- 15 Marks
Question
Debt Management, a key component of Public Finance Management (PFM), enables the government meet its financing needs at minimum costs and within acceptable levels of risk. One method government use in managing its debt portfolio is to annually conduct a Debt Sustainability Analysis (DSA).
Required:
a. Explain what constitutes “Total Public Debt”. (2 Marks)
b. Define the term “Debt Sustainability” and state the main objective of conducting a “Debt Sustainability” exercise. (5 Marks)
c. Explain the benefits of conducting an annual DSA. (5 Marks)
d. Explain the actions which can be taken to reduce accumulation of public debt. (3 Marks)
Answer
a. Total Public Debt
All government liabilities, including domestic (bonds, loans) and external debt (international loans), short and long-term.
b. Debt Sustainability
Ability to meet debt obligations without relief or arrears. Objective: Assess sustainability under scenarios.
c. Benefits of annual DSA
- Identifies vulnerabilities.
- Guides borrowing policies.
- Enhances credibility.
- Manages risks via simulations.
- Coordinates fiscal-monetary policies.
d. Actions to reduce public debt accumulation
- Fiscal consolidation (cuts, revenue increase).
- Promote growth for better debt ratios.
- Restructure debt or seek concessional terms.
- Uploader: Samuel Duah