) amounted to $1.775 billion as of April 1, and under Russian guarantees in foreign currency - $841 million.”
Having assumed all external debts, Russia, under the terms of the “zero option,” simultaneously became the legal successor to all foreign financial assets of the USSR. It seems that the total size of these assets exceeds the amount of contractual obligations for foreign loans received, but the real situation now is such that, from the perspective of Russia’s current balance of payments, very insignificant receipts from these financial assets are far from equivalent to large payments for servicing external debt. And the point here is not at all due to the discrepancy between the schedules of the corresponding receipts and payments.
The circle of Western creditors to Russia is quite large - it includes about 600 commercial banks from 24 countries, as well as the International Monetary Fund, the International Bank for Reconstruction and Development, and the European Bank for Reconstruction and Development. The bulk of the debt falls on banks in 6 countries - Germany (the largest creditor), Italy, the USA, France, Austria, and Japan.
Current Russian debts to the West include four categories. First and the largest debt is to the so-called official creditors, i.e. to commercial banks in Western countries that provide loans under guarantees of the relevant governments or when insuring loans from government agencies. The regulation of debt of this kind falls within the competence of the Paris Club, a special coordinating body that includes official representatives of the main countries - international creditors.
Second group - these are loans provided by commercial banks of Western countries independently, without government guarantees. Debt on such loans is regulated by the so-called London Club, which unites creditor bankers on an informal basis. third the group is indebted to various Western commercial structures for corporate loans related to the supply of goods and services, fourth group - debts to international monetary and financial organizations (IMF, IBRD, EBRD).
Russia's current external debt is not limited to debt to creditors from Western countries. As the legal successor of the Soviet Union, it assumed debts to some countries from among the former CMEA members - Hungary, the Czech Republic, and Slovakia. This also includes foreign currency debt to our own Russian enterprises and banks, which resulted from the blocking of funds in foreign currency accounts in the former Vnesheconombank of the USSR. Formally, this debt is called internal debt, but it is paid with convertible currency (dollars) and from this point of view is practically no different from external debt. Initially, the named debt was about 8 billion dollars, after the repayments it decreased slightly.
The state's creditors are united in the Paris Club, in which all issues are resolved from a political point of view, in contrast to the purely commercial approach of the members of the London Club, which mainly includes foreign creditor banks.
Until 1991 Vnesheconombank was considered a first-class borrower; it was given loans by large banks in Japan, the USA, Switzerland and, especially, Germany. As a result, they ended up with large overdue debts worth millions of dollars. Naturally, many of them wanted to sell these debts. Others, counting on the repayment of these debts in the near future, purchased them. The emergence of the market was facilitated by the depersonalization of debts, i.e. regardless of the maturity period and interest rate, they began to represent a single instrument.
Some banks sought to get rid of these loan agreements, others bought them at a large discount from the face value at which the loan was issued. A significant volume of external debt and a fairly large number of banks willing to buy and sell debt obligations determined the high liquidity of the external debt instrument.
Over the four years of operation of the Russian external debt market, a trading mechanism has been developed.
The transaction concluded by dealers is formalized by an agreement between the buyer and seller. Then the debt of Vnesheconombank is re-registered from one creditor to another. VEB maintains a register of creditors and agrees to such re-entry. And although there have been no cases of refusal of such re-registration, the process itself takes a long time. Formally, the parties leave 21 working days to transfer ownership rights from the seller to the buyer. At the same time, the agreement includes a provision that the parties will make every effort to comply with this deadline. However, in practice this is not always possible - the transaction requires a long exchange of letters: first, the transaction is confirmed between the counterparties, then the seller sends a request for reassignment (re-registration) to Vnesheconombank, receives a positive response from it, after which the loan itself is rewritten together with the buyer.
To simplify transactions, syndicates are created from time to time, which include the main Western investment banks that trade in this instrument. These syndicates, through the mediation of large auditing firms such as Arthur Anderson, Price Waterhouse, etc., clear transactions among themselves. As a result, instead of thousands of re-registrations, there is a need for only a few involving the initial and final owners.
There is also a simpler method of trading, which is preferred by domestic banks - netting: the bank sells the purchased loan to the previous owner before the expiration of the standard period of 21 days, thus producing something like an arbitrage transaction that does not require any formalization. The attractiveness of such transactions from the point of view of Russian banks is that they can make a profit without attracting additional funds.
1.2 Internal debt of the Russian Federation
Domestic debt is the state's debt to its population.
Domestic public debt includes debt on GKOs and OFZs, government savings loan bonds (OGSZ), as well as restructured debt on domestic foreign currency bonds, overdue debt on centralized loans to agriculture and the northern regions.
The state internal debt of the Russian Federation, expressed in government securities (OFZ-GSO) (million rubles) as of April 1, 2010 is 1,869,599.745.
table 2
| As of | ||
| Total | ||
| 01.01.1993 | 3,57 | 0,08 |
| 01.01.1994 | 15,64 | 0,33 |
| 01.01.1995 | 88,06 | 2,14 |
| 01.01.1996 | 187,74 | 7,46 |
| 01.01.1997 | 364,46 | 17,24 |
| 01.01.1998 | 490,92 | 3,47 |
| 01.01.1999 | 529,94 | 0,88 |
| 01.01.2000 | 578,23 | 0,82 |
| 01.01.2001 | 557,42 | 1,02 |
| 01.01.2002 | 533,51 | 0,02 |
| 01.01.2003 | 679,91 | 8,62 |
| 01.01.2004 | 682,02 | 5,58 |
| 01.01.2005 | 778,47 | 12,93 |
| 01.01.2006 | 875,43 | 18,86 |
| 01.01.2007 | 1064,88 | 31,23 |
| 01.01.2008 | 1301,15 | 46,68 |
| 01.01.2009 | 1499,82 | 72,49 |
| 01.01.2010 | 2094,73 | 251,36 |
“Russian domestic debt, expressed in government securities, grew by 29.3% over the past year and amounted to 1.837 trillion rubles as of January 1, 2010, compared to 1.421 trillion rubles as of January 1, 2009, the Ministry of Finance reported on Thursday.
The growth of domestic debt resumed in June of this year after a three-month decline in February–April.
At the beginning of 2010, the majority of the domestic debt was made up of federal loan bonds, including 38.45%, or 706.372 billion rubles, accounted for OFZ-PD and 47%, or 863.377 billion rubles, for OFZ-AD.
Liabilities in government savings bonds GSO-PPS and GSO-FPS amounted to 135.415 billion rubles and 132 billion rubles, respectively.”
Domestic public debt arises as a result of the placement of government loans on the domestic market. They are formalized by issuing and selling government securities. Government securities are divided into:
Short-term treasury bonds (with a maturity of up to 1 year),
Medium-term – notes (up to 5 years)
Long-term bonds (over 5 years).
The main holders of government securities are government agencies and funds, central and commercial banks, other financial institutions, and the population. Government securities account for up to 90% of the total amount of government debt in developed countries.
The volume of state internal debt of the Russian Federation includes:
· principal nominal amount of debt on government securities of the Russian Federation;
· volume of principal debt on loans received by the Russian Federation;
· the volume of principal debt on budget loans and budget credits received by the Russian Federation from budgets of other levels;
· the volume of obligations under state guarantees provided by the Russian Federation.
The domestic debt market cannot be considered a unique phenomenon in world practice - almost all countries in the world issue government securities. The establishment of the Russian domestic debt market was intended to eliminate the practice of direct (emission) lending by the Central Bank of the Russian Federation. The task of creating a significant market for government securities, which would be characterized by high liquidity and low risks of federal bonds, was solved. The development of the Russian domestic debt market was directly related to the evolution of the national financial sector, the actions of the monetary authorities, both in the field of macroeconomic policy and in carrying out purely market reforms. As a result, the structure of the aggregate money supply became less liquid, inflation rates decreased, and other segments of the national market developed intensively.
The structure of the modern internal debt of the Russian Federation consists of:
· Government zero-coupon short-term bonds (GKOs);
· Federal loan bonds with a variable coupon (OFZ-PK), with a constant coupon income (OFZ-PD), with a fixed coupon (OFZ-FK) and with debt amortization (OFZ-AD).
There are five stages in the development of the Russian domestic debt market. Stage 1 is associated with the transition of the Russian monetary authorities from direct financing of the federal budget deficit by the Central Bank of the Russian Federation to the creation of a federal bond market. Stage 2 is due to the emergence of resource constraints for the further development of the domestic debt market and its opening to external investors. Stage 3 is determined by a systemic financial crisis, stage 4 is characterized by gradual overcoming. 5 – represents the current development of the domestic debt market.
There have been positive changes in the government securities market in recent years: innovation has been carried out on government securities, the confidence of market participants has been restored, the infrastructure and regulatory regulation of the government securities market have been streamlined. Thanks to effective debt and macroeconomic policies, it was possible to completely restore investor confidence in the domestic borrowing market, which led to a significant increase in market liquidity and the volume of financial instruments placed on it. The quality characteristics of the market have improved significantly:
· the level of yield on government bonds has been reduced;
· the strategy for forming a portfolio of government domestic liabilities, based on the offer of a variety of financial instruments, was positively received by investors;
· Market liquidity and daily turnover of government bonds have increased significantly.
1.3 From the history of the issue
The credit history of Russia began in 1769, when Catherine II made the first loan in Holland. Over the next two and a half centuries, the Russian Empire borrowed approximately 15 billion rubles from the market. Most of these funds were repaid on the eve of the revolution. At this point, the oldest loans in the Russian government debt were 6% loans from 1817-18. Their nominal capital amounted to 93 million rubles, and the outstanding part by January 1, 1913. equaled 38 million rubles. The graph shows the dynamics of the public debt of the Russian Empire at the beginning of the 20th century: the amount of debt increased during the Russo-Japanese War and revolution, and then stabilized.
Picture 1 The volume of public debt of pre-revolutionary Russia
Throughout the 19th century. and at the beginning of the 20th century. government expenses exceeded its income. In the second half of the 19th century. The government actively financed the construction of railways and also bought private lines into the treasury.
In an effort to smooth out the impact of extraordinary expenses on the budget structure, it divided the budget into ordinary and emergency. The first was replenished from traditional sources of income (taxes, excise taxes, etc.), the income of the second was 90% from funds received from internal and external loans. It was borrowed funds that were used to finance the construction of railways, waging wars and combating natural disasters. When the situation was favorable, part of the emergency budget was used to cover the costs of long-term payment of government loans. Loan payments (interest and repayment) were made from the ordinary budget.
The issuance of new loans was under the direct competence of the tsar and the Ministry of Finance. However, after the convening of the State Duma, it received the right to approve each specific loan. The timing and terms of the loan continued to be determined by government decision.
Most government debts were paid at 4% per annum. The sum of all securities with such a yield was more than 2.8 billion gold rubles - about 2/3 of the entire market.
All valuables placed on the market at that time were divided into 3 categories:
· short-term;
· long-term;
· unlimited;
The maturity of short-term liabilities was limited by law and ranged from 3 months to 1 year. The banknotes of the issue should not exceed 500 rubles. The right to issue short-term obligations was granted personally to the Minister of Finance with the condition that the total amount of obligations at any time would not exceed 50 million rubles. In 1905, the rights of the minister were expanded to 200 million rubles. with the right to issue short-term obligations, including in foreign markets. The State Treasury and private individuals had the right to account for these obligations in the State Bank, interest was considered in the form of a discount.
The basis of public debt was long-term and perpetual loans. Long-term loans could be concluded for quite long periods - 50-80 years. The practice was to issue perpetual obligations, when the state was obliged to pay only the agreed interest, i.e. for the holder the loan became rent. The government reserved the right to compulsorily purchase this instrument at face value. In this case, the loan was repaid in circulation. Sometimes the government bought bonds on the stock exchange.
There was also a formal definition of internal and external loans. The first focused on foreign buyers and circulation abroad. The second ones were designed for the Russian market. This division had no economic significance, since there were no restrictions on the purchase of foreign issues for Russian citizens and domestic foreigners.
In 1906, the Basic Law contained Article 114:
“When discussing the state list, assignments for payments on public debts and other obligations assumed by the Russian State cannot be excluded or reduced.” Legislators prevented in advance the temptation to violate one of the basic rules of the market - to pay on time and in full.
The Russian government, as a result of long and bloody efforts, managed to create a reputation as a reliable borrower who acts carefully in the market, without abusing its state status.
Borrowing financial resources was used for different purposes, and not always for the implementation of any specific project. The interests of financial stability, even in the short term, were of paramount importance. This made it possible to follow the developed economic policy without changing its course.
By refusing to pay debts to its own and foreign citizens, the government of Soviet Russia laid the foundation for a new financial culture. As a result, the bonds issued as part of wages turned out to be just pieces of paper.
In 1991, after the collapse of the USSR, it was initially assumed that each state would bear its share of responsibility for the external debt (the union debt was then estimated at $108 billion), as well as have a corresponding share in the assets of the former USSR.
However, it turned out that only Russia was able to service its obligations on external debts. Therefore, it was soon agreed that Russia would assume the debts of all the former republics of the USSR in exchange for their renunciation of their due share of assets (the so-called zero option). Such a solution was expensive, but it allowed us to maintain our positions in external financial markets, maintain our foreign infrastructure, and ensured the trust of potential partners. Russia has been negotiating with the London Club on the long-term restructuring of the USSR's debts to commercial banks since December 1992. Initially, the progress of the negotiations was hampered by the position of the creditor banks, which insisted that Russia waive state immunity (this meant that the creditors' collections could be directed against the assets of the USSR or Russia abroad). In the fall of 1994, at the IMF session in Madrid, the parties found a compromise, agreeing that Vnesheconombank would act as a debtor to the London Club. During the negotiations, creditor banks provided Vnesheconombank with deferred payments (so-called rollovers). A total of 21 rollovers were provided within the London Club. In November 1995, in Frankfurt am Main, the Russian government and members of the Banking Advisory Committee of the London Club signed a Memorandum of Agreed Principles for the global restructuring of the former USSR debt to the club totaling $32.3 billion, including interest, for a period of 25 years with a seven-year grace period.
After this, Vnesheconombank prepared and sent to more than 400 creditor banks financial terms for settling the debt to the London Club, which is about 27 thousand individual debt claims in 15 currencies (the complexity and scale of the transaction have no equal in the twenty-year history of the club).
2 Causes of public debt
Modern fiscal policy recognizes the use of budget deficits to stabilize the economy. And this can lead to the formation and growth of public debt.
The reasons for the emergence of public debt are usually difficult periods for the economy: wars, recessions, etc. For example, during a war it is necessary to redirect most of the resources to the production of military products, which requires significant government spending, as does the maintenance of the army. There are three financing options: increasing taxes, issuing money, and deficit financing. Increasing taxation undermines labor incentives, issuing money creates inflationary pressure, and hence most military spending is financed by selling liabilities to the public. Another source of government debt is recessions. During periods when national income declines or fails to increase, tax revenues automatically decline and lead to budget deficits.
Another source of public debt is the political interests mentioned above, which lead to increased government spending and therefore an increase in the budget deficit.
There are different approaches to determining the size of public debt. It is considered the most realistic to determine the share of government debt to GNP or to exports. A bare statement of the absolute size of the debt ignores the volume of GNP. It can be argued that a rich nation has a greater ability to sustain a government debt of significant size compared to a poor nation.
Many economists believe that the brunt of debt comes from the need to make annual interest payments that arise as a result of government debt. When a certain level of payments for servicing public debt in relation to GNP is reached, the state loses the opportunity for further economic growth. Particularly important is the relationship between the government's foreign and domestic creditors.
In order to understand the problem of public debt, it is necessary to first consider the concept of the state budget deficit.
The most important source of government revenue is the various types of taxes, which can be divided into three broad categories:
1.Taxes on the income of individuals and corporations, including deductions from wages for social insurance;
2. Taxes on expenses, including sales taxes, excise taxes and import tariffs;
3. Property taxes, including a wide variety of taxes on houses and buildings, agricultural and building land, and inheritance taxes.
Taxes are also classified as direct and indirect. The name "direct" usually refers to those taxes that are imposed directly on individuals and firms, while indirect taxes are taxes on goods and services.
Developed and developing countries have different tax structures: developed economies typically have a high share of direct taxes in government revenue.
Another source of public sector revenue is the profits of state-owned enterprises and firms selling goods and services.
Government spending can also be divided into four categories:
1. Consumption in the public sector (includes salaries of public sector employees, as well as its payments for goods purchased for current consumption);
2. Public investment (includes a variety of capital expenditures, such as road construction or port construction);
3. Transfers to the private sector (include long-service pensions, unemployment insurance, benefits for veterans and other payments);
4. Interest on government debts.
Public debt is an inevitable product of a budget deficit, the causes of which are associated with a decline in production, an increase in marginal costs, unsecured emission of money, an increase in the costs of financing the military-industrial complex, an increase in the volume of the shadow economy, non-productive expenses, losses, theft, etc.
The relationship between the budget deficit and public debt is manifested in the issuance of loans to cover the budget deficit, which leads to a subsequent increase in debt consequences. The need to repay it with interest also has an increasing impact on the national debt.
The immediate result of budget deficits is their accumulated amount - public debt. Servicing the national debt is the payment of interest on it and the payment of principal amounts of the debt. Debt servicing is one of the forms of state budget expenditures.
Over time, current borrowings turn into subsequent taxes. Therefore, states with large debts are forced to constantly resort to them to pay off interest on the debt. Covering old debts, the state resorts to even larger loans. A critical moment that threatens the stability of the economy and normal monetary circulation is considered to be the situation when the debt exceeds the value of the annual GNP.
The structure of the government debt of the Russian Federation consists of several groups of debt obligations:
Debts to owners of GKO-OFZ;
Debts of the Ministry of Finance to the Central Bank for loans to finance the budget deficit;
Debt arising as a result of the state’s obligation to restore citizens’ savings;
External debt of the former USSR assumed by the Russian Federation;
The newly emerged debt of the Russian Federation to foreign states, international organizations and companies.
The first basis for the emergence of public debt is state and municipal borrowing, with the help of which the formation of public debt is ensured, as well as covering the budget deficit.
The second basis for the formation of public debt of the Russian Federation, constituent entities of the Russian Federation and municipalities are credit agreements and contracts that can be concluded on behalf of the Russian Federation, with credit organizations, foreign states and international financial organizations, in favor of these creditors.
The third basis is the provision of state guarantees and sureties. In this case, the state acts not as a borrower, but as a guarantor of repayment of obligations for other borrowers.
The fourth basis is the facts when the state or municipalities assume obligations of third parties.
The fifth basis for the emergence of debt obligations of state and municipal debt in the Budget Code are agreements and treaties (including international ones), concluded on behalf of the Russian Federation or a constituent entity of the Russian Federation, on the prolongation and restructuring of debt obligations of the Russian Federation or a constituent entity of the Russian Federation of previous years.
Another factor that has emerged recently has been problems in resolving banking crises in connection with the restructuring of government debt. As practice shows, the impact of the government debt restructuring process on the situation in the banking sector will depend on many factors, including the degree of dependence of banks on the government, the share of the currency in which the debt is denominated, as well as the conditions and methods of debt restructuring.
Large-scale restructuring can lead to undercapitalization of financial institutions or even to the insolvency of the entire banking system when banks hold significant assets in the form of government debt securities. At the same time, policymakers must recognize that the use of financial resources to solve the problems of the banking sector is essentially limited when the debt can no longer be serviced and its restructuring is necessary - therefore, the role of the government as a lender, guarantor or owner is significantly limited. To this end, any strategy for restructuring public debt must be developed with careful consideration of the impact on the banking system as a whole.
From the perspective of the banking system, if restructuring is necessary and if the authorities have a choice, the preferred approach in this case is to avoid a nominal reduction in bank assets. Reductions in assets will lead to a decrease in bank capital and, most likely, to shift the remaining financial losses (losses) onto the shoulders of depositors. Instead, governments should try to achieve restructuring by cutting interest rates or extending the maturity of deposits that will not cause immediate losses.
3 Consequences
The more burdensome the accumulated external debt is for a country, the more its servicing is involved in interaction with the functioning of the entire national economy and its financial sector.
Let us indicate the nature of the interaction of external borrowings with the corresponding sectors of the country’s economy. First of all, the nature of the danger of excessive growth of external debt is important from the standpoint of the state budget, monetary system, and international creditworthiness of the country. For the state budget in the 3-tier credit cycle (attraction, use, repayment), the adverse consequences of an excessive increase in external debt are associated mainly with the stage of its repayment; new loans for the current budget period, on the contrary, promise the opportunity to ease the burden on tax and other regular revenue sources and allow for more flexible maneuvering at all stages of the budget process. At the same time, the external debt payment schedule may develop unfavorably. In any case, the extent and consequences of the interaction depend mainly on the relative size of the accumulated external debt.
The balance of payments has a similar pattern of interaction with the debt cycle: the desired additional foreign exchange earnings are replaced by a period of debt repayment. There is generally a high degree of interaction here, since it is the balance on current items of the balance of payments that can act as the main limiter in external borrowing and management of foreign currency debt, and under certain circumstances, even dictate the need to defer debt payments. In the context of a burdensome external debt, difficulties in strengthening confidence in the national currency, counteracting inflation, and ensuring the necessary foreign exchange reserves and currency convertibility increase significantly. A special place is occupied by the issue of possible adverse consequences in the event of excessive devaluation of the national currency, relative to the undervaluation of its real exchange rate. The increase in the real burden of external debt payments under such conditions is confirmed by the practice of a number of countries.
According to the one introduced in 1994 According to the procedure for the formation of the Russian state budget, all payments in it for external debt are now taken into account in ruble equivalent. This limits Russia's ability to increase debt payments, since it has obligations to the IMF regarding budget deficit limits. With an undervalued ruble exchange rate, the ruble equivalent of budget expenditures on debt payments is artificially inflated, and thus the size of the budget deficit.
One of the elements of managing a country's external debt is the development of an external borrowing program. A number of basic provisions on this issue are provided for by government decree of October 16, 1993. No. 1060 and federal law of December 26, 1994. No. 76-F3. The maximum amount of government external borrowing is the maximum volume of loans used annually approved in the form of a federal law for the coming financial year. As a rule, it should not exceed the annual volume of payments for servicing and repayment of the principal amount of public external debt. Every year, the government prepares a program of government external borrowings and external loans with the allocation of credits (loans), each of which exceeds $100 million.
A limiter on the size of external borrowing can be the setting of maintaining within certain limits the indicators of debt dependence used in world practice, including on the basis of comparing debt and debt payments with GDP and exports. It is necessary to take into account that for Russia, as for other countries with a large territory, the relatively low share of exports in the national product is objectively natural. It is for this reason, and also because of the still incomplete integration into the world economy, that we should apparently give preference not to GDP, but to exports as a basis for an indicator of the level of debt dependence.
There are different criteria for assessing the severity of the debt problem. The most typical of them link the size of the debt and the need for its repayment and interest payments with the amount of exports, on which the potential for servicing loans depends.
The limit of danger is considered to be an excess of the amount of debt compared to exports by 2 times, increased danger - by 3 times. According to data for 1995, the amount of debt exceeded the total amount of exports by a little more than 1.5 times, and exports to non-CIS countries by approximately 1.9 times. According to this criterion, it has not yet reached the dangerous line, although careful control is needed so as not to come close to it.
In accordance with the terms, repayment of the restructured part of the debt will begin in 2002 and should be completed in 2020. Only debts to commercial firms, which account for about 5-6% of the amount of debt of the former USSR, remained unrestructured.
However, the problem requires constant attention and monitoring. The feasibility of debt repayment by that time will depend on three main factors: the scale of production growth and budget revenues, the rate of export growth, ensuring a sustainable trade and payment surplus and the accumulation of foreign exchange reserves.
Limiting the build-up of new debt requires special attention. It is also advisable to use, if necessary, such a form of debt reduction as the sale of part of the shares of Russian enterprises in exchange for debt.
Public debt, especially if it increases, causes certain negative consequences for the national economy.
Let's consider the main consequences of the accumulation of public debt.
First, public debt leads to a redistribution of income among the population in favor of holders of government securities, who, as a rule, are the most wealthy part of society. In turn, this leads to deepening stratification in society and growing social tension.
Secondly, the search for sources of repayment leads to the need to increase taxes and increase government intervention in the economy, which negatively affects economic activity.
Thirdly, it is possible to shift the debt burden onto future generations. If government loans were spent on current consumption, and not on investment and modernization of production, the income from which would make it possible to pay off debts, then the increase in debt and interest on it will lead to a decrease in growth rates and limit consumption in the future.
Fourthly, rapidly growing interest costs make it increasingly difficult to reduce the budget deficit, since interest payments on public debt result in new budget expenditures and new loans to pay off old debts.
Fifthly, the growth of external debt increases the country’s dependence on other states, which limits the ability to conduct an independent foreign policy in order to ensure its own interests. Also, significant and growing external debt causes significant difficulties in obtaining new loans.
The emergence and growth of public debt necessitate its management.
Public debt management – This is a set of financial measures of the state related to the repayment and regulation of the amount of state loans, as well as the organization of measures to attract new borrowed funds.
Main tasks of debt management:
· reduction in the volume of external debt obligations and, accordingly, the cost of servicing them;
· optimization of the structure of external debt, increasing the share of its market component;
· optimization of the external debt payment schedule, elimination of payment peaks;
· refinancing of external debt through domestic borrowings without significant deterioration in the debt structure in terms of payment terms;
· increasing the efficiency of using borrowed funds.
There is a need for legislative reform of the public debt management system of the Russian Federation and the priority implementation of necessary measures, which include:
development and adoption of the Federal Law on amendments to the Budget Code of the Russian Federation in terms of issues related to public debt management;
· development and adoption of a federal law on the public debt of the Russian Federation;
· development and approval of regulatory documents regulating the activities of Vnesheconombank as an agent for servicing state external debt and state external financial assets;
· creation of a unified database on the public debt of the Russian Federation;
· development and approval of a unified procedure for maintaining the State Debt Book of the Russian Federation, a constituent entity of the Russian Federation and the municipal debt book;
· development of criteria and mechanisms for assessing the effectiveness of borrowing and debt policy.
There are two main solutions: - strengthening administrative control over financial flows, complemented by tightening legislation and implementing systemic institutional changes that create a favorable investment climate.
First way- this is the implementation of administrative measures against standard schemes for the illegal export of capital - understatement of export prices, non-return of foreign exchange earnings, fictitious import contracts with advance payment and inflated prices, corruption at customs, payments through offshore companies.
Second way preferable for Russia. Measures to strengthen confidence in the Russian economy should include: improving the tax system and tax administration; budget balance; ensuring reliable operation of the banking system; protection of the rights of creditors and investors; transparency of financial reporting of all enterprises and organizations; the fight against crime and corruption, a dramatic improvement in the work of the prosecutor's office and the judicial system; strict compliance with federal laws throughout the Russian Federation, the end of arbitrariness and electoral privileges on the part of regional and local authorities.
Russia can hold out for a maximum of a year without refinancing and restructuring its external debts, without new loans to repay old ones, writing off part of the debt and installment payments. The federal budget should not be considered as the main guarantor of solvency, since it will not withstand the load of 12-15 billion dollars a year. Otherwise, all hopes for economic growth, through which the revenue side of the budget can be replenished, can be abandoned. Other solvency factors also do not work. Therefore, it is necessary to negotiate until the victorious end.
Conclusion
The budget system of the Russian Federation is extremely complex, as are all its components: the federal budget, the budgets of the constituent entities of the Federation, local budgets. The federal budget balances the income and expenses of the state as a whole, and carries out the necessary redistribution of income between social groups and between regions. Territorial budgets contribute to the implementation of specific local programs. Both are vital for the functioning of the country’s economy and its successful development.
The Budget Address of the President of the Russian Federation “On Budget Policy for 2002” noted: “The strategy in the field of public debt management remains the most important direction of budget policy. It should be aimed at mitigating peaks in payments, improving the structure of the debt and reducing the cost of servicing it. create a unified system for managing public debt, including a comprehensive and unified system for accounting for public debt obligations, developing and implementing a unified strategy for managing public debt. It will be necessary to make significant changes to the regulations relating to public debt and public borrowing, and actively use market ones known in international practice. mechanisms to improve the debt structure"
It is useful to assess the current debt situation in the Russian economy, since discussions periodically arise about the admissibility of the Russian budget deficit. Indeed, why keep the federal budget in surplus if such a strategy does not bring benefits in a phase of sustainable economic growth? Until 2012 a budget surplus is necessary. The fact is that in our country, for a long period (until the default of 1998), debt management was erroneous - the federal budget was running a deficit in the phase of a long economic recession. A whole list of macroeconomic restrictions on the size of debt was violated. Borrowed monetary resources were spent for consumer purposes, not for investment purposes. The criterion of social justice was violated. The criterion for sustainability of the debt volume dynamics was violated. Loans on the domestic debt market drained investment and credit flows into the real sector of the economy. There were no mechanisms to limit the size of external debt. To transform public debt into a mechanism for accelerating economic development, it is necessary to repay that part of the debt that was formed during the reforms in violation of almost all macroeconomic criteria. This requires a budget surplus. New government borrowing must be used in accordance with macroeconomic theory. To repay the specified part of the national debt, according to estimates, before 2012. does not seem possible. If we evaluate not only the current state of the federal budget, but its prospects for at least a ten-year period, then the benefits of early debt repayment are obvious.
If such a strategy is abandoned, that is, this part of the public debt is not repaid, but refinanced, then in the foreseeable future the public debt will remain a problematic element. The ineffective use of borrowed monetary resources during the period of reforms turned public debt into an alien element in the structure of the Russian economy. The ability to service internal and external debt will remain, but this is not enough to transform public debt into a mechanism for accelerating economic development. We need a well-developed scientific theory of public debt and a plan for its implementation in practice.
And the conclusion is obvious: the optimal functioning of the budget mechanism is possible only under two fundamental conditions: the correct construction of inter-budgetary relations between budgets of various levels and a clear, fair balance of its income and expenses. It is then that it is possible to talk about a stable and fast-growing economy.
The problem of the state budget, of course, is not as acute as it was several years ago, but the problem of public debt still hangs over us like a burden. After all, there is a saying: “When you borrow, remember: you take someone else’s, but you give back your own!”
List of used literature
1. Beskova I.A. Public debt management.//Finance.–2000.–No. 6.
2. Budget Code of the Russian Federation
3. A.M. Babich, L.N. Pavlova. State and municipal finance. – M.: Unity, 2000.
4. Zlatkis B.I. Problems of creating a public debt management system in the Russian Federation.//Finance.–2000.–No. 7.
5. Krasavina L.N., Baranova E.P. Russia's external debt: lessons and prospects.//Money and Credit.–2001.–No. 9.
6. Krupnov Yu.S. Lending to states by central banks.//Finance.–2000.–No. 9.
7. Rybalko G.P. Foreign experience in managing public debt.//Finance.–2001.–No. 3.
8. Smirnov O.V. State external debt of Russia: problems and prospects.//Finance.–2001.–No. 10.
9. Sosnin A.E. Is public debt good or evil?//Finance.–2001.–No. 4.
10. “On the internal debt of the Russian Federation.” Federal Law of 1993
11. Finance of capitalism / Ed. B.G. Boldyreva – M.: Finance and Statistics. – 1990.
12. Finance, money circulation and credit / Ed. V.K. Senchagova – M.: Prospekt. – 2001.
13. Finance / Ed. M.V. Romanovsky – M.: Yurayt. – 2000.
14. Finance / Ed. S.I. Lushina. – Moscow. – 2000.
15. Kheifets B.A. External debt and American Lend-Lease.//Finance.–2001.–No. 8.
16. http//www.cbr.ru
17. http//www.minfin.ru
18. http//www.cir.ru
19. http//www.finam.ru
20. http://www.rian.ru
Applications
Table 1
| Structure of public external debt of the Russian Federation* as of April 1, 2010 | ||||
| Debt category | million US dollars | million euros** | ||
| State external debt of the Russian Federation (including obligations of the former USSR assumed by the Russian Federation) | 36 484,1 | 26 983,2 | ||
| Debt to official creditors - members of the Paris Club, not subject to restructuring |
902,0 | 667,1 | ||
| Debt to official creditors - non-members of the Paris Club | 1 811,2 | 1 339,5 | ||
| Debt to official creditors - former CMEA countries | 1 265,5 | 936,0 | ||
| Commercial debt of the former USSR*** | 813,2 | 601,4 | ||
| Debt to international financial organizations | 3 588,9 | 2 654,3 | ||
| Debt on Eurobond loans | 25 487,0 | 18 849,9 | ||
| external bond loan 2030 | 19 520,7 | 14 437,3 | ||
| external bond loan 2018 | 3 466,4 | 2 563,7 | ||
| external bond loan 2028 | 2 499,9 | 1 848,9 | ||
| Debt under OVGVZ | 1 775,3 | 1 313,0 | ||
| including: | ||||
| OVGVZ VII series | 1 750,0 | 1 294,3 | ||
| Debt under guarantees of the Russian Federation in foreign currency | 841,0 | 622,0 | ||
| * in accordance with Article 6 of the Budget Code of the Russian Federation, external debt is obligations arising in foreign currency | ||||
| ** the volume of government external debt of the Russian Federation in euros based on the dollar/euro ratio at the Bank of Russia exchange rate on the last day of the month before the reporting date | ||||
| *** obligations not settled upon completion of the re-registration of commercial debt of the former USSR | ||||
table 2
| The volume of public internal debt of the Russian Federation | ||
| As of | Volume of public internal debt of the Russian Federation, billion rubles. | |
| Total | incl. state guarantees in the currency of the Russian Federation | |
| 01.01.1993 | 3,57 | 0,08 |
| 01.01.1994 | 15,64 | 0,33 |
| 01.01.1995 | 88,06 | 2,14 |
| 01.01.1996 | 187,74 | 7,46 |
| 01.01.1997 | 364,46 | 17,24 |
| 01.01.1998 | 490,92 | 3,47 |
| 01.01.1999 | 529,94 | 0,88 |
| 01.01.2000 | 578,23 | 0,82 |
| 01.01.2001 | 557,42 | 1,02 |
| 01.01.2002 | 533,51 | 0,02 |
| 01.01.2003 | 679,91 | 8,62 |
| 01.01.2004 | 682,02 | 5,58 |
| 01.01.2005 | 778,47 | 12,93 |
| 01.01.2006 | 875,43 | 18,86 |
| 01.01.2007 | 1064,88 | 31,23 |
| 01.01.2008 | 1301,15 | 46,68 |
| 01.01.2009 | 1499,82 | 72,49 |
| 01.01.2010 | 2094,73 | 251,36 |
Figure 1 – Volume of public debt in pre-revolutionary Russia
Figure 2 – Structure of internal debt on securities
Figure 3 – Dynamics of government bonds
Table 3
| 01.01.2009 | 01.04.2009 | 01.07.2009 | 01.10.2009 | 01.01.2010 | |
| External debt of the Russian Federation | 479,4 | 446,4 | 467,9 | 476,8 | 471,6 |
| Short-term liabilities | 72,4 | 59,0 | 57,0 | 48,3 | 50,0 |
| long term duties | 407,0 | 387,4 | 411,0 | 428,5 | 421,6 |
| External debt of the public sector in an expanded definition* | 161,3 | 149,0 | 161,0 | 173,5 | 174,8 |
| Short-term liabilities | 15,7 | 14,2 | 13,8 | 11,5 | 12,7 |
| long term duties | 145,6 | 134,8 | 147,3 | 161,9 | 162,1 |
| Government bodies | 29,5 | 27,4 | 30,0 | 31,2 | 31,3 |
| Short-term liabilities | 1,7 | 1,6 | 1,6 | 1,6 | 0,5 |
| long term duties | 27,8 | 25,8 | 28,4 | 29,6 | 30,8 |
| Monetary authorities | 2,8 | 2,5 | 3,9 | 12,2 | 14,6 |
| Short-term liabilities | 2,8 | 2,5 | 3,9 | 3,2 | 5,7 |
| long term duties | 9,0 | 8,9 | |||
| Banks | 61,7 | 54,4 | 54,1 | 55,2 | 50,2 |
| Short-term liabilities | 9,4 | 7,7 | 7,5 | 6,3 | 6,3 |
| long term duties | 52,2 | 46,7 | 46,6 | 48,9 | 43,8 |
| Other sectors | 67,4 | 64,8 | 72,9 | 74,8 | 78,6 |
| Short-term liabilities | 1,8 | 2,4 | 0,7 | 0,4 | 0,2 |
| long term duties | 65,5 | 62,3 | 72,2 | 74,4 | 78,5 |
| Private sector external debt* | 318,1 | 297,5 | 306,9 | 303,4 | 296,9 |
| Short-term liabilities | 56,8 | 44,8 | 43,2 | 36,7 | 37,3 |
| long term duties | 261,4 | 252,6 | 263,7 | 266,6 | 259,6 |
| Banks | 104,6 | 92,1 | 87,5 | 80,6 | 77,0 |
| Short-term liabilities | 33,4 | 25,9 | 22,4 | 18,0 | 20,9 |
| long term duties | 71,2 | 66,2 | 65,1 | 62,7 | 56,1 |
| Other sectors | 213,5 | 205,4 | 219,4 | 222,7 | 219,8 |
| Short-term liabilities | 23,4 | 19,0 | 20,8 | 18,8 | 16,4 |
| long term duties | 190,1 | 186,4 | 198,6 | 204,0 | 203,5 |
* External debt of the public sector in an expanded definition covers the external debt of the government, monetary authorities, and those banks and non-financial enterprises in which the government and monetary authorities directly or indirectly own or otherwise control 50 percent or more of the capital. Debt obligations to non-residents of other residents that do not fall within this definition are classified as private sector external debt .
Why does government debt appear? From a long-term historical perspective, the answer is twofold: wars and economic downturns were the causes. During the war, the state is faced with the task of reorienting a significant part of the economic resources from the production of civilian products to the needs of military production. Accordingly, government spending on armaments and maintenance of military personnel will increase. There are three options for financing this spending: increase taxes, print enough money, or use deficit financing. Financing through taxes can lead to tax increases to levels that undermine the incentive to work, which is not beneficial during a war. Printing and spending more money will create strong inflationary pressures. Consequently, most of the costs must be financed by selling bonds to the public. This way, a significant share of expendable income will remain, and resources will be freed from civilian production, which can then be used in military industries.
The second source of government debt is economic downturns. During periods when national income declines or fails to increase, tax revenues automatically decline and tend to cause deficits.
Thus, public debt is a product of the budget deficit, the reasons for which may be different. Deficits may be associated with extraordinary expenses caused by natural disasters, catastrophes, wars and political conflicts, when normal reserves become insufficient and additional sources of funds must be resorted to. The deficit may be a consequence of crisis phenomena in the economy, its collapse, the ineffectiveness of financial and credit relations, and the inability of the government to keep the financial situation in the country under control. The main amount of Russia's external public debt was formed during the leadership of the country by M. Gorbachev and B. Yeltsin, the main payments on the debt - under V. Putin.
The question arises: who lends this huge money? This is a multi-million dollar community of debt market investors. Banks here are only intermediaries in the deposit and credit market. And the bond market generally allows investors to lend money without the intermediary of banks.
Russian debt policy was a problem area throughout the 1990s, but the situation was especially aggravated by the 1998 crisis. At the end of 1999, the maximum depth of external debt was reached in the amount of $177.7 billion, and internal debt in June 1998 . amounted to about 450 billion rubles.
Interesting events took place in the country in the 90s; two powerful financial flows flowed across Russian borders in parallel, but in different directions. The state borrowed tens of billions of dollars from the West at considerable interest (They provided interest, but at the same time they also set certain conditions. For example, the IMF accompanied its loans with the following conditions: fragmentation of natural monopolies, liberalization of foreign trade, liberalization of oil exports, reduction of customs duties on imports, refusal to introduce restrictions on the import of alcohol, etc. These conditions were extremely harmful for the state). And at the same time, tens of billions of dollars flowed out of the country to the West through the “back door.” Usually a country borrows money for its development - the construction of enterprises, roads, etc. Was the money borrowed in the 90s used for the development and modernization of the national economy? Of course not. This money was also not given to citizens of the country as assistance. But it is the citizens who bear the burden of debt repayment.
In addition, upon joining the Paris Club of creditors in 1997, Russia was offered and committed to servicing its debt to the club countries at a rate of 7% per annum. Even at the height of the Cold War in the USSR, loans were provided at 1.5-2% per annum.
The reduction of public debt began in 2000. And here the country was exceptionally lucky with rising prices for energy resources and metals. It’s hard to even imagine what would happen if they fell. Reducing the external debt of government bodies. management took place against the backdrop of a rapid increase in the debt of non-financial organizations and banks (private sector), including those in whose assets the state share is large. Many banks and enterprises take out loans abroad to solve their problems: in Russia, with huge financial resources, interest rates are much higher. And here everything is organized in such a way that we are forced to support the rich West.
In contrast to the internal debt, which was quite easily dealt with through a default on the main ruble obligations of the state and the devaluation of the national debt. currency, external debt required significant political and diplomatic efforts, and solving the problems associated with it was accompanied by certain moral costs. However, a sharp activation of debt policy (the adoption of a number of strict restrictive norms enshrined in the Budget Code of the Russian Federation, a significant reduction in new borrowings and increased control over the use of foreign loans already received, etc.), as well as a favorable external environment, contributed to the early repayment of a significant part of the external debt , which by the end of 2008 decreased to $40 billion. If in 2000 the ratio of public debt to GDP was 61.3% (53.7% - external debt and 7.6% - internal), then in 2008 . it decreased to 8.5% (3.9 and 4.6%, respectively). Kheifets B.A. Russia's debt policy: anti-crisis innovations // Banking. - 2010.- No. 1. - P. 55-58.
Rapid expansion of the GKO-OFZ market in 2005-2007. coincided with a record influx of foreign capital into emerging markets, including Russia. A significant portion of the state's debt obligations were purchased by foreign investors. But after the outbreak of the “Asian” crisis in 2007, their willingness to take risks gave way to caution, and capital outflow began. The severity of the situation was aggravated by the fact that more than half of domestic liabilities were short-term (with a maturity of less than a year, interest on such liabilities is higher than on long-term ones).
Due to a strong external shock (due to falling commodity prices on the world market and capital outflow from emerging markets), this vulnerable debt structure, based on the constant refinancing of old debts with new ones, collapsed. By April 2008, the budget began to work on state bonds. On the eve of August 17, 2008, the treasury was paying $1 billion a week on old bonds, and investors stopped buying new ones. Up to 70% of budget revenues were spent on payments under GKO-OFZ. It was impossible to refinance the debt on the financial market, and the State Duma did not agree to a sharp reduction in budget expenditures. The attraction of external investors initially slowed down the onset of the GKO collapse, and then their withdrawal from the Russian market accelerated it. Danilov Yu.A.//Public debt markets: global trends and Russian practice// M., 2009., p. 232.
In addition, there are other reasons for the emergence of public debt:
- - state and municipal borrowings, with the help of which the formation of public debt is ensured, as well as covering the budget deficit;
- - credit agreements and agreements with credit organizations, foreign states and international financial organizations, in favor of these creditors;
- - provision of state guarantees and guarantees. In this case, the state acts not as a borrower, but as a guarantor of repayment of obligations for other borrowers.
Return back to
Public debt is the amount of debt a country owes to other countries, its own or foreign legal entities and individuals. In countries with market economies, it consists of the total amount of budget deficits and the amount of financial obligations to foreign creditors as of a certain date.
The main reasons for the steady increase in public debt are:
1. increase in government spending in wartime or during periods of other social conflicts;
2. cyclical economic downturns;
3. tax cuts to stimulate the economy;
4. the increased influence of the political business cycle in recent years, associated with the policy of increasing government spending and lowering taxes before the next elections;
5. increasing long-term tensions in the fiscal sphere.
Government debt accumulates and becomes national debt. It has to be repaid with interest. Some taxpayers own government securities.
They receive interest on these securities and at the same time pay taxes, which are partially used to pay off government loans. As a rule, it is not possible to pay interest in full from current budget revenues and repay government loans on time. Constantly in need of funds, governments resort to ever new loans: while covering old debts, they make even larger new ones.
Thus, government debt represents the total amount owed by a country's government to holders of government securities, equal to the sum of past budget deficits.
Public debt is divided into internal and external. Domestic government debt is the debt of a government to citizens, firms and institutions of a given country that are holders of securities issued by its government. External debt is the debt of the state to foreign citizens, firms and institutions.
In countries with hard and freely convertible currencies, there is no division into external and internal debts. In these countries there is the concept of national debt.
Public debt is also divided into short-term (up to one year), medium-term (from one year to five years) and long-term (over five years). The most difficult are short-term debts. They soon have to pay off the principal amount with high interest.
Such debt can be rolled over, but this involves paying interest on the interest. Government authorities are trying to consolidate short- and medium-term debt, that is, turn it into long-term debt, postponing the payment of the principal amount for a long period and limiting it to annual interest payments.
Typically, the governments of debtor countries take all possible measures to avoid becoming hopeless debtors, as this limits access to foreign financial resources.
There are several possible ways to do this:
First. The traditional way is to pay off debts for accounting for gold and foreign exchange reserves. For hardened debtors, this path is usually excluded, since their reserves are exhausted or very limited.
Second. Consolidation of external debt, which is possible only with the consent of creditors. Creditors create special organizations - clubs, where they develop a solidarity policy towards countries that are unable to fulfill their international financial obligations. The most famous are the London Club, which includes creditor banks, and the Paris Club, which unites creditor countries. Both of these clubs have repeatedly met the requests of debtor countries (including Russia) to defer payments, and in some cases partially wrote off debts.
Third. Reducing the size of external debt through conversion, i.e. turning it into long-term foreign investment, practiced in some countries. In exchange for debt, foreign creditors are offered to purchase real estate, securities, participation in capital, and rights in the debtor country.
One of the options for converting external debt into foreign investment is the participation of economic entities of the creditor country in the privatization of state property in the debt-ridden country. In this case, interested firms of the creditor country buy out the obligations of the debtor country from their state or bank and, with mutual consent, use them to acquire property.
Fourth. An appeal from a debtor country in a difficult situation to international banks - regional, the World Bank. Such banks, as a rule, provide preferential loans to overcome a crisis situation, but condition their loans on strict requirements for emission and credit policies, encouraging competition, and minimizing the state budget deficit.
MINISTRY OF EDUCATION AND SCIENCE
FEDERAL AGENCY FOR EDUCATION
State educational institution
higher professional education
TYUMEN STATE UNIVERSITY
International Institute of Finance, Management and Business
Direction "Economics"
Course work
On the topic: “Public debt: reasons for formation and methods of management”
Subject: "Macroeconomics"
Completed by: 2nd year student
groups 25e802
Dykova A.O
Checked: Art. teacher
Pogodaeva T.V.
Tyumen 2010
Introduction 3
1. reveal the theoretical foundations of public debt 3
2.analyze the current state of internal and external public debt 3
3.study methods of managing public debt in the Russian Federation 3
Chapter 1. Theoretical foundations of public debt 4
1.2. Public debt in economic theory 4
1.2. Reasons for the formation of public debt 8
1.3. principles and objectives for public debt management 12
Key debt management tasks: 13
Chapter 2. Current state of public debt in the Russian Federation 14
2.1. Analysis of the internal debt of the Russian Federation 17
2.3. Analysis of the external public debt of the Russian Federation 24
Chapter 3. Public debt management 28
3.1 Methods of public debt management 29
Introduction
Public debt plays a significant and multifaceted role in the macroeconomic system of any state. This is explained by the fact that relations regarding the formation, servicing and repayment of public debt have a significant impact on the state of public finances, monetary circulation, investment climate, consumption structure and the development of international cooperation between states.
The reason for the emergence of public debt is the policy pursued by the state, which does not ensure a balance between state income and expenditure.
The structure of the course work includes 3 chapters, introduction and conclusion. Chapter 1 discusses theoretical issues of public debt, the reasons for its occurrence, principles and tasks for managing public debt. Chapter 2 provides an analysis of the internal and external public debt of the Russian Federation. Chapter 3 discusses methods of managing public debt in the Russian Federation.
The purpose of the course work is to analyze the essence and concept of public debt, the reasons for its occurrence, and methods of managing public debt. To achieve the goal, the following tasks were set:
reveal the theoretical foundations of public debt
analyze the current state of internal and external public debt
study methods of public debt management in the Russian Federation
Chapter 1. Theoretical foundations of public debt
1.2. Public debt in economic theory
According to the Budget Code of the Russian Federation, the public debt of the Russian Federation includes debt obligations of the Russian Federation to individuals and legal entities of the Russian Federation, constituent entities of the Russian Federation, municipalities, foreign states, international financial organizations, other subjects of international law, foreign individuals and legal entities arising as a result of state borrowings of the Russian Federation, as well as debt obligations under state guarantees provided by the Russian Federation, and debt obligations arising as a result of the adoption of legislative acts of the Russian Federation on the attribution of debt obligations of third parties to public debt that arose before the entry into force of this Code.
external debt- obligations arising in foreign currency, with the exception of obligations of constituent entities of the Russian Federation and municipalities to the Russian Federation, arising in foreign currency as part of the use of targeted foreign loans (borrowings);
domestic debt- obligations arising in the currency of the Russian Federation, as well as obligations of the constituent entities of the Russian Federation and municipalities to the Russian Federation, arising in foreign currency as part of the use of targeted foreign loans (borrowings).
The economic and theoretical issues of public debt have been considered by many economists. These include, for example, A. Smith, D. Ricardo, J. St. Mill, K. Marx, A. Marshall, J. Keynes and others. Public debt as a subject of research for them was due to the presence of large debts in states and the need to develop and implement effective policies in this area.
The macroeconomic and socio-economic consequences of public debt and budget deficits have been comprehensively studied within the framework of various scientific schools of economic theory. The subjects of the study were the impact of public debt on economic growth, inflation rates, nominal and real interest rates, on financial markets, etc.
If the classical school of political economy considered public debt as a temporary phenomenon that must certainly be repaid, then since the time of John Keynes, public debt has come to be viewed as a necessary element of effective economic policy aimed at maintaining a sufficient level of aggregate demand, which determines the levels of production and employment. Public debt was no longer seen as an evil; it began to be seen as an element of sound economic policy.
The need to maintain a budget deficit and, accordingly, justify the growth of public debt was explained by the need to achieve effective demand, the reduction of which leads to a reduction in production and employment.
The theory of J. Keynes strengthened the idea of the goodness of the state budget deficit in the minds of economists and politicians. In order to increase aggregate demand, the state must increase budget expenditures, even if it is faced with an excess of total expenditures over revenues and a budget deficit. The theory of J. Keynes turned out to be politically beneficial for national governments to justify the existence of state budget deficits.
To date, economic science has developed a significant number of theoretical models devoted to the budget deficit and public debt. The main ones include the Barro-Ricardo equality and hypothesis, the Bruno-Fisher model for emission and mixed financing of the state budget, the Sargent-Wallace model, etc.
According to the Barro-Ricardo hypothesis, financing government spending with debt is equivalent to financing it with taxes, but received in the future. This idea was first expressed by D. Ricardo, and subsequently developed by R. Barro and therefore received the name Barro-Ricardo equality (or simply Ricardo equality). The essence of equality is that covering the budget deficit by increasing government borrowing should in the future lead to the need to repay them, the source of which, again, should be taxes. In its modern interpretation, equality implies the need to achieve equality between the present value of government spending and the present value of tax revenues.
The Bruno-Fisher model examines the impact of emission and mixed financing of the state budget deficit on the level of inflation depending on the nature of the behavior of economic agents. Bruno and Fisher showed that, under certain assumptions, if the share of the budget deficit and money supply growth in income significantly exceeds the rate of economic growth, then the money market will not reach a state of equilibrium and the only means of covering or getting rid of the budget deficit is to implement a restrictive budget -tax policy. They also show that in the case of a slight excess of the share of the budget deficit in income relative to the GDP growth rate, two types of equilibrium can exist: with low inflation rates and with high inflation rates.
In conditions of mixed financing of the budget deficit (using money issues and government bonds), it is possible to obtain a variety of consequences in the monetary sector of the economy, namely, the values of real and nominal interest rates, as well as the level of inflation.
The Sargent-Wallace model assumes the possibility of financing the budget deficit either through money emission or through increased debt financing and growth leading to an increase in public debt. In the model, the government plans budget deficits, and their financial coverage is limited by the demand for government bonds. Since the interest rate exceeds the growth rate of output, at a certain point financial coverage of the budget deficit will be possible only through seigniorage. This will lead to an increase in the growth rate of the money supply and, ultimately, to an increase in the rate of inflation.
According to the traditional approach, in modern economic science, a positive consequence of a budget deficit is the presence of its stimulating effect in a closed and large open economy, and of public debt, accordingly, the presence of liquid instruments for investing savings. The negative consequences of the budget deficit and public debt are: crowding out investment and net exports in Keynesian ideas; decrease in economic potential in classical models due to a decrease in capital-to-labor ratio and production output. In this case, a positive effect manifests itself in the short term, and a negative effect in the long term. Thus, it can be noted that a positive effect represents a “short” action force, and a negative effect represents a “long action” force. Consequently, the policy of public debt results in sacrificing the future for the sake of the present.
In addition, the negative effects of the budget deficit and the closely related growth of public debt include the fact that it has a distorting effect on the functioning of the economic system, which reduces the efficiency of resource allocation within it. In this regard, D. Tarr notes that “a budget deficit should be avoided; partly because deficits crowd out foreign investment, and because they drive inflation, making price signals less transparent.”
1.2. Reasons for the formation of public debt
The reasons for the emergence of public debt are usually difficult periods for the economy: wars, recessions, etc. For example, during a war it is necessary to redirect most of the resources to the production of military products, which requires significant government spending, as does the maintenance of the army. There are three financing options: increasing taxes, issuing money, and deficit financing. Increasing taxation undermines labor incentives, issuing money creates inflationary pressure, and hence most military spending is financed by selling liabilities to the public. Another source of government debt is recessions. During periods when national income declines or fails to increase, tax revenues automatically decline and lead to budget deficits.
Another source of government debt is the political interests mentioned above, which lead to increased government spending and therefore an increase in the budget deficit.
The national debt increases whenever the Federal Government's budget runs a deficit. If the budget runs a deficit, the government will be forced to borrow to pay its expenses, which are not reimbursed by tax revenues. When there is a budget surplus, the excess of revenues over expenditures helps the government pay the population, i.e. pay off your debt.
Depending on the placement market, currency and other characteristics, public debt is divided into external and internal. The first includes loans from foreign countries; international financial organizations; government loans denominated in foreign currency and placed in foreign markets. The second includes loans from national banks; government loans denominated in national currency and placed on the national market. It consists of debt from previous years and newly incurred debt.
The problem of debt dependence of the state and, above all, to foreign creditors, has always been of current importance, since the full realization of the sovereignty of the state is possible only with a certain economic independence. First base the emergence of public debt is state and municipal borrowing, with the help of which the formation of public debt is ensured, as well as covering the budget deficit. The second reason formation of public debt of the Russian Federation, constituent entities of the Russian Federation and municipalities are credit agreements and contracts that can be concluded on behalf of the Russian Federation, with credit organizations, foreign states and international financial organizations, in favor of these creditors. The third reason is the provision of state guarantees and guarantees. In this case, the state acts not as a borrower, but as a guarantor of repayment of obligations for other borrowers. The fourth reason are facts when the state or municipalities assume obligations of third parties. Fifth base the emergence of debt obligations of state and municipal debt, the Budget Code names agreements and agreements (including international ones), concluded on behalf of the Russian Federation or a constituent entity of the Russian Federation, on the prolongation and restructuring of debt obligations of the Russian Federation or a constituent entity of the Russian Federation of previous years.
For the state at the federal and regional levels, it is possible to use two types of debt obligations: internal or external debt. For municipalities, the possibility of using only one type is called - internal debt.
When choosing forms of debt obligations, any state strives to ensure that the main creditor is the population of its country and to depend as little as possible on foreign creditors, since this weakens not only the economic independence of the country, but also its sovereignty. For comparison, in the UK the share of domestic loans in the total amount of government loans is 97%, in France - 96%, in Italy - 90%, in Japan - 87%.
While granting the Russian Federation the right to acquire obligations in the regime of internal and external debt, the Budget Code establishes the procedure for determining the quantitative limits of such obligations and the procedure for their implementation.
For the federal level of state debt obligations, the Budget Code sets the upper limit of state internal debt, the upper limit of state external debt and, separately, the limit of state external borrowings for the next financial year. The specified maximum debt obligations are established for all levels of the budget system. At the federal level, specific figures for the maximum volumes of state internal and external debt, as well as separately the maximum indicators for external borrowings, are established by the federal law on the budget for the next year, in which indicators of debt obligations are subject to specification according to the form of security.
Sources of repayment of government loans can be:
Income from investing borrowed funds in highly efficient projects;
Additional tax revenues;
Savings from cost reductions;
Issue of money;
Raising funds from new loans (debt refinancing).
Attracting loans should be based on two principles: minimizing the cost of the loan and establishing the stability of government securities in the financial market.
With debt financing of the primary deficit, both the principal amount of the debt and its service ratio increase.
The mechanism of self-reproduction of public debt, therefore, has the form: growth of primary public debt > growth of government loans > growth of the total value of public debt > growth of payments for servicing public debt > growth of the total value of public debt > growth of new government loans > growth of the total value of public debt > growth of payments for servicing public debt > etc.
The upper limit of the state internal debt of the Russian Federation as of January 1, 2009 is set in the bill in the amount of 1,824.7 billion rubles, or 5.2% of GDP, which is higher by 461.4 billion rubles, or 33.8% indicator as of January 1, 2008 (1,363.3 billion rubles, or 4.4% of GDP).
The upper limit of Russia's external public debt as of January 1, 2010 increased to $42.8 billion (31.2 billion euros) from $41.4 billion (29.8 billion euros). This increases the debt ceiling by $1.4 billion.
The maximum amount of Russia's domestic public debt in 2010 was increased by 51.3 billion rubles due to changes in the volume of provision of a number of government guarantees. Accordingly, the upper limit of Russia's domestic public debt as of January 1, 2011 will reach 3 trillion 353.101 billion rubles.
Drawing conclusions, we can say that public debt is a set of fairly diverse forms and methods of financial relations.
1.3. principles and objectives for public debt management
The basis for public debt management is the following principles:
Unconditionality - ensuring accurate and timely fulfillment of the state’s obligations to investors and creditors without imposing additional conditions;
Unity of accounting - accounting in the process of managing public debt of all types of securities issued by federal authorities, authorities of constituent entities of the federation and local governments;
Unity of debt policy - ensuring a unified approach in the policy of managing public debt on the part of the federal center in relation to the subjects of the federation and municipalities;
Coherence - ensuring the maximum possible harmonization of the interests of creditors and the borrower state;
Reducing risks - performing all necessary actions to reduce both the risks of the lender and the risks of the investor;
Optimality - the creation of such a structure of government loans so that the fulfillment of obligations under them is associated with minimal costs and minimal risk, and also has the least negative impact on the country’s economy;
Publicity - provision of reliable, timely and complete information about the parameters of loans to all users interested in it.
Policy regarding public debt and its upper limit are determined by the legislature, and its operational management is carried out by the executive branch.
Public debt management in the narrow sense involves determining the conditions for the issue, circulation and redemption of specific government securities. An even narrower interpretation of public debt management involves regulating the composition and structure of the total public debt while keeping its value constant. In foreign economic literature it is called “debt management”. Objects of regulation within the framework of debt management:
Structure of maturity of various debt obligations;
Structure of lenders (by issuing non-market loans targeted at specific groups of lenders).
Main tasks of debt management:
· reduction in the volume of external debt obligations and, accordingly, the cost of servicing them;
· optimization of the structure of external debt, increasing the share of its market component;
· optimization of the external debt payment schedule, elimination of payment peaks;
· refinancing of external debt through domestic borrowings without significant deterioration in the debt structure in terms of payment terms;
· increasing the efficiency of using borrowed funds.
Chapter 2. Current state of public debt in the Russian Federation
The state internal and external debt of the Russian Federation in 2002-2006 decreased from 42.2 percent of GDP to 9.0 percent of GDP. In accordance with the “Public Debt Policy,” the state internal and external debt of the Russian Federation by the end of 2009 amounted to 7.6 percent of GDP. In absolute numbers, external public debt decreased by more than 3 times in 1998-2006. At the end of 2006 it amounted to $50.5 billion. At the same time, internal public debt is growing due to the issuance of new debt obligations in order to raise funds to repay external public debt. As a result, domestic government debt in 2002-2006 increased from 545 billion rubles to 1091.6 billion rubles.
In general, external and internal public debt in 2006 was significantly below the thresholds established by the Maastricht Agreements on external public debt (30 percent of GDP) and internal public debt (30 percent of GDP) and continued to decline in 2009. At the beginning of 2010, it did not exceed 8% of GDP. The volume of public debt by the end of 2010 will amount to 3 trillion 873 billion rubles, while in relation to GDP the volume of public debt will be 8.71%
The share of external debt is decreasing, while internal debt is growing. So, in 2008 the ratio of external and internal debt was 37.5% to 62.5%, in 2009. - 32.1% to 67.9%, in 2010 - 27.2% to 72.8%. At the same time, the volume of external debt in GDP in 2008 amounted to 3.13%, in 2009 - 2.71%, in 2010 - 2.37%. The volume of domestic debt to GDP, on the contrary, increased in 2008. amounted to 5.2%, in 2009 - 5.7% in 2010 - 6.3%. The volume of domestic debt at the beginning of 2008. It was planned in the amount of 1 trillion 207 billion rubles at the beginning of 2009. - 1 trillion 092 billion rubles, at the beginning of 2010. - 1 trillion 068 billion rubles. and at the beginning of 2011 - 1 trillion 054 billion rubles. The volume of external debt in these years amounted to 1 trillion 409 billion rubles, 1 trillion 819 billion rubles, and 2 trillion 257 billion rubles, respectively. and 2 trillion 819 billion rubles.
State external borrowings of the Russian Federation are credits (loans) attracted from foreign sources (foreign states, their legal entities and international organizations), under which state financial obligations of the Russian Federation arise as a borrower of financial resources or a guarantor of repayment of such credits (loans) by other borrowers. State external borrowings of the Russian Federation form the state external debt of the Russian Federation.
In accordance with the Budget Code, the volume of Russia's domestic public debt includes the principal debt, that is, the nominal amounts of debt on government securities of the Russian Federation, on credits, advances and credits received from budgets of other levels, on government guarantees provided by Russia. Similarly, external debt includes obligations under government guarantees provided by the Russian Federation and the amount of principal debt on loans from foreign governments, credit institutions, firms and international financial organizations. If there is a delay in the payment of interest on the principal amount of the government debt, then the government debt does not increase by the amount of unpaid interest.
The structure of the government debt of the Russian Federation consists of several groups of debt obligations:
debts to the owners of GKO 1 - OFZ 2 (about 160 billion rubles);
debt of the Ministry of Finance to the Central Bank 3 on loans to finance the budget deficit (about 60 billion rubles);
debt arising as a result of the state's obligation to restore citizens' savings (the state internal debt of the USSR in the part attributable to the Russian Federation amounts to 191.4 million rubles);
external debt of the former USSR assumed by the Russian Federation (about 100 billion US dollars);
newly arisen debt of the Russian Federation to foreign states, international organizations and companies (more than 50 billion dollars).
Servicing public debt is associated with the redistribution of income in the country. To pay off the debt, you can use the assets available to the state by privatizing state property. Another approach is associated with increasing budget revenues by expanding the tax base. The burden of maintenance is shifted to taxpayers. Another source of debt repayment could be loans from the Central Bank. However, in the context of the country's main bank being independent from the government, it is very difficult to use emissions to reduce debt. Servicing external debt actually means the legal export of capital, which is reflected as a separate line in the balance of payments, that is, it leads to the redistribution of part of the national income through the fiscal and monetary system in the interests of non-residents.
Financing the budget deficit from domestic sources also does not always contribute to the development of the national economy. An increase in domestic debt means an increase in the share of government borrowing in the financial market. This could lead to competition for resources in the domestic financial market, rising interest rates and reducing capitalization of the private securities market. In addition, investments are reduced, since investment projects with a profitability that does not exceed the interest paid on government securities along with the risk premium will remain unrealized.
2.1. Analysis of the internal debt of the Russian Federation
According to the definition given in Article 6 of the Budget Code of the Russian Federation, internal debt is obligations arising in the currency of the Russian Federation, as well as obligations of constituent entities of the Russian Federation and municipalities to the Russian Federation, arising in foreign currency as part of the use of targeted foreign loans (borrowings);
The internal public debt of the Russian Federation includes debt on GKOs (state short-term obligations), OFZ (federal loan bonds), OGSS (state savings loan bonds), restructured debt on OVGVZ (domestic government foreign currency loan bonds), as well as overdue debt on centralized loans agriculture and northern regions.
The volume of domestic public debt includes:
1) the nominal amount of debt on government securities of the Russian Federation, the obligations for which are expressed in the currency of the Russian Federation;
2) the volume of principal debt on loans received by the Russian Federation and the obligations for which are expressed in the currency of the Russian Federation;
3) the volume of principal debt on budget loans received by the Russian Federation;
4) the volume of obligations under state guarantees expressed in the currency of the Russian Federation;
5) the volume of other (except for those indicated) debt obligations of the Russian Federation, payment of which in the currency of the Russian Federation is provided for by federal laws before the entry into force of this Code.
The sharp reduction in external public debt stimulated the growth of domestic borrowings used to refinance the public internal debt accumulated in recent years. This became a factor in reducing the relative burden on the budget of debt service expenses and increasing the share of non-interest budget expenses. When there is a federal budget surplus, internal sources are used to cover the deficit, which are equal to ordinary income.
The increase in the volume of borrowings on the domestic market leads to an absolute increase in interest expenses of the budget - from 156.8 billion rubles. in 2007 to 247.1 billion rubles. in 2010. The total balance by sources of financing the federal budget deficit will increase compared to 2007 by 119.95 billion rubles. and will amount to 172.8 billion rubles in 2008, in 2009 - 233.5 billion rubles, in 2010 - 333.31 billion rubles
In 2008, 463.3 billion rubles were raised through the placement of government securities on the domestic market, which is 169.67 billion rubles more than in 2007. In 2009-2010 attraction will amount to 496.7-673.3 billion rubles. respectively. Redemption of government securities in the currency of the Russian Federation will increase by 14.15 billion rubles compared to 2007. and in 2008 will amount to 94.25 billion rubles, in 2009 - 100.44 billion rubles. in 2010 - 148.4 billion rubles. Thus, the net balance on attracting government securities in 2008-2010. will increase from 369.04 billion rubles. up to 524.8 billion rubles. - will exceed the half-trillion mark.
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The volume of public internal debt of the Russian Federation |
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As of |
Volume of public internal debt of the Russian Federation, billion rubles. |
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incl. state guarantees in the currency of the Russian Federation |
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From 1993 to 2010, the volume of domestic debt increased 523 times, amounting to 2094 billion rubles as of January 1, 2010. From 1993 to 1998 there was a rapid increase in the volume of debt (2-4 times compared to the previous year). In 2001-2002, there was a decrease in both the volume of debt and government guarantees in Russian currency by 45 billion and 0.8 billion, respectively. Then again a significant increase in 2003 by 1.3 times. Significant growth was also observed in 2010 compared to 2009 by 595 billion or 28.4%
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The volume of public internal debt of the Russian Federation |
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as of (billion rubles) |
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The volume of public internal debt of the Russian Federation - total, |
2 094,731 |
2 107,529 |
2 118,250 |
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including: |
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state guarantees of the Russian Federation in the currency of the Russian Federation |
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In this way, one can trace the positive dynamics and growth in the volume of public debt of the Russian Federation in the first months of 2010. In two months, the volume of public debt increased by 24 billion rubles.
If we look at the structure of government debt as of April 2010, we can see that the bulk is made up of OFZ-PD and OFZ-AD, that is, 738 and 848 billion rubles (or 39.5% and 45.4%), respectively. GSO-PPS is 150.4 billion rubles, GSO-FPS is 132 billion rubles. In total, government internal debt, expressed in government securities, amounted to 1,869 billion rubles.
From December 2009 to April 2010, public debt was at approximately the same level, the dynamics were insignificant, while before December it was growing. From June 2009 to December, the growth was 444 billion or 20%.
Thus, we can note the dynamics of an increase in public debt with a simultaneous decrease in the external debt of the Russian Federation.
2.3. Analysis of the external public debt of the Russian Federation
Since 1992, Russia began to actively attract Western loans, increasing its external debt, which was actively supported abroad. In return for financial support, Russia was required to maintain a course of reforms aimed at minimizing government intervention in the economy.
Currently, the problem of external debt in Russia is not as acute as it was even five years ago. In recent years, the share of public external debt in the total volume of public debt of the Russian Federation has been steadily declining. This happened as a result of the implementation in 2003 - 2005. measures to replace external borrowings with internal ones, and its early repayment in 2005 - 2007. at the expense of the Stabilization Fund of the Russian Federation
State external debt of the Russian Federation
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Amount, billion US dollars |
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In absolute terms, Russian external public debt as of January 1, 2010 amounted to $37.6 billion, which is one of the lowest figures in Europe. In relative terms, Russian external public debt amounts to 3% of the country's GDP. As of April 2010, the volume of external debt decreased, amounting to $31.1 billion, or 2.5% of GDP. At the same time, this month Russia, after a twelve-year break, returned to borrowing on the foreign market, placing two tranches of Eurobonds worth $5.5 billion.
For comparison, after the 1998 crisis, Russia’s external debt amounted to 146.4% of GDP. According to the adopted three-year budget for the period 2008-2010, the public debt was to be kept within 2.5% of GDP. However, due to the fall in oil prices, the Russian budget has become deficit, and already in 2010 the deficit is planned to be covered through new loans. In the worst case, Russia's external debt could grow by $60 billion over the next three years.
Structure of public external debt as of January 1, 2010
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Name |
Amount, billion US dollars |
Amount, billion EURO |
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State external debt of the Russian Federation (including obligations of the former USSR assumed by the Russian Federation) |
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Debt to official creditors - members of the Paris Club |
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Debt to official creditors - non-members of the Paris Club |
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Debt to former CMEA countries |
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Commercial debt of the former USSR |
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Debt to international financial organizations |
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Debt on Eurobond loans |
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Debt under OVGVZ (domestic government foreign currency loan bonds) |
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Debt under guarantees of the Russian Federation in foreign currency |
In the structure of external debt, the share of government securities denominated in foreign currency, debt on loans from foreign governments and microfinance organizations is decreasing, and the share of government guarantees is increasing.
As of January 1, 2010, the bulk of public external debt is debt on Eurobond loans - $26.2 billion or 69.7% of external public debt. Debt to international financial organizations amounts to $3.8 billion or 10%. From 2% to 2.7% in the structure of external public debt consists of commercial debt of the former USSR, debt under guarantees of the Russian Federation in foreign currency and debt to official creditors - members of the Paris Club. Debt to official creditors - not members of the Paris Club - $1.8 billion or 4.8% of the volume of external public debt.
By the beginning of 2008, external public debt was reduced to 46.7 billion dollars. Today this value is even less, and amounts to 37.6 billion dollars, that is, it has decreased by almost 20%. Given the current inflation, domestic loans are issued at low interest rates. However, in general, both public internal debt and total external (state and corporate) debt are growing rapidly. Domestic public debt as of January 1, 2005 amounted to 757 billion rubles, at the beginning of 2006 - 851 billion rubles, at the beginning of 2007 - 1028 billion rubles. In 2007 it exceeded 1 trillion. rub. and by 2010 there will be at least 1.5 trillion. rub. The total external Russian debt as of January 1, 2008 was $459.6 billion and is growing uncontrollably.
Therefore, a more prudent debt policy is needed.
Currently, there are many factors that determine the content of this policy, and therefore the ratio of both government internal and external borrowings, and the accumulated volumes of internal and external debt.
Favorable conditions on the global energy market (oil prices exceed historical highs weekly and rose from $100 to $130 per barrel from early 2008 to July) have become a factor in the growth of oil and gas revenues since the beginning of the current decade at a much faster rate compared to the growth rate expenditures of budgets of all levels of the budget system. Under these conditions, the federal budget ceased to be deficit, and therefore there was no need for large-scale government external borrowing - in contrast to the entire period of the 1990s. The budget has been surplus since 2000.
Chapter 3. Public debt management
Management of the public debt of the Russian Federation is carried out by the Government of the Russian Federation or the Ministry of Finance of the Russian Federation authorized by it
The public debt management process is a set of actions related to the preparation for the issuance and placement of state debt obligations, regulation of the government securities market, servicing and repayment of public debt, provision of loans and guarantees.
Public debt management covers methods of both direct (institutional, technical, economic proper) and indirect regulation (impact on macro- or microeconomic levers of national economic management).
The concept and content of public debt management can be defined quite multidimensionally. Its management can be considered both in a broad and narrow sense. Public debt management in a broad sense refers to the formation of one of the directions of the state’s economic policy related to its activities as a borrower. This process includes:
Formation of state debt policy;
Determination of the main directions and goals of impact on micro- and macroeconomic indicators;
Establishing the possibility and feasibility of financing national programs through public debt and other issues related to the strategic management of public debt;
Setting debt boundaries.
Debt management in the narrow sense is understood as a set of activities related to the issuance and placement of government debt obligations, servicing, repayment and refinancing of government debt, as well as regulation of the government securities market.
The process of managing public debt, both in a broad and narrow sense, requires a systematic approach from the state and determines the multifaceted nature of regulating existing debt. In turn, systematic debt management is impossible without a clear classification of debt.
In the process of managing public debt, the state determines the relationship between various types of debt activities, the structure of types of debt activities by maturity and profitability, the mechanism for constructing specific government loans, loans and guarantees, the procedure for providing and repaying government loans and guarantees and fulfilling financial obligations on them, the procedure for issuance and circulation government loans. All other necessary practical aspects of the functioning of the public debt are also established.
The concept of public debt management includes three interrelated areas of activity. The first is budget policy in terms of planning the volume and structure of public debt. The second is borrowing, conducting operations with public debt, which are aimed at optimizing its structure and reducing the cost of servicing it. The third is the organization of accounting for debt obligations and transactions with debt, the functioning of the payment system for the execution of debt obligations.
3.1 Methods of public debt management
The existence of public debt automatically implies the existence of a state obligation to manage it. Public debt management refers to the totality of actions of the state represented by its authorized bodies to regulate the size, structure and cost of servicing public debt.
The goal of public debt management is to find the optimal balance between the state's needs for additional financial resources and the costs of attracting, servicing and repaying them.
There are two main solutions: - strengthening administrative control over financial flows, complemented by tightening legislation and implementing systemic institutional changes that create a favorable investment climate.
First way- this is the implementation of administrative measures against standard schemes for the illegal export of capital - understatement of export prices, non-return of foreign exchange earnings, fictitious import contracts with advance payment and inflated prices, corruption at customs, payments through offshore companies.
Second way preferable for Russia. Measures to strengthen confidence in the Russian economy should include: improving the tax system and tax administration; budget balance; ensuring reliable operation of the banking system; protection of the rights of creditors and investors; transparency of financial reporting of all enterprises and organizations; the fight against crime and corruption, a dramatic improvement in the work of the prosecutor's office and the judicial system; strict compliance with federal laws throughout the Russian Federation, the end of arbitrariness and electoral privileges on the part of regional and local authorities.
Russia's accession to the Paris Club of Creditors also led to the writing off of most of the debt from the poorest countries, from the debtor states of the Russian Federation that completed their participation in the expanded Poor Countries Debt Relief Initiative before December 31, 2006. The initiative includes a condition for timely repayment of part of the debt to Russia. Its implementation is encouraged by writing off the remaining debt, which is seen as a prerequisite for alleviating the difficult economic situation of debtor states. In 2007, Russia planned to write off $558.5 million of African countries' debt, which was done.
To improve the efficiency of public debt management, the coordination of debt management with monetary and fiscal policies should be worked out.
The main methods of managing public debt include the following.
Payment of income from loans and their repayment are usually made at the expense of budgetary funds, but in conditions of constant growth of public debt, the state may resort to refinancing, that is, repaying old public debt by issuing new loans. Refinancing has been used many times in our country, in particular when repaying debt under the government's three percent domestic winning loan of 1966, as well as when issuing government treasury bonds in the mid-1950s. Refinancing is used to pay interest and repay the external part of government debt.
Before the introduction of the Budget Code of the Russian Federation, such methods of managing public debt as conversion, consolidation, unification, deferment, and cancellation were used.
Conversion is a change in the yield of a loan, such as a reduction or increase in the interest rate of income paid by the government to its lenders. The state is interested in obtaining loans for long periods.
Increasing the duration of loans already issued is called consolidation of public debt.
Together with consolidation, loan unification can also be carried out, that is, combining several loans into one.
Deferment of repayment of a loan or all previously issued loans is carried out in conditions where further active development of operations to issue new loans is ineffective for the state.
Cancellation of public debt refers to the state's refusal of debt obligations.
Currently, the legislation provides for debt restructuring (Article 105 of the Budget Code of the Russian Federation), which means the termination of debt obligations constituting state or municipal debt based on an agreement, with the replacement of these debt obligations with other debt obligations, providing for other conditions for servicing and repaying obligations. Debt restructuring can also be partial, that is, it does not apply to the entire volume of the debt obligation, but only to part of it.
Debt policy in times of crisis.
The Ministry of Finance's debt policy generally ensures that crisis phenomena in the Russian financial market are minimized, but the borrowing strategy must be adjusted taking into account the global crisis.
The actions of the Ministry of Finance are aimed at stabilizing the domestic government bond market, increasing the liquidity of organizations that hold government securities, the nominal value of which is indicated in Russian currency, minimizing losses of security holders as a result of falling prices on the financial market, replenishing their working capital and improving the quality of assets.
State
Hello dear friends and guests of my blog.
My name is Ruslan Miftakhov. And today’s topic will be devoted to what constitutes the state’s debt to external partners, what are the reasons for its occurrence and which countries of the world are leading in terms of the volume of such obligations today.
I assume that the designated subject of our conversation will be of interest not only to those whose professional activities are related to the world of economics and finance, but also to ordinary people.
The realities of the present time are such that not only citizens of the country and corporations, but also the entire country are accustomed to living on credit. And this state of affairs has both its positive and negative consequences.
But let's not get ahead of ourselves.
The essence and concept of external debt of the state
If we are guided by the definition of the International Monetary Fund (IMF), then external debt is the volume of outstanding current obligations in the form of the amount of principal and interest that are accepted by residents of a state in relation to non-residents, as well as obligations that must be repaid at a certain point in time in the future.
Thus, the public debt we are talking about today represents part of the debt on external loans and other obligations to non-resident creditors.
This specified volume of outstanding current and future liabilities includes both public and private or, in other words, corporate debt and bank liabilities.
Today, there is more than one classification of government debt. In this case, everything depends on the feature that will form the basis of such a classification.
For example, according to the Budget Code of the Russian Federation, the state debt is divided into internal and state debt for resources attracted from outside. The first is part of the state debt for internal loans and other debt obligations to residents who have become creditors to their state.
A striking example of domestic public debt is the situation when the Ministry of Finance issues and offers to buy them to its citizens, as well as companies. In this case, buyers, purchasing these securities, become his creditors.
In accordance with the data provided on the website of the Ministry of Finance of Russia, as of June 1 of this year, the total volume of state Russian internal debt amounted to 8,480,425.9 million rubles.
And the structure of the state debt is such that part of the internal debt in the amount of 6,645,169.263 million rubles is expressed in government securities. By the way, government debt management, as well as its servicing, which includes repayment, is usually carried out by the Ministry of Finance.
Reasons for the emergence of public debt
In most cases, the lion's share of the foreign borrowing market of countries is represented by long-term obligations, through which the government finances strategically important investment projects, including the implementation of infrastructure programs and the development of the private sector.
For this reason, a reasonable amount of debt helps the government accelerate economic growth, which is what both developed and developing republics are striving for. This is, of course, a positive example of how external borrowings were effectively used and repaid on time.
At the same time, the amount of state debt to external creditors affects the country’s reputation and rating in the international credit market. The lower the state's rating, the more stringent the conditions for granting new loans and credits will be.
For those who do not have access to international credit markets, the only way out of this situation is loans from the IMF (International Monetary Fund) and international financial institutions that are part of the World Bank.
If a volume of overdue obligations arises, this forces the authorities to negotiate with international creditors on the issue of settling the external public debt. A similar situation can be observed today in the example of Ukraine.
And if you think about the reasons for the emergence of external debt in principle, what do you think could lead to the need to borrow from external creditors?
The emergence of external debt can be facilitated by such reasons as direct borrowing of resources from foreign countries, private firms, as well as the sale of government securities to foreign partners represented by enterprises and the population, as well as the state.
The consequences arising from such borrowing are much more severe than in the case of internal public debt.
In order to repay external obligations, the government is forced to give valuable goods and services to creditors, which leads to a decrease in the standard of living of the population.
Sometimes the amount of obligations to external creditors reaches catastrophic levels for the following reasons:
- high state budget deficit;
- high interest rate on external loans issued;
- increase in foreign currency exchange rate;
- existing difficulties in the domestic borrowing market.
In order to be able to assess the volume of external obligations of a state, it is necessary to consider the ratio of the amount of its external debt to the GDP of the borrowing country.
In this case, it is a macroeconomic indicator that reflects the total amount of everything that the state managed to earn during the year from the goods and services it produced.
If we consider the question of which country should be given the palm in terms of the amount of debt to foreign partners, then the leader in this situation is the United States. Silver in this “competition” belongs to Great Britain, and bronze to Germany.
I really hope that today’s topic was interesting and relevant for each of you, dear readers.
And with this I end the topic. Ruslan Miftakhov was with you, see you again and subscribe to my updates.
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