Debt management in the macro spotlight

Abstract

Serious fiscal vulnerabilities, perceptions of higher sovereign risk and considerable uncertainty about future interest rates have created the conditions for fiscal dominance with new and complex interactions between public debt management (PDM) and monetary policy. This is putting public debt management and the functioning of sovereign debt markets in a macro spotlight.Although PDM alone cannot solve macroeconomic imbalances or address structural financial sector problems, PDM is a key component of a balanced structural policy mix supporting both the proper functioning of government securities markets and, more broadly, the objectives of the macroeconomic framework. The challenges of using unconventional monetary policy instruments for debt management are highlighted. With a further increase of central bank holdings of government securities, a smooth exit from accommodative asset purchase programmes at the appropriate time might become more challenging. The chapter also discusses debt management considerations during periods of fiscal consolidation and fiscal dominance.