The theory of financial law determines that state credit (state lending) and state borrowing (state debt), as interdependent institutions, are one of the main tools with the help of which the balance of income and expenses of the state budget is achieved.
In relation to Russia, it is necessary to talk about state (at the federal and regional levels) and municipal credit (at the local level). In the literature they are often combined with the concept of “public credit”.
State (municipal) credit is one of the most important types of credit. This type of loan is characterized by a monetary form.
Historically, government credit has long been understood only as government loans, i.e. relationships in which the state is the borrower. This opinion developed back in pre-revolutionary times. This position also prevailed in the USSR. However, over time, the practice of state credit activities, such as the provision of loans, when the state becomes a lender, began to expand. This also affected the understanding of the category “state loan” - in addition to state borrowing, it began to include state lending.
In addition, the concept of “state credit” was previously traditional and largely remains in theoretical works - financial relations within which the state accumulates, on a voluntary basis, temporarily available funds of legal entities and individuals on the basis of repayment, urgency and compensation in order to cover the budget deficit , regulation of monetary circulation and resolution of other public interests.
This concept in the financial and legal literature has been expanded: state credit has come to be understood as a financial relationship within which the state: a) borrows funds from various entities in order to ensure state functions with the formation of a corresponding debt from the state; b) provides funds to other entities for temporary use on the basis of compensation, repayment and urgency; c) serves as a guarantor in loan agreements.
However, literally in recent years, the situation has begun to develop in such a way that these theoretical provisions are not entirely consistent with modern Russian legislation. One can obviously say that lawmaking has moved forward further, but theory is lagging behind.
With the entry into force of the Federal Law “On Amendments to the Budget Code of the Russian Federation in terms of regulating the budget process and bringing certain legislative acts of the Russian Federation into conformity with the budget legislation of the Russian Federation” dated April 26, 2007, the institution of state credit acquired other forms.
Thus, in accordance with budget legislation (Chapters 13, 15 of the Budget Code of the Russian Federation), the following types of loans are provided for in which the state is the creditor:
- budget loan;
The legislator applies the term “state credit” only to international financial relations in which Russia is a creditor, i.e. the concept of “state credit” in modern Russian legislation (in contrast to the theory of financial law and previous financial legislation) is extremely narrowed. Therefore, the term “state loan” in accordance with the current Russian budget legislation means “state lending”, i.e. the component associated with the formation of public debt (borrowing) is excluded. The concept of “public debt” is not used in legislation; Instead, another term was put into circulation, meaning the same thing: “government borrowing.”
A number of financial law theorists do not agree with this approach, and in the financial and legal literature the concept of “state credit” is often still disclosed primarily as public debt (borrowing), as well as lending. The discussion on this matter continues to this day. Since the academic discipline “Financial Law” focuses primarily on financial legislation, it seems that the concept of “state credit” should reflect the current rules of law.
State loan- this is a monetary loan issued on behalf of the state by authorized state bodies to other states, foreign legal entities or individuals by mutual consent, on the basis of international legal norms and on the terms of remuneration, repayment, and urgency.
The main features of the concept of “state loan”:
- is a type of economic and financial relations regulated by the rules of law;
- the material object of credit relations is cash;
- the obligatory subject is a public entity represented by the state;
- the legal basis for provision is international law;
- are implemented only in legal form.
State credit is part of the financial system of the Russian Federation - as are bank loans provided by private banks. However, bank loans have a civil legal nature, and a state loan has a state legal nature (at the same time, many civil legal institutions are used to implement state-credit relations).
Within the framework of the current budget legislation, two forms of budget credit are distinguished:
- government financial loan;
- state export credit.
State financial loan- this is a form of budget loan when the Russian Federation provides funds to a foreign borrower in the amount and on the terms provided for by the agreement between the Government of the Russian Federation and the government of a foreign state (Article 122 of the Budget Code of the Russian Federation).
A state financial loan differs significantly from a regular budget loan.
Thus, an ordinary budget loan agreement is concluded according to the rules established by the Civil Code of the Russian Federation, while the rules of Russian legislation do not apply to the procedure for concluding an agreement on the provision of a state financial loan.
Further, the civil legislation of the Russian Federation applies to the legal relations of the parties arising from an agreement on the provision of a budget loan, but not to relations related to a state financial loan. There are other differences.
State export credit- this is a form of budget loan when, at the expense of budget funds, payment is made for goods and services exported in favor of a foreign borrower - an importer of goods and services, in the amount and on the terms provided for by the agreement between the Government of the Russian Federation and the government of a foreign state in the presence of a state guarantee of a foreign state for repayment of this loan (Article 122 of the Budget Code of the Russian Federation).
The result of state financial and export lending is the emergence in the Russian Federation external debt claims, which, in addition to state export and financial loans provided by the Russian Federation, also include debt claims of legal entities - exporters of the former USSR - to foreign legal entities that arose before January 1, 1991 in connection with the export of goods and services from the former USSR carried out abroad account of the budget funds of the former USSR.
External debt claims of the Russian Federation form the debt of foreign states and foreign legal entities to the Russian Federation.
The State Duma of the Federal Assembly of the Russian Federation, during the second reading of the draft federal law on the federal budget for the next financial year and planning period, approves the Program for the provision of state financial and government export loans for the next financial year and planning period.
Providing government loans is the exclusive competence of the Russian Federation.
Subjects of the Russian Federation and municipalities do not have the right to provide government loans.
Purposes of public credit. In the international arena, government credit is intended to achieve international political and international economic goals. As a rule, the creditor state is aimed not so much at generating income as at achieving political and economic goals. Thus, in a number of cases, the provision of loans is accompanied by requirements for the provision of preferential treatment for companies in the creditor country, their admission to strategically important sectors of the economy of the borrower country, as well as for coordination of actions to resolve interstate issues.
In 1956, creditor countries created the Paris Club of Creditors, which coordinates the actions of creditor countries in relation to debtor countries. In 1997, Russia became a full member of this club. Currently, Russia, like its predecessor, the USSR, is one of the largest creditors in the international financial market. Thus, the amount of debt of foreign states on loans provided by the Government of the USSR and the Government of the Russian Federation, as of January 1, 2006, was about $69 billion. Previously, the USSR almost openly pursued political goals aimed at the spread of socialism. Now we are talking about the softer nature of Russia’s influence on the positions of those countries to which loans are provided.
At the same time, as before, Russia periodically “forgives” its debtors by writing off their debts (for example, in 1996, Russia wrote off 3.5 billion of the 5 billion dollars of Angola’s debt; according to the terms of the signed agreement, the balance of the amount should be returned until 2016 in the form of bills). In June 1999, within the framework of the Paris Club of Creditors, the Cologne Agreement was signed, according to which Russia in 2000-2003. wrote off 60-90% of the debts of a number of countries (Tanzania, Benin, Mali, Guinea-Bissau, Madagascar, Guinea, Chad, Yemen, Mozambique, Burkina Faso and Sierra Leone). The country received installments for up to 30 years for the remaining debts. In 2010, Russia wrote off the balance of Afghanistan's debt in the amount of $891 million. This position of Russia (as well as other creditor countries) is largely explained by the deliberate inability of debtors to pay the debt.
As for the “budget loan,” this concept has a broader meaning, and in any case we are talking about the creditor - the public structures of the Russian Federation.
Previously, a budget loan in budget legislation was defined as a form of financing budget expenditures, which provides for the provision of funds to legal entities or other budgets on a repayable and reimbursable basis.
The wording has now been changed: budget loan- these are funds provided by one budget to another budget of the budget system of the Russian Federation, to a legal entity (with the exception of state (municipal) institutions), to a foreign state, to a foreign legal entity on a repayable and reimbursable basis.
As you can see, the goal setting of a budget loan is excluded in the law, therefore, the scope of its use has been expanded.
A budget loan can be provided to the Russian Federation, a constituent entity of the Russian Federation, a municipality or a legal entity on the basis of an agreement concluded in accordance with the civil legislation of the Russian Federation, taking into account the features established by the Budget Code of the Russian Federation and other regulatory legal acts of the budget legislation of the Russian Federation, on the terms and conditions within the limits of budgetary allocations that are provided for by laws (decisions) on the budget.
A budget loan can only be provided to a subject of the Russian Federation, a municipal entity or a legal entity that does not have overdue debt on monetary obligations to the budget (public legal entity), and for legal entities - also on mandatory payments to the budget system of the Russian Federation, with the exception of cases of restructuring of obligations (debt).
The civil legislation of the Russian Federation is applied to the legal relations of the parties arising from the agreement on the provision of a budget loan, unless otherwise provided by budget legislation.
Through budget loans the following is carried out:
- problems of financing the budget deficit are being resolved;
- the socio-economic living conditions of the population and the functioning of regional economies are equalized;
- support is provided to municipalities in solving urgent socio-economic problems;
- support is provided to priority sectors and activities for the economy.
The essence of a budget loan is manifested through the functions it performs: fiscal, regulatory, control. Along with these functions, according to some authors, a budget loan also has the function of stimulating (or restraining) economic growth. Providing budget loans to the budgets of constituent entities of the Russian Federation, local budgets(Article 93.3. BC RF). The budgets of the constituent entities of the Russian Federation from the federal budget may be provided with budget loans for a period of up to three years, with the exception of budget loans issued at the expense of funds from targeted foreign loans (borrowings), and cases of restructuring of obligations (debt), within the limits of budgetary allocations approved by federal law on the federal budget for the next financial year and planning period.
The grounds, conditions for the provision, use and return of these budget loans are established by the federal law on the federal budget and the regulatory legal acts of the Government of the Russian Federation adopted in accordance with it.
If the provided budget loans are not repaid on time, the balance of outstanding loans, including interest, fines and penalties, is collected in the manner established by the Ministry of Finance of the Russian Federation, through interbudgetary transfers (with the exception of subventions to the budgets of constituent entities of the Russian Federation from the federal budget), as well as through deductions from federal taxes and fees, taxes provided for by special tax regimes, subject to credit to the budget of the constituent entity of the Russian Federation.
Local budgets from the budget of a constituent entity of the Russian Federation
The grounds, conditions for the provision, use and return of these loans are established by the laws of the constituent entities of the Russian Federation on the budgets of the constituent entities of the Russian Federation and the regulatory legal acts of the highest executive bodies of state power of the constituent entities of the Russian Federation adopted in accordance with them.
If budget loans provided to local budgets from the budget of a constituent entity of the Russian Federation are not repaid on time, the balance of the outstanding loan, including interest, fines and penalties, is recovered through subsidies to the local budget from the budget of the constituent entity of the Russian Federation, as well as through deductions from federal and regional taxes and fees, taxes provided for by special tax regimes, subject to credit to the local budget.
Budgets of settlements from the budgets of municipal districts Budget loans can be provided for up to three years.
The grounds and conditions for the provision, use and repayment of budget loans are established by municipal legal acts of the representative body of the municipal district and municipal legal acts of the local administration of the municipal district adopted in accordance with them.
If budget loans provided to the budgets of settlements from the budgets of municipal districts are not repaid on time, the balance of the outstanding loan, including interest, fines and penalties, is recovered through subsidies to the budgets of settlements from the budget of the municipal district (in the event of transfer of the powers of a constituent entity of the Russian Federation to the municipal district to equalization of the budgetary provision of settlements), as well as from income from federal taxes and fees, taxes provided for by special tax regimes, regional taxes subject to credit to the budgets of settlements.
The financial authorities of the constituent entities of the Russian Federation and municipal districts establish, in accordance with the general requirements determined by the Ministry of Finance of the Russian Federation, the procedure for collecting the balances of outstanding loans, including interest, fines and penalties.
Borrowers are obliged to repay the budget loan and pay interest for using it in the manner and within the time limits established by the terms of the loan and (or) the agreement. Funds from the return of budget loans provided on a repayable and reimbursable basis, as well as fees for their use, are subject to transfer to the federal budget.
Methods of ensuring the fulfillment of obligations of a legal entity or municipal entity to repay a budget loan, pay interest and other payments provided for by law and (or) agreement can only be bank guarantees, sureties, state or municipal guarantees, a pledge of property in the amount of at least 100% of the provided loan. Ensuring the fulfillment of obligations must have a high degree of liquidity.
A prerequisite for granting a budget loan to a legal entity is to conduct a preliminary check of the financial condition of the legal entity - the recipient of the budget loan.
In order to uninterruptedly finance needs in conditions of budget deficit, the state must attract resources from economic entities. In such cases, credit is used. But in this transaction, the borrower is not an individual, but the state.
The essence
A government loan is a way to attract funds to the budget for a fixed period. Lenders in such transactions are legal entities and individuals, investors from other countries. It is difficult to find a state in the world that does not need additional funds. If internal revenues from taxes and other income are insufficient, funds are raised from external sources on a repayable basis to cover the deficit.
This method of financing is as popular as emission. At the end of the loan period, the borrower must repay the loan, including interest. The sum of all unrepaid obligations forms the debt of the country as a whole.
Characteristic
A government loan can be raised for various purposes and terms. It is also characterized by such features as urgency, payment and repayment basis. Also, do not confuse external government loans with internal ones. In the first case, the creditors are financial organizations, enterprises and citizens of the state itself, and in the second - from other countries.
This type of lending has its own characteristics:
- it is usually used to cover the deficit;
- security for the transaction is all state property;
- the target nature is not as clear as in a regular commercial loan;
- the source of loan repayment is taxes, and not income from business results;
- the consequence of the transaction is a reduction in the circulation of money supply.
Functions
- Distribution - placement of funds in centralized funds on the basis of priority (money is allocated in those areas where it is most needed).
- Regulatory - with the help of such loans you can influence money circulation, levels of refinancing rates, etc.
- Control – funds must be used for the purposes for which they were raised.
State VS bank loan
These two types of loans are different. When applying for a bank loan, specific assets are used as collateral: shares, goods, equipment. In the second case, the collateral is state property. Therefore, in the event of a default, all property located abroad may be seized. The sanctions may include buildings of trade missions and accounts of state-owned companies opened in banks. Only consular property is subject to exception. If the funds provided are used effectively, it will have a positive effect on the level of employment and production in the country. Many countries use government guarantees for loans received from exporters to expand the market for their products.
Types of government loans
By place of issue:
- external (foreign currency) loans - provided by international funds, other countries and their entities;
- domestic loans - provided in national currency;
- municipal loans - can be issued in any currency.
By date:
- short-term (up to 12 months);
- medium-term (1-5 years);
- long-term (20–30 years).
By security:
- mortgages that provide collateral in the form of specific property;
- in non-mortgage transactions, the object of collateral is not clearly described in the contract.
By holder entities:
- loans for the population only;
- loans for legal entities;
- loans for organizations and the population.
By placement methods:
- voluntary;
- by subscription;
- forced.
Depending on the form of provision of funds, government loans are divided into bond, interest, guarantee, intergovernmental and “haircut”.
Bond loans
The most popular way to cover the budget deficit is the issue of the Central Bank. This method is also used to solve the problem of cash gaps, attract additional sources of financing for large-scale projects and pay off other obligations.
Government securities loans are provided in the form of:
- bonds: in 1995, they financed the state budget deficit;
- short-term obligations of the Ministry of Finance aimed at financing state expenditures and covering the budgetary shortage of funds;
- zero-coupon bonds of the Central Bank;
- domestic foreign currency loan obligations;
- Eurobonds.
Bondholders can resell the debt. The nominal value of the securities corresponds to the loan amount, and the market value indicates the possible sale price. 
Bills of exchange
The issue of government loans can be carried out in treasury bills. The bills are used to cover the municipal budget deficit. Most often they are issued for a period of 1 to 5 years.
Government loans of the Russian Federation are classified by issue. Depending on who issues the Central Bank, all funds raised may go to the state or local budget. In this case, the terms of the issue may provide for early redemption.
Appeal
In countries with developed industry, the share of central banks that, after issuance, enter the market is approximately 70% of the amount of public debt. Such bonds are worthy competition for bank deposits and are used to attract free funds. An investor who has purchased non-market securities can only sell them to the state. Such bonds are not traded on the stock market and are issued solely for the purpose of attracting small creditors. 
Payments
Repayment of government loans can be carried out in the form of interest or discount. The terms of the contract may provide for a mixed nature of payments. The income paid at the interest rate varies depending on the market situation and existing loan offers. A fixed rate discourages investors from seeking higher returns and increases interest costs. The essence of the discount court is that holders of the Central Bank first purchase bonds at a discount, and then the state buys them back at full cost.
Federal loan agreement
This document formalizes the fact of provision of funds to the state. The agreement provides for voluntary cooperation between the borrower and the lender. If a legal entity or individual wants to become an investor, he needs to purchase government issued securities. Bonds give the holders the right to collect the amount of debt, including interest. This is how the USSR government loan was provided. Neither party to the transaction can change the conditions of the Central Bank that are in circulation.
Mandatory terms of the loan agreement are:
- repayment of debt within the agreed period;
- security of the transaction;
- the rate at which a government loan is provided.
Loans received within the country form internal debt, and from international organizations - external debt. These two indicators play an important role.
Macroeconomics
The government internal loan, which is received from Central banks, is recorded in liabilities in the form of growth in the money supply due to purchased bonds. This is how domestic debt is monetized. That is, the issued loan is collateral for the money being issued.
The interest at which the state internal loan is provided is also a macroeconomic regulator. If very large volumes of resources are attracted at a high interest rate, the overall discount rate will increase. This will immediately have a negative impact on business activity.
The government loan must be used effectively. For example, to go towards the construction of a railway and the purchase of production facilities. Otherwise, the burden of paying off the debt will fall on taxpayers for decades to come. That is, we can say that increasing the national debt is a moral problem. 
Public debt management
The state and the Central Bank are using a whole range of measures aimed at paying off obligations. In particular:
- repay government loans;
- public debt is secured by collateral;
- make payments to lenders;
- issue new loans, etc.
These management methods are used to:
- reducing loan servicing costs;
- ensuring financing of socially significant programs;
- maintaining a stable political system.
State winning loan
Today, almost every loan is targeted. Moreover, banks develop programs for specific purposes and clients. Therefore, there is a division into consumer, car loans and mortgages.
The government loan is also targeted. Given the problems in most sectors of the economy, how can you borrow money without specifying a specific use for it? In practice, such loans are not provided. Therefore, loans are considered targeted. The directions for using the funds are clearly stated in the contract. If the document lists the financed areas of educational development, but in fact the funds were spent on the acquisition of production plants, then the creditor may demand early repayment of the entire amount of the debt. 
Government loans in the USSR
During the Soviet era, funds raised by the government were used to finance basic production costs. There was a redistribution of capital. Temporarily available funds of individuals and legal entities have been transformed into those suitable for long-term financing. The enterprises invested in the payment obligations of the Central Bank of the NKF of the USSR. The security was issued for 6 months. But with the help of this instrument, the state gained access to a long-term loan worth several million rubles.
The second advantage of government credit was that it stimulated capital accumulation. The growth rate of a country's national economy at a given level of national income depends on the volume of funds allocated for consumption and accumulation. Government loans encourage capital savings.
Periods of wars, social upheavals and revolutions destroy the very idea of accumulating funds. The process of restoring the economy requires capital investment. We have to develop saving skills again. This problem can be solved with the help of government loans. Excess banknotes are withdrawn from the market, demand for goods decreases, and prices decrease.
The table below shows the national debt of the USSR.
| Loan name | Release | Nominal loan amount, million rubles. |
| State 8% internal loan | 1924 | 100 |
| The first peasant winning loan | 50 | |
| 100 | ||
| State short-term 5% internal loan | 1925 | 10 |
| Reissue of the peasant loan | 100 | |
| Re-issue of government loan | 300 | |
| Second peasant winning loan | 100 | |
| Second state 8% internal loan | 1926 | 100 |
| Winning loan | 30 |
Conventionally, 1924-1926 can be divided into two periods. The first two years are characterized by a large number of short-term loans with a compulsory nature of sale. During this period, the government tried to cover the default without issuing money. Therefore, in 1924-1925 several very large loans were issued. Their goal was to speed up the flow of funds into the treasury. The first forced loans were designed for the monetary savings of the population. These loans did not actually increase the amount of monetary resources, but only moved the timing of their receipt in time.
Second stage of lending
In February 1925, the recovery period began. Issued loans were placed on a voluntary basis and according to market requirements. Proceeds from the transactions were used for economic construction.
The attempt to place the first voluntary winning loan was a failure. The country has not created the prerequisites for the development of long-term credit operations. This was hampered by a high discount rate, limited available funds, and lack of confidence in a new financing instrument with a low level of return. Therefore, the following loan was placed among workers and income tax payers on a compulsory basis. The second loan was already distributed among the non-working segments of the population. Subsequent loans were only called voluntary. At certain stages of implementation, coercion still took place. Such measures had a number of negative consequences.
The population sought to quickly get rid of the central banks, throwing them onto the market. The mandatory tax paid upon the sale of the bond completely eliminated its value. Due to excess supply, the market price dropped to 20% of the face value. Despite the high yield of the bond (130%), there were no people willing to buy it.
As a result of a sharp decline in the exchange rate, government bonds were first quoted on the stock exchange at their real value, and then completely moved to the black exchange and turned into illiquid securities. Only after the abandonment of forced methods of placing loans did the process of market recovery begin. 
Conclusion
Borrowing government securities may be required by both economically weak states and countries with developed economies. Regardless of the root cause, before making a decision, you need to thoroughly study the issue and justify receiving a loan.
- State credit is a relationship of borrowing temporarily free value, in which the state is an obligatory participant. The state most often acts as a borrower (state loan) or guarantor. The purpose of raising funds by the state:
Covering the budget deficit
Regulation of money circulation
Accumulation of funds for investment programs
The purpose of providing guarantees: state support for entrepreneurial activity, support for loans at a certain territorial level (usually federal subjects).
The purpose of lending: to support the reproductive functions of state-owned enterprises and some strategically important industries or enterprises for the state. Credit can also be provided to the population in order to implement the state’s social policy.
The main reason for the availability of public credit in a transformational economy is the lack of budget funds. Therefore, the attracted resources are transferred to government bodies to cover the budget deficit. This practice is more expedient than issuing money, which results in inflation.
In its economic essence, state credit is a form of secondary redistribution of GDP. Its source is the free funds of the population, enterprises and organizations. Government borrowing should be carried out only when other opportunities for generating revenue have been exhausted or the tax burden needs to be reduced. At the same time, a system of efficient and effective use of borrowed funds must be in place.
Sources of loan repayment:
Income from investing borrowed funds in highly efficient processes
Additional tax revenue
Savings from cutting costs
Issue of money
Funds raised from new loans (debt refinancing)
The collateral for the state loan is all property owned by the state, but the amount of collateral is not specified in the loan agreement.
The subjects of state-credit relations on the part of Ukraine are:
Cabinet of Ministers of Ukraine
Authorities of the Autonomous Republic of Crimea
Local governments (municipal credit?...)
Ministry of Finance of Ukraine (in particular the State Treasury
Government credit is a source of attracting additional resources to the budget and influences money circulation and interest rates through open market operations.
- Types and forms of state credit.
There are two types of government credit: external and internal. External public credit is a borrowing relationship between the state and entities of other countries. Internal state credit is between the state and the subjects of a given country.
The main form of government credit is a government loan.
According to legal registration, government loans are divided into types:
Government loan secured by the issue of securities (bonds and treasury bills (bills).
Government loan provided on the basis of an agreement.
A bond is a medium or long-term debt obligation of the state, under which the debt is returned to creditors within a specified period and income is paid in the form of interest, winnings or by paying coupons. The goal is to cover the budget deficit and specific projects (target).
Treasury bills (bills) are short-term debt obligations to cover the budget deficit. Interest is paid on them. Sold only to individuals. Repayment period is up to a year, medium-term – up to 5 years.
Agreement-based government loans are typically loans provided by other governments, international organizations and financial institutions.
According to the subjects of credit relations, government loans are divided into those placed:
Central authorities
Local authorities.
By location: External loans - provided by persons from other countries, international organizations and financial institutions. Domestic – within the country.
By timing of fundraising:
Short-term (repaid up to 1 year to, as a rule, cover temporary cash gaps)
Medium term (1 to 5 years)
Long-term (5 years and above)
Based on wealth:
Mortgages (bonds secured by certain income or property)
Mortgage-free (bonds are not secured by anything specific).
According to the form of income payment:
Interest - owners receive a solid income, annually, by paying coupons, or one-time when repaying loans by charging interest on the face value of securities
Winning – income is received in the form of winnings at the time of bond redemption for those bonds that were included in the winning circulation.
No-Loss – Guarantees a win on each bond over the life of the loan.
According to the method of determining income, loans are divided into liabilities:
With a fixed income - the interest rate is fixed for the entire period
With floating income - the interest rate depends on various factors, such as the supply and demand for these securities in the financial market.
- The existence of public credit leads to the emergence of public debt. Its amount consists of all issued and outstanding debt obligations of the state (both domestic and external), including guarantees for loans issued to foreign borrowers, local governments, and state-owned enterprises.
There are current and capital, internal and external debt.
Current – the amount of debt to be repaid in the current year and interest to be paid during this period on all previously issued loans. Capital – the amount of debt and interest that must be paid on loans. Domestic debt is debt owed to creditors of a given country. External – debt to creditors of other countries.
Public debt management is to ensure the solvency of the state, i.e. possibility of debt repayment.
There are several ways to regulate borrowing policy:
Conversion
Consolidation
Unification
Deferred repayment
Restructuring
Cancellation.
Conversion is a change in the profitability of loans. It is carried out in the event of a change in the situation on the financial market or a deterioration in the financial condition of the state, when it is not possible to pay the expected income.
Consolidation is the transfer of the obligation under a previously issued loan to a new loan in order to extend the loan term. (exchange of old bonds for new ones)
Unification is the combination of several loans into one. To simplify public debt management
Deferment of repayment - postponement of debt payment deadlines
Restructuring – using in full or in part the methods mentioned above
Cancellation is the state's refusal of its debt.
The main objective of Ukraine's financial policy is to gradually reduce debt pressure on the State budget and the country's economy and optimize the structure of public debt. But the large amount of debt poses a threat to the country's financial security.
External threat:
Increase in external debt
Intervention in the national financial sphere by international financial organizations
Negative trade balance
Balance of payments deficit
Dependence of the national financial market on the global one
External threat.
Growth of domestic public debt
Inefficiency of the tax system and massive tax evasion
Budget deficit
Underdevelopment of the stock market and weakness of the banking system
Payment crisis
Low level of investment activity.
Topic 9. Financial control
The concept and need for government lending
Government lending is part of the public finance system. Since tax funds are often insufficient for the state to perform its functions and ensure the stability of the country’s financial system, an objective need arises for additional borrowed funds. The state must have the ability to finance planned government expenditures, regulate macro- and microeconomic processes, and influence social and monetary policy. Such government activities become possible thanks to government lending.
State lending is a relationship in which the state is either a lender, a borrower, or a guarantor. Government loans are provided to Russian business entities (legal entities and individuals), foreign states, foreign business entities (legal entities and individuals), and international organizations. Based on this, government lending can be internal and external (Fig. 1):
Since the state can both receive loans and provide them, the concepts of “state loan” and “budget loan” should be distinguished.
If the government receives loans, such a relationship is called a government loan. A government loan is a transfer of funds into the ownership of the country on the terms of repayment, urgency and payment. Lenders can be business entities (individuals or legal entities), foreign states, and international financial and credit organizations.
Government loans make it possible to solve temporary problems of budgetary funds shortage. The result of government borrowing is the emergence of internal or external public debt.
If the state issues loans, the concept of “budget loan” is used - a form of financing budget expenditures that provides for the provision of funds to business entities (individuals and legal entities), budgets of lower levels of the country’s budget system, as well as foreign countries on the terms of repayment, urgency and payment. Thus, “budgetary credit” also covers the sphere of interbudgetary relations. In this regard, in the economic literature, the concepts of “budget credit” and “budget loan” are distinguished. A budget loan can be provided to a budget of another level either on a reimbursable basis for a limited period or free of charge.
In practice, the state, as a rule, is the borrower. A government loan is voluntary, and the terms of a loan issued cannot be changed.
Note 1
In addition, the state can act as a guarantor for the repayment of loans and credits. In this case, they are called guaranteed. The provision of government guarantees also leads to the formation of public debt, since the government incurs real costs: despite the fact that the government does not necessarily subsequently repay the obligations it guarantees, the costs of issuing (registering) and servicing the guarantee are inevitable. If the borrower is unable to repay creditors, the state bears the financial burden in full.
The use of guaranteed loans is a common practice for any state, including the Russian Federation.
Thus, through the above credit relations there is a redistribution of credit resources in the country.
Forms of government credit
Government credit can be classified as follows:
according to the duration of the country's debt obligations:
- short-term loans (up to $1$ per year);
- medium-term loans ($1-5 years);
- long-term loans ($5-30 years).
on the right to issue debt securities:
- through the issuance of securities by the central government;
- through the issuance of securities by regional and local authorities, if provided for by law;
based on the entities holding securities:
- loans sold to the population;
- loans sold among legal entities;
- loans sold both to the population and to legal entities;
according to the form of payment of income to entities holding securities:
- interest-winning (annual fixed income of the holder or a one-time interest payment when repaying the loan);
- winning (the holder's income at the time of loan repayment only if it is among the winning securities);
- interest-free (targeted) loans.
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- voluntary loans;
- loans placed by subscription;
- forced loans.
Government Credit Management
The Ministry of Finance of the Russian Federation and the Bank of Russia are the main bodies governing state credit.
The Ministry of Finance is developing a general policy for managing budget funds, public debt and public credit, issues government securities, provides budget loans and credits, etc.
The sale of government securities occurs through the country's banking system. The primary sale of government securities is carried out by the Bank of Russia, and the secondary sale by commercial banks. The Bank of Russia and its territorial institutions place the country's debt obligations, deal with their repayment and pay out income on them. In other words, the Bank of Russia services Russia's domestic public debt.
Character, the subjects of which are the state, legal entities and individuals.
The possibility of the state turning to cover its own expenses by attracting free monetary resources of the population and economic structures arose along with the formation of the conditions of a market economy. This is the essence of government credit.
A state loan is characterized by all the mandatory conditions inherent in any loan: repayment, payment and urgency.
The greatest need for the development of this type of credit relations arises in conditions of budgetary shortage of funds. Then the state turns to attracting funds from enterprises, as well as individuals, by selling them a high degree of reliability.
The repayment terms of the government loan cannot exceed 30 years. In this case, the state can act as a borrower, a lender, and at the same time a guarantor. In most cases, the state acts as a borrower of funds. Much less often - as a lender, when it provides loans to legal entities and individuals. In those cases where it assumes responsibility for fulfilling loan repayment obligations, the state is the guarantor.
The main tasks that state credit is designed to solve are: regulation of microeconomics; regulation of macroeconomics; regulation of monetary policy and financial condition of the country; finding finance to cover budget expenses.
State credit has the following goals: equalizing the conditions for economic development of regions; financing support for municipalities; assistance to major economic sectors.
State credit performs a number of functions: accounting; control; redistribution (between budgets of different levels of the country); regulatory (ensuring the efficiency of using raised funds).
Often the functions of state credit are reduced to two main ones: regulatory and fiscal. It is through the fiscal function that the formation of monetary funds at the centralized level and financing of the budget deficit is carried out.
State credit forms both internal and external assets. This type can be provided to subjects of the state, as well as to foreign states.
The forms of government credit are the following:
By subject of borrowing relations (loans are placed by central and local authorities)
- centralized
- decentralized;
By place of placement or receipt
- domestic (within the country)
- external (provided by the IBRD, IMF and other international lending institutions);
By maturity
- short-term (no more than one year)
- medium-term (from one to five years)
- long-term (more than five years).
The concept of public debt is directly related to the concept of a government loan. The formation of public debt occurs as a result of borrowing and the provision of government guarantees. The growth of the country leads to an increase in public debt and vice versa. The public debt must be backed by the state treasury. Public debt management is carried out by the Ministry of Finance of the Russian Federation and the Central Bank.
In general, public debt is the result of the activities of the executive authorities of the country with legal entities and individuals (both residents and non-residents of the country), executive bodies of other countries and with the aim of forming a fund of funds to meet the financial needs of the country.
