A separate debt management office

Abstract

In the aftermath of recent global crisis, the issue of separation of monetary policy, fiscal policy and debt management has re-emerged. In many countries, during the period of crisis, scope of fiscal policy was expanded and debt to GDP ratios increased significantly. Consequently, debt management, in general, became difficult and coordination between monetary and debt management assumed significance. Historically, a number of countries with liberalized financial markets and high levels of government debt sought to adopt professional debt management techniques to save cost and to provide policy signals to the market. In India, traditionally, management of debt is diffused in different layers of different governments. The setting up of separate debt management office (DMO) will help to establish transparency, and assign specific responsibility and accountability on the debt manager. This could lead to an integrated and more professional management of all government liabilities, with a focussed mandate to operate on sound economic and commercial principles. The strategy could ensure that resources are available to the government at competitive market rates of interest prompting expenditure prioritization and fiscal discipline in budget making.