Summary: Although the current economic situation and the challenges of combating terrorism will cause federal deficits in the short term, the budget may again return to surpluses. Surpluses will be needed in the future to prepare for the retirement and health care needs of the baby boom era. GAO studied five nations--Australia, New Zealand, Norway, Sweden, and the United Kingdom-- whose recent experiences with debt management in times of surpluses might be relevant to the United States. The countries GAO studied experienced both budget surpluses and deficits from 1988 through 2000. Recent budget surpluses contributed to falling public debt levels in absolute terms and as a share of the economy in these countries. Whether government debt is increasing or decreasing, debt managers' objectives are (1) to ensure that the government's financing needs are met, (2) to minimize the government's cost of financing, (3) to promote efficient markets, and (4) to keep risk at an acceptable level. However, tradeoffs among these objectives are not always compatible. During budget deficits, a primary consideration is making government securities more attractive to potential investors. On the other hand, periods of surpluses pose challenges to maintain liquid benchmark issues and reduce borrowing costs. Some nations used debt reduction and investment in financial assets to help achieve national goals and prepare for demographic changes. Congress may want to consider various debt management tools used by other countries during cycles of budget surpluses and deficits.
