Public Debt is the other phrase for government debt. Managing government debt is an essential best practice which cannot be taken lightly because it directly impacts the economic stability of the country in question. The purpose of public debt management is to ensure increase in funds to achieve cost and risk management objects. This is achieved when the government sets goals such as ensuring development and maintenance of efficient markets to ensure security for the government and stability.
The government must ensure compliance with policies. For example, public debt is sustainable when there is a balance in the rate of growth of the government debt and the level of debt. At the same time, through best practices cost and risk objectives can be met. There are indicators which must be implemented to address the issues related to government debt. Indicators include public sector – debt service ratio, ratio to tax revenue and ratio of public debt to GDP.
Failure to ensure best practices in public debt management lead to a poor system. This means poor management of maturity, currency, interest rates and unfunded contingent liabilities lead to escalating economic crisis in the country. There are numerous examples in history where this has been witnessed. Irrespective of the extent of debt, exchange rates and domestic currency, economic crisis is inevitable because the government begins to focus more on possible cost saving options associated with floating rate debts. This leads to exposure of the government budgets to changing financial market conditions which affects the creditworthiness of the country’s economy. Therefore as a best practice, reducing the risk through effective management can make the country less susceptible to financial risks.
Debt market crisis reflect failure to ensure compliance with best practices for financial risk management. It is an essential best practice that public debt management practices should be implemented to ensure efficient capital markets. There may be times when government debt management policies may not have been the main cause of poor public debt management. Other factors which may have caused this include poor maturity structure, poor interest rate and poor currency composition of the government debt portfolio. All of these causes can be avoided effectively through compliance with best practices to ensure efficient risk management.
Another cause of poor management of public debts is the risk debt structure. This situation arises due to inappropriate economic policies, fiscal and monitory rates and exchange rates. It is important to realize that macroeconomic policy settings affect government debts. If best practices are not ensured for macroeconomic policy settings there may be server economic crisis. Having sound debt policies as a best practice reduces country’s susceptibility to financial risks. It serves as a catalyst in improving financial market development and turns it into a stronger establishment.
Best practices in public debt management are important to ensure economic stability in the country. This is important for business growth in the country as a whole and compliance with best practices must be emphasized at every level to ensure adequate risk management.