Debt management

Debt management refers to the debt policy which seeks to achieve certain economic objectives while raising and repaying the public debt. The most important pre-requisite for an efficient management of the public debt is that the debt should be so issued, pattern of maturity structure of the bonds should be so determined, the interest rates should be so fixed, taxes to repay the public debt should be so devised and the bonds should be so redeemed that the strains and frictions imposed on the economy are kept at the minimum so as to gain the greatest economic advantages or the least economic disadvantages. 

For this, the public debt is raised and repaid at a minimum rate of interest. However, such a cheap money policy may generate inflationary pressures in the economy if it is already operating near full employment level. The public debt is managed in such a manner that the needs of the investors with regard to the types of the government securities and the terms of issues are complied with. 

If the debt is redeemed by issuing new currency, it may create inflation. If it is serviced through additional taxation, it may lead to deflationary effects. Therefore, to avoid both these effects, a proper mix between the methods of public debt redemption is followed.  There must be a close coordination between public debt and fiscal and monetary policies so that all the three policies help in securing economic stability and growth.