FM wants further recast of internal debt

NEW DELHI: Finance Minister Jaswant Singh has told his expenditure managers to look at further restructuring of the government’s internal debt.
Although the government has kicked off a debt restructuring exercise featuring a debt swap scheme to help states prepay high cost loans and replace them with current low-coupon bearing loans and small savings, besides buy back of illiquid and high cost bonds from banks, the minister has told senior officials in the ministry to take a look at further debt restructuring, according to officials. The urgency behind lowering the debt burden comes on the back of the government’s commitment to eliminate revenue deficit to zero within five years. With little leeway in tackling committed expenditure like salaries and pension besides subsidies, the government has to look at ways and means of lowering the interest outgo. For the current fiscal, interest payments alone are projected at Rs 1,23,223 crore compared to the revised estimate of Rs 1,15,994 crore in ’02-03.
The government of India’s internal debt which comprises of open market borrowings, treasury bills besides outstandings against various small savings schemes, provident funds and securities issued to several institutions like UTI and IDBI, deposits issued under the special securities deposit scheme (SDS) and other liabilities including the National Small Savings Fund aggregated Rs 15,03,926.01 crore at the end of March ’03. The figure is projected to go upto Rs 17,18,832.75 crore at the end of March ’04.
However, it is not yet clear how the government intends to further recast its debt, for the flexibility to do so is limited, according to officials.
For instance, buying back bonds from the market would be difficult considering that these bonds are all quoting at a premium and banks would be reluctant to part with them. Although other countries, notably Bolivia, have done such debt restructuring, it was thanks to bonds being quoted at a steep discount in the market.
A further debt restructuring, if it is to be done, will have to be carried out in the near term to take advantage of the soft interest rates now.
The government and its debt manager, RBI, are wary however of too much of government paper floating in the market.