Public debt

• National Debt


  The total (or accumulated) debt built up by the Central Government over a number of years that has not yet been paid. It consists of the internal and external borrowings of the government or its agents.
• Calculating National Debt


  1. BD1 = GR1 - GE1

  2. ND1 = BD1

  3. BD2 = GR2 - GE2

  4. ND2 = BD1 + BD2

  5. BD3 = GR3 - GE3

  6. ND3 = BD1 + BD2 + BD3
• Public Sector Net Cash Requirement (PSNCR)

  Borrowing to finance a budget deficit
• Ways to finance PSNCR

  • Printing more money (can have inflationary consequences)
  • Borrowing from banking sector by selling treasury bills or bonds
  • Borrowing from non-bank public by selling bonds
  • Borrowing from foreign sources like IMF or World Bank
  • Sale of Public Corporations to private investors
• Public Sector Debt Repayment (PSDR)


  When the government achieves a surplus (government revenue exceeds expenditure), the excess revenue is used to repay an accumulated debt
• Fiscal Indiscipline


  Poor fiscal management which arises from budget deficits, due to poor rates of taxation or mismanagement of public expenditure
• Domestic (Internal) Debt


  Debt of one segment of the economy to another segment of the economy. This type of debt is not viewed negatively as the debt and interest payments remain within the economy.
• Foreign (External) Debt


  Debt owed by the government for loans from foreign governments or foreign financial institutions. The debtor nation has to export goods and services to earn the foreign currency needed to service and repay the debt, representing a sacrifice of domestic resources.
• Governments may also use Treasury bills as short-term financing options with maturities ranging from one month to several years.
• Bonds have different maturity dates (short-term or long-term) and interest rates based on the perceived riskiness of the borrower.
• The government can issue bonds to raise money, which are essentially loans from investors.
• Treasury Bills are issued at discounted prices and redeemed at face value on maturity, providing a source of income for the government while allowing it to manage its cash flow.
• Treasury Bills - Short term debt instruments issued by the government that mature in less than one year.
• The issuance of bonds can be done through auctions where investors bid for the right to purchase them at a fixed price.
• The issuance of Treasury Bills can be seen as a form of monetary policy tool that allows the central bank to influence the supply of money in circulation.
• Corporate bonds are issued by private companies seeking funds for investment purposes.
• Investors who purchase Treasury Bills receive fixed returns over their holding period, making them attractive investments for those seeking stable returns.
• Savings Certificates - Long term debt instrument issued by the government at face value, where the investor receives periodic coupon payments until maturity.
• National Savings Schemes - Government sponsored schemes aimed at encouraging savings among citizens through various investment opportunities such as National Saving Certificate, Kisan Vikas Patra, Sukanya Samriddhi Account, etc.
• Sovereign Wealth Funds (SWFs): These funds are established by countries that generate large surpluses due to high commodity prices or other factors. They invest these surpluses abroad to diversify their economies and reduce dependence on natural resource exports.
• Treasury Notes - Long term debt instruments issued by the government that mature in more than one year.
• Pension Reserve Funds: Governments establish pension reserve funds to finance future public pensions. These funds accumulate savings over time through contributions from employees and employers, investment returns, and transfers from general revenues.
• Bondholders receive regular payments called coupon payments until the bond reaches maturity when they receive their principal back.
• Municipal Bonds - Issued by state and local governments to finance public projects such as schools, hospitals, roads, bridges, etc.
• Bonds are typically issued with a specific interest rate or yield, known as the coupon rate.
• Government securities such as Treasury Bills, Treasury Notes, and Treasury Bonds are considered safe investments due to their backing by the full faith and credit of the U.S. Government.
• Stabilization Funds: These funds aim to stabilize fiscal policy during economic downturns by building up reserves when times are good and drawing down those reserves during recessions. Stabilization funds can be used to smooth out fluctuations in tax revenue and prevent excessive deficits.
• Debt management is an important aspect of public finance, involving the efficient use of borrowing to fund government activities.
• Bonds are long-term debt securities issued by governments or corporations with specific terms such as interest rates, repayment dates, and collateral requirements.
• Debt Management Office (DMO) - A department within the Ministry of Finance responsible for managing public debt, including issuing new securities, monitoring market conditions, and ensuring compliance with fiscal policies.
• Public Debt is any financial obligation owed by a country or its government to lenders, typically in the form of loans or bonds.
• Debt Management Office (DMO) - A department within the Ministry of Finance responsible for managing public debt in Nigeria.
• Commercial Paper - Short-term unsecured promissory notes issued by corporations with maturities ranging from overnight to several months.
• Public Debt Management Rules - Regulations governing the issuance and management of public debt, including guidelines for auction procedures, interest rate determination, and reporting requirements.