Optimal public debt management: Micro and macro approaches

Public debt management is a strategy formation process minimizing public borrowing costs at a certain risk level at a given time. Public debt managed effectively is one of the most important factors which play a role in providing economic stability in an economy. Therefore, optimal public debt management requires to create public debt portfolio supporting debt sustainability and to exhibite the macroeconomic factors affecting debt sustainability. From this point of view, my thesis have two purposes. These are to examine public debt management in both micro and macro approaches. In the chapter I investigated public debt management in terms of micro approach, I aimed to determine how to create optimal public debt portfolio in Turkey for the regimes credit default swap is both high and low over the period of 2005:01-2017:12. In this context, it was presented the risks regarding to public borrowing instruments and the apparent costs of government debt, then created optimal public debt minimizing borrowing costs at a given risk level for the periods when credit default swap is both high and low. From the result of the analysis, it followed that TRY denominated floating rate bonds have high risk; however, TRY denominated fixed couponed bonds and TRY denominated CPI indexed bonds have low risk in the periods when credit default swap is both high and low. The results show that maturity should be shorten, the share of TRY denominated fixed couponed should be increased and the share of TRY denominated floating rate bonds should be decreased in the public debt portfolio to be managed optimally for public debt in the regime credit default swap is high. In the regime credit default swap is low, maturity should be extended, he shares of TRY denominated fixed couponed and TRY denominated CPI indexed bonds should be increased, and the share of TRY denominated floating rate bonds should be decreased as well. In the chapter I investigated public debt management in terms of macro approach, I aimed to investigate public debt sustainability in Turkey, to exhibit how macroeconomic factors affect it in the regimes that public debt sustainability is both high and low, to determine optimal public debt level and what the ratios regarding main economic indicators should be to acquire optimal public debt level over the period of 1994:Q1-2017:Q4. The results of analysis show that public debt sustainability decrease in economic crisis and electoral periods despite the fact that government debt have sustainability structure in Turkey. Besides, it was found to be %47.23 for optimal public debt/GDP ratio. Also, economic growth should be above %5.89, inflation rate and interbank rate should be respectively below %11.3 and %16.85 to acquire so-called ratio. In the regime government debt is sustainability, trade openness, inflation rate, the share of tax rate in budget and budget balance impact positively public debt sustainability while economic and political risk influence adversely. In the regime government debt is unsustainability, economic growth and trade openness have positive effect on public debt sustainability; however, political risk and exchange rate volatility have negative effects.