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Public Debt A. Another name for Fiscal Sustainability is Public Finance Sustainability. What is Fiscal Sustainability...

Public Debt

A. Another name for Fiscal Sustainability is Public Finance Sustainability. What is Fiscal Sustainability in the context of Debt Management?                                                                                            

B. If the level of government spending exceeds the budget or the income from taxes is not collected, then the government will be forced to borrow more than it planned and in the long term this can lead to problems. List and explain 5 of these problems?                                                          

C. Suggest and explain 3 remedies for any 3 of the problems mentioned in (b) above?       

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Answer #1

When government borrows, it reduces the money supply in the system. It leaves less money for corporate or retail public to borrow so there will be tendency of rates going up.

i) Remedies

i) Rise in interest rates can be avoided if RBI through its monetary measures ensure adequate availability of funds available with the banks so that rate of interest does not rise when government borrows from market.

ii) Government borrowing should be used financing investment or productive projects so that it leads to yield returns which can be used to pay interest on borrowed funds as well as principal.

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