One form of government financing is government loans. They are also called municipal. The state takes money from various entities. This is necessary for the harmonious development of the country, society and the implementation of various programs. The classification of government loans requires special attention. Their varieties and forms will be discussed in detail below.
General concept
State and municipal loans are placed by the government on the loan capital market. For this, banks are involved, as well as non-banking institutions, financial institutions. In order to mobilize the main loan amount, securities are placed in banking institutions. If you want to collect savings from the population, registration takes place through savings banks.
Subscribers of government loans are various government organizations, special funds, which are managed by the government at different levels. Subscribers of municipal loans can also be industrial corporations, local authorities, and insurance companies. It can also be private investors and other entities.
This type of loan, like any other, is repayable. Moreover, the amount that was borrowed is returned with interest. This occurs within the time period specified by the contract. Loans allow you to cover the budget deficit. They are expressed in cash. Funds raised through such an action are allocated to state needs.
Positive aspects of loans
Government loans of the Russian Federation or other states have both positive and negative sides. This is taken into account by the relevant authorities in their design.
The positive essence of the loan is the ability to control inflation by covering the budget deficit. Also during the crisis, this type of financing is the most affordable to stabilize economic processes. Another positive quality of the loan is its ability to regulate the amount of money supply in the population.
The negative side of loans
The negative side of this process is the increase in lending rates on loans. Demand for capital begins to increase. This leads to higher financing rates. Also, loans increase the country's external debt. They do not generate income, therefore, the excessive accumulation of such financing leads to instability of the economic situation in the country.
It is also worth considering that a large amount of borrowed capital, which accumulates in the country's balance sheet, leads to an increase in taxes for legal entities and individuals. It is at their expense that the state debt is repaid. After all, the debt will need to be paid back on time.
Types of Government Loans
There are various forms of government loans. The state is engaged in various activities. For this, it issues various types of securities for circulation on the financial market. To attract free funds of the population, investors most often issue bonds, as well as treasury bonds. They have a number of characteristic qualities.
A bond is a type of debt securities issued by the state. They confirm the right of their holder to receive the amount of funds indicated in this document at the specified time. The owner of the bond is paid the amount of the debt, as well as the percentage for the use of its funds. The money received from the borrower in this way is used to finance various funds or other purposes.
Treasury bills are also a frequently issued type of securities that the state appeals to. This document also guarantees payment of interest to the owner of the funds on time. The money that will be received from such a transaction can be sent only to replenish the budget. This is the main difference between treasury bonds and bonds.
The subjects of financial relations
Treasury bonds and domestic government loan bonds may attract different entities of state power to replenish various funds and budgets. This can be the authorities of both the federal level and local government. They attract financing to reduce the deficit of funds, the budget.
The federal government includes the Government of the Russian Federation. This is the global level of borrowing. The regional recipients of this type of financing are the bodies of the regional or city administration, as well as the managers of the republic and territory.
Local authorities can also borrow from individuals and legal entities. These entities include district administrations. All listed levels of power when attracting borrowed capital operate within the framework of the established legislation. There are no separate requirements for entities of different levels.
Types of currency
By type of currency in which the securities were issued, distinguish between internal and external government loans. They have some differences. Internal loan refers to credit relations, which are drawn up exclusively in national currency. An investor can only be a resident of the Russian Federation.
External financing is a type of credit relationship that develops between the state and a foreign private or legal entity. In this case, the loan is issued and repaid in foreign currency.
Domestic loans can be placed on the national stock market. Transactions executed in foreign currency are placed on foreign exchanges.
Maturity
The maturity of government obligations may vary. The date of payment of the amount of debt and interest is indicated on the security form. There is a short-term and long-term loan. In the first case, repayment of debt to the creditor is performed during the year. Long-term loans require payment for 5 or more years.
The intermediate link between short-term and long-term are medium-term securities. Settlement on them occurs in the period from 1 to 5 years. The more money in circulation, the greater the amount of remuneration the state must pay to the creditor at the end of the validity period of the securities.
The law establishes that the maximum period for which you can borrow money for the state is 30 years. It is worth noting that all three types of loans are common in our country. Preference is given to short-term and medium-term obligations. This is due to the high level of mistrust of creditors to government bodies and the debt repayment system.
Security
Short-term or long-term loan may be secured or not. This issue is specified in the process of signing the agreement between the parties. Secured loans are also called collateral. Most often these are loans that attract local governments. Such a loan is provided by various facilities, for example, an administrative building or a car fleet, which belongs to the state structure.
Secured borrowed capital allows you to attract a large amount of funds quickly enough. However, it is far from always possible to attract capital under such conditions. Federal and regional loans are almost always issued in unsecured form. They are not provided with anything.
The most popular type of unsecured loans are bonds. Since the risk of non-repayment of funds for such securities is higher than with a secured loan, the cost of such capital will be higher. Interest will need to pay more.
The nature of profit paid
Each loan, which is issued between the state and the lender, must be paid in full on time. Such securities have a certain yield. On this basis, a percentage, interest-free, win-win, interest-winning, winning state loan are distinguished.
Interest-bearing varieties of securities represent borrowed capital, which has a certain return upon return. It is determined by the amount of interest that the creditor receives when paying off the debt.
Target loans are classified as interest-free. Within the prescribed period, the state will pay its debt in the form of goods. This type of borrowed capital is most often traded locally. The funds that are attracted in this way are used to improve the social sphere in a particular region.
Winning, win-win varieties
The form of repayment of government loans may be different. Win loans are also allocated. Their profitability is determined by a draw. All bonds of this type are given the opportunity to become winning. But income is received only by those owners of securities whose loans are in the corresponding table.
Another variation is a percentage-winning loan. One part of the income in this case is paid necessarily. It is fixed on the face value of the security. The second part of the income is determined during the drawing.
Win-win securities are a form of winning loans. The difference between the two is that the bondholder may not receive any income on a winning loan. But if he makes a profit, it will be more than for other types of contracts. Win-win loans, however, guarantee that the state will pay the amount indicated in the nominal amount. Over the course of its validity, such a security will win. Today, only winning government bonds are issued. Win-win and percentage-winning varieties are practically not used today.
Market appeal
Another sign that classifies external and internal government loans is their circulation in the market. Two groups of securities are distinguished here. The first of them is characterized by free float in the stock market. They are freely sold and bought. This shapes their market value. It determines the yield of the loan.
The value of securities that are traded on the stock market is formed under the influence of supply and demand. Therefore, the state is interested in increasing the interest of buyers in such securities.
The second group is non-market obligations. They are issued to attract borrowed funds of large financial organizations. There are no such securities in the free sale.
Issue right
The classification of government loans is carried out on the basis of the right of issue. Various government bodies may issue such securities. The first group includes bonds and treasury bonds issued by federal authorities. Securities issued by regional authorities and local authorities are also allocated.
Each of these state bodies can attract borrowed capital using the tools presented. They are needed for the smooth functioning of the entire structure.
All actions of the government and local governments in the field of attracting credit resources are regulated by law. Therefore, the actions of such bodies are always regulated and carried out according to certain instructions.
Emission Technology and Placement Method
There are other classifications of government loans. According to the technology of their release, bond and bondless agreements are distinguished. In the first case, in the process of issue securities are issued that have a material form. Non-bond technology involves making loans in the form of records on certain accounts. In this case, an agreement is signed. Also make notes in debt books. Borrowers are issued special certificates.
Methods of placing loans may be different. Securities are distributed among borrowers on a voluntary or compulsory basis. The second option is practically not found today. Securities are placed on a voluntary basis.
In rare cases, when special circumstances arise, loans may be extended on a compulsory basis. This practice existed in the USSR during the Great Patriotic War, in the process of industrialization and reconstruction in the postwar years.
Having examined the existing classification of government loans, you can understand the essence and main features of this type of lending to the budget and various funds.