PUBLIC DEBT AS A KEY VARIABLE IN ACHIEVING ECONOMIC POLICY GOALS

It has been largely confirmed that fiscal policy can stimulate or discourage economic growth. Current public expenditures can promote private investment in capital and improve production techniques. Public investment in physical infrastructure or in human resources can increase productivity of capital and labor. Thus, this paper addresses two main issues: firstly; the limit of public debt, respectively, the sustainability of public debt, and, secondly; the importance of fiscal policy in management of the public debt. One of the fundamental issues in the field of public finances is whether to finance the public needs with additional taxes or with the public debt. Modern public finances believe that one should not be afraid of the budget deficit and the growth of public debt. Where are the limits of public debt? Excessive expansion of the public expenditure has as a consequence the macroeconomic instability, slow growth of production and GDP, indebtedness and absence of economic growth. In any case, it is not all the same if at determining of limits of indebtedness the economy of a state is on the rise, or a state is faced with certain internal and external problems. Indebtedness is not problematic if it is consistent with other macroeconomic objectives: with balance on the current account of balance of payments, with growth of private investments, with control of inflation and preservation of external credibility. In any case, until the optimal level of indebtedness is reached there is room for further indebtedness, which may vary in height depending on the chosen objective. In that context the optimal level of external debt can be defined: it is the level of indebtedness that allows the achievement of desirable economic and social objectives without jeopardizing further economic and social development. The limits of indebtedness of a state do not represent the same problem when it comes to external or internal indebtedness. Also, it is not all the same if the indebtedness of a state is observed from a position of public debt or total debt, hence, of the debt of not only a state but also of the private sector, banks and other. Great influence on the policy and the level of indebtedness have international provisions, such as the conditions that have to be fulfi lled in order to join the European Monetary Union (Maastricht Treaty concluded in 1992). Development of new market structures on the market of government securities – auction and dealer markets, and expansion of new types of government securities (derivatives, options), etc. gives special quality to a policy of management of debt.