ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Debt Swap in a Low Interest Rate Regime

The ongoing debt-to-debt swap schemes have made significant savings to the centre's debt burden; but it has had only a limited impact on the states. The interest savings for states have been very small. Moreover, as the states have had to swap long-term debt for loans of a shorter maturity, the changing profile may create frequent repayment obligations for the states and increase roll-over risk. Debt management policy should ensure that the states can borrow on terms comparable to those of the centre, so that the spread of interest rates between the debt of the centre and the states is reduced.

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