Montiel, Peter J.2013-12-192013-12-192005-09-01World Bank Research Observerdoi:10.1093/wbro/lki006https://hdl.handle.net/10986/16400Recent research suggests that management of the public sector debt can have important effects on a country macroeconomic performance. This Public debt management and macroeconomic stability article provides an overview of the factors that the recent literature has identified as important in determining the optimal composition of the public debt. Based on this analysis, it attempts to establish general guidelines for public debt management in emerging economies. To retain market access and promote domestic financial market development, governments should generally finance themselves at market rates using a wide variety of securities. Beyond this general principle, the optimal composition of the public debt involves a tradeoff between enhancing the government anti-inflationary credibility and reducing the vulnerability of its budget to macroeconomic shocks. Consequently, the optimal composition of the debt depends on a country circumstances. Debt should be heavily weighted toward long-term nominal securities for governments that have anti-inflationary credibility and toward long-term indexed debt for those that do not.en-USCC BY-NC-ND 3.0 IGOADVERSE CONSEQUENCESADVERSE EFFECTSAMORTIZATIONAMOUNT OF DEBTASYMMETRIC INFORMATIONBAILOUTSBALANCE OF PAYMENTSBALANCE SHEETBALANCE SHEET EFFECTSBENCHMARKBORROWING COSTSCAPITAL MOBILITYCAPITAL OUTFLOWSCENTRAL BANKCLOSED ECONOMYCOMMERCIAL BANKSCOMPOSITION OF DEBTCONTINGENT LIABILITIESCOUNTRY RISKCREDIBILITYCREDIBILITY PROBLEMCREDIBILITY PROBLEMSCREDITORSCURRENCYCURRENCY BOARDCURRENCY COMPOSITIONCURRENCY CRISESCURRENCY CRISISCURRENCY DEPRECIATIONCURRENCY MISMATCHDEBT COMPOSITIONDEBT CONTRACTSDEBT CRISISDEBT INSTRUMENTDEBT MANAGEMENT POLICIESDEBT MANAGEMENT PRACTICESDEBT MANAGEMENT STRATEGYDEBT MATURITIESDEBT MATURITYDEBT OBLIGATIONSDEBT OVERHANGDEBT REPAYMENTDEBT REPUDIATIONDEBT SERVICEDEBT SERVICE OBLIGATIONSDEBT SERVICE PAYMENTSDEBT SERVICE REQUIREMENTSDEBT SERVICINGDEBT SERVICING COSTSDEBT SERVICING NEEDSDEBT STRUCTUREDEBT-SERVICING COSTSDEFAULT PROBABILITIESDEFAULT PROBABILITYDEFICITSDEMAND FOR GOVERNMENT SECURITIESDEMAND FOR MONEYDEPOSITDEVALUATIONDEVELOPING COUNTRIESDEVELOPING ECONOMIESDOMESTIC AGENTSDOMESTIC CREDITORSDOMESTIC CURRENCYDOMESTIC ECONOMYDOMESTIC FINANCIAL MARKETDOMESTIC FINANCIAL MARKETSDOMESTIC INFLATIONDOMESTIC INTEREST RATESDOMESTIC PRICEECONOMIC DEVELOPMENTEMERGING ECONOMIESEMERGING ECONOMYEMERGING ECONOMY GOVERNMENTSEQUILIBRIUMEQUILIBRIUM VALUEEXCHANGE RATEEXCHANGE RATE MOVEMENTSEXCHANGE RATESEXPANSIONARY POLICIESEXPENDITUREEXTERNAL BORROWINGFEDERAL RESERVEFEDERAL RESERVE BANKFINANCESFINANCIAL ASSETSFINANCIAL CRISISFINANCIAL DEVELOPMENTFINANCIAL FRAGILITYFINANCIAL INSTITUTIONSFINANCIAL MARKET DEVELOPMENTFINANCIAL MARKETSFINANCIAL SECTORFINANCIAL SYSTEMFINANCIALLY OPEN ECONOMYFISCAL POLICIESFISCAL POLICYFLEXIBLE INTEREST RATESFLOATING EXCHANGE RATEFLOATING EXCHANGE RATESFOREIGN CURRENCYFOREIGN CURRENCY DEBTFOREIGN CURRENCY EXPOSUREFOREIGN EXCHANGEFOREIGN EXCHANGE RESERVESGOVERNMENT BUDGETGOVERNMENT DEFAULTGOVERNMENT EXPENDITURESGOVERNMENT FINANCINGGOVERNMENT REVENUEGOVERNMENT SPENDINGHOLDERS OF GOVERNMENT DEBTHOLDINGIMPLICIT TAXIMPLICIT TAXESINCOMEINCOME LEVELSINDEXATIONINDEXED BONDSINFLATIONINFLATION RATEINFLATION TARGETINFLATION TARGETINGINFLATION TAXINFORMATIONAL ASYMMETRYINSTITUTIONAL CONSTRAINTSINSTRUMENTINTEREST RATEINTEREST RATE RISKINTEREST RATE SHOCKSINTERNATIONAL BANKINTERNATIONAL ECONOMICSISSUANCELEGAL SYSTEMLEVEL OF DEBTLEVYLIABILITYLIQUID ASSETSLIQUID RESERVESLIQUIDITYLOANLONG-TERM DEBTLONG-TERM LOANSMACROECONOMIC FLUCTUATIONSMACROECONOMIC INSTABILITYMACROECONOMIC PERFORMANCEMACROECONOMIC SHOCKSMACROECONOMIC STABILITYMACROECONOMICSMARGINAL COSTMARKET ACCESSMARKET DEVELOPMENTMARKET INTERESTMARKET INTEREST RATESMARKET RETURNSMATURITYMATURITY STRUCTUREMONETARY POLICYMORAL HAZARDNATURAL DISASTERSNOMINAL INTEREST RATENOMINAL INTEREST RATESOPEN ECONOMYOPEN MARKETSOUTPUTOUTSTANDING DEBTPOLITICAL ECONOMYPORTFOLIOPRIMARY MARKETPRIMARY MARKETSPRINCIPAL PAYMENTSPUBLIC DEBTPUBLIC DEBT MANAGEMENTPUBLIC FINANCEPUBLIC SECTOR BORROWINGPUBLIC SECTOR DEBTPUBLIC SPENDINGREAL EXCHANGE RATEREAL INTERESTREAL INTEREST RATEREAL INTEREST RATESREGIME CHANGERELIANCE ON SHORT-TERM DEBTREPUTATIONRESERVERETURNRISK EXPOSURERISK EXPOSURESSECURITIESSHORT MATURITIESSHORT MATURITYSHORT-TERM DEBTSHORT-TERM FINANCESHORT-TERM LIABILITIESSOCIAL COSTSOCIAL COSTSSOLVENCYSTATE-CONTINGENT CONTRACTSSTOCK OF DEBTSTOCKSTAXTAX COLLECTIONTAX RATETAX RATESTAX REVENUESTAX SYSTEMTAXATIONTRADINGTRANSACTIONTRANSACTION COSTSTREASURYJournal ArticleWorld Bank10.1596/16400