The national debt and ways to manage it

The functioning of a state loan leads to the formation of a public debt representing the entire amount of issued and outstanding government debt, including the amount of accrued interest that must be paid on them.

Public debt is the most complete quantitative characteristic of the state’s credit relations, reflected in statistical reporting. The size of the public debt shows only one productive aspect of the relationship: the debt of the state, formed for a period corresponding to the number of years of functioning of the long-term operating loan, the maturity of which occurs in the current year.

Management of internal public debt is a complex of measures aimed at its optimization. Public debt management is an ongoing process, which involves three phases: identifying the need for additional financial resources, attracting financial resources, repaying and servicing debt obligations.

At the first stage, the limits of state borrowings and guarantees for the next fiscal year are determined; tools for attracting resources and increasing their use are selected. The second stage involves the use of resources in external or internal financial markets through the issuance and placement of government securities, the receipt of a loan or the provision of state guarantees. The third stage is to find sources of financial resources for repaying and servicing the public debt, reducing total costs, timely execution of debt obligations. State debt obligations can be repaid at the expense of budget revenues, the country’s gold and currency reserves, cash received from the sale of state property, as well as new borrowings. 

When managing public debt, the following methods can be used:

  • Refinancing;
  • Restructuring;
  • Conversion;
  • Consolidation;
  • Unification – reduction of types of circulating securities;
  • deferred repayment of loans;
  • Cancellation – cancellation of some bad loans;
  • Debt restructuring


Refinancing is the repayment of old debt by making new commitments. Three main methods of refinancing public debt are used: replacement of liabilities with expired terms of repayment by new ones, equivalent to them by the amount; replacement of one obligation with another with longer maturities; placement of new bonds in order to use the proceeds for settlements on bonds with expiring maturities.

Restructuring is a review of the initial repayment schedule and servicing of public debt. When restructuring, the debtor is granted a grace period, during which only interest is paid, and the maturity of the principal amount increases.

Conversion is a change in the terms of state loans in the debtor’s interest, consisting in a reduction in interest, a new way of repaying the debt, postponing the maturity, changing the loan currency. The most common types of conversion of external public debt are the exchange of debt obligations of third countries, the repayment of debt by commodity supply, the repurchase of debt by the borrower on special terms, the exchange of debt for property.

Consolidation is a change in the maturity of loans, usually in the direction of increase by transferring short-term liabilities to long-term ones. Consolidation can be combined with conversion.

Unification means that several previously issued bonds are equal to one new bond. This measure is effective when repaying previously issued bonds and paying interest on them must be carried out in new full-fledged money.

The delay in repayment of the loan is used by the government in cases where the issuance of new loans does not bring economic benefits, since most of the proceeds from new loans do not bring economic benefits, since most of the proceeds from new loans go to repayment and interest payments on old loans. With the delay in the repayment of loans, not only the terms are set aside, but the payment of incomes is also terminated. This is the difference between the repayment grace period on the consolidation of loans, in which the bond owner continues to receive income.

The cancellation of the state debt is an extreme measure, because of which the state completely renounces obligations on issued loans; it is usually a consequence of the coming to power of new political forces.


Debt restructuring is the repayment of debt obligations with the simultaneous execution of borrowings or the acceptance of other debt obligations in amounts redeemed with the establishment of other terms of service and maturities. More often, in practice, it is realized as an extension of the maturity of the debt and payment of interest on it. Debt restructuring can be carried out with a partial write-off or reduction of the principal amount.

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