Lessons 21 · 1 lessons · N. Ismatova, O. Karimova. Foundations of State and Law: textbook for Grade 11 of general secondary schools and for secondary specialised and vocational institutions. 1st edition. “Yangiyul Poligraph Service”, Tashkent, 2018
21
The legal basis of state credit
Textbook: pp. 115–117
GoalExplain the concepts of state credit and public debt, their principles and forms, and calculate a simple amount of interest.
New words
borrowing by the state of temporarily free money of individuals and legal entities · Davlat kreditia bond: a security confirming a loan and the duty to repay it with income · Obligatsiyapublic debt: the state’s total obligations from internal and external borrowing · Davlat qarziinterest: the payment for using borrowed money · Qarz foizi
Explanation
State credit consists of relations in which the state attracts the temporarily free money of individuals and legal entities as a loan in order to cover a budget deficit and fund important social and economic programmes. In these relations the state is the borrower and the other side is the lender; sometimes the state itself may lend. State credit rests on four principles: repayment, term, payment (interest) and voluntariness, meaning the loan is given willingly, not by force. Its main forms are state securities (bonds) and loans; money may be raised on the domestic market or from international financial organisations and other states, so public debt is divided into internal and external. Debt obligations are taken on and paid in the manner set by law and under budget control. If public debt grows past a certain limit it places a heavy burden on future generations, so limiting its size and openly reporting how it is spent are important.
Worked examples
A financial body issued bonds of 1,000,000 so‘m for 2 years at 10 percent simple annual interest. At the end of the term the holder receives 200,000 so‘m of income (1,000,000 × 10 × 2 : 100) and gets the principal back. This shows the principles of repayment, term and payment.
The state took a long-term loan from an international financial organisation for a road programme. This is external debt, its repayment terms are written in the agreement and its execution is controlled through the budget.
Class activity
Debate: “Can public debt be useful?” One group presents the benefits (infrastructure), the other the risks (the debt burden), and then the arguments of both sides are summarised.