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Economic Policies

A debt management strategy will be more successful when a consistent macroeconomic policy framework involving fiscal, monetary, exchange rate, capital account and structural policies is in place. Achieving these goals involves a complex and dynamic process, including operational and theoretical issues.

In particular with monetary policy, there may be a need to address concerns about potential conflicts with public debt management, especially when the government issues short-term bills (e.g. for cash management purposes). In fact, a vital element in conducting effective monetary policy is detailed knowledge about and predictability of government cash flows, that affect bank's reserve balances (similarly as open market operations). Typically, this policy area focuses on how best to develop markets at the short end of the government yield curve and how to secure a proper coordination among the different authorities.

As for another extremely important policy area, the government’s budget is the main instrument of fiscal policy. Deliberate or discretionary changes to the structure of revenue and expenditure components of the budget can be used to alter the level of economic growth, inflation, unemployment and external stability. In choosing the methods of financing the budget, policy makers should ensure sound public finances over the medium term, avoiding an unsustainable and damaging rise in the burden of public debt. Potential conflicts between the objectives of fiscal policy and public debt management are the main reason to implement coordination arrangements.