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Define public debt
Describe salient characteristics of the size, composition,
and nature of public debt in South Africa
Explain and compare different theories of public debt and
evaluate them critically
Argue the relative merits of debt and tax financing of
government expenditure
Define public debt management
Identify and describe the different types of public debt
cost
Identify the goals of public debt management and discuss
their pursuance, with special reference to South Africa.
Public debt may be defined as the sum of all the outstanding financial
liabilities of the public sector in respect of which there is a primary legal
responsibility to repay the original amount borrowed (sometimes
called the principal of debt) and to pay interest (sometimes called debt
servicing).
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Treasury bill
Government bonds
Zero-coupon bonds.
Period
Public debt (year-end) as % of
GDP, period average
1960 – 69
44.7
1970 – 79
39.7
1980 – 89
32.4
1990 – 94
41.1
1994 – 1999
49.0
2000 – 2004
40.9
2005 – 2009
29.0
2010*
33.5
* Preliminary figure
Source: South African Reserve Bank, Quarterly Bulletin
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Debt trap
Ownership distribution
Current expenditure
Capital expenditure
Net worth
Net indebtedness
Consul.
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Inter-temporal burden
Domestic or internal debt
Foreign or external debt
Internal vs external debt and the burden on future
generations
Inter-temporal burden
Fiscal neutrality and Ricardian equivalence
Fiscal activism and Keynsian demand management
The crowding-out phenomenon
The public choice view.
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Allocation efficiency
Distribution (equity)
Macroeconomic stability.
Objectives
• Minimisation of state debt cost
• Macroeconomic stability
• Development of domestic financial markets
• Financial credibility.
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P = E/I
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Primary dealers or market makers
Government net worth
Mark to market
Discount price
Bond discount
Foreign exchange cost.
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Horizontal or flat
Negatively sloped or inverse
Upward sloped or positive.
Two questions
• Can the country service its debt?
• Will the country service its debt?
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Explicit
– Government guarantees on foreign exchange borrowings
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Implicit
– No contractual obligation to provide assistance but does so.