IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Overview: The Medium-term Debt Management Strategy (MTDS)

Joint Vienna Institute, Vienna, Austria

February 23 – 27, 2015

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

What is public debt management?

• “Public debt management is the process of establishing and implementing a strategy for managing debt to achieve the government’s financing, risk, cost objectives and other goals, such as developing the domestic debt market”Guidelines for Public Debt Management: IMF/World Bank, 2001

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Debt Management: the big picture

Debt management and debt sustainability

Debt management

DeMPA

(process)

MTDS (debt composition)

Long term debt sustainability

DSF (debt level)

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Debt Management is Distinct From Fiscal Policy

• Fiscal Policy – Aggregate government spending

and taxation, micro-economic impacts of

individual tax and spending policies. Determines

the level of debt

• Debt Management – Structure of the debt, cost

and risk of the debt portfolio within acceptable

tolerances. Determines the composition of the

debt

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Objective

• Provides guidance on the process for developing a plan that the government intends to implement over the medium-term to achieve a desired composition of government debt portfolio

• Evaluates the cost-risk tradeoffs associated with different strategies

Methodology

• Guidance Note provides practical guidance on the process of developing an MTDS.

• An eight step structured approach to developing a debt management strategy

• The Analytical Tool (AT) provides a cost-risk framework to guide the MTDS decision-making process.

• Handbook explains the use of the AT.

Implementation

• Jointly developed and implemented by the Bank and the Fund

• Implementation mission plus training follow-up missions

• Report releaseds at authorities’ discretion

• Demand driven

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

The 8 Steps

1. Objectives and scope of the strategy

2. Cost and risk of existing debt

3. Potential sources of finance

4. Medium-term macro-policy and market environment

5. Broad structural factors and risks

6. Analysis of alternative debt management strategies

7. Review with fiscal, monetary and market authorities

8. Propose and approve strategy

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Step 1: Objectives & Scope

Objective

• Identify main objectives for public debt management and the scope of the medium term debt management strategy

Outputs

• Description of the overall objectives for public debt management

• Definition of the types of debt to be covered by the strategy

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IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Step 2: Cost & Risk of Existing Debt

Objectives

• Identify current debt management strategy

• Identify outstanding debt and its composition

• Calculate basic cost and market risk indicators

Outputs

• Detailed information on outstanding debt

• Debt servicing profile of outstanding debt

• Description of main portfolio risks

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IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Step 3: Potential Instruments & Characteristics

Objective

• Identify potential sources of finance, their financial characteristics including cost and risk parameters

Output

• List of existing and potential instruments, domestic and external, and description of their financial characteristics

• Evaluation of the potential of annual borrowing in each instrument

• Discussion/ranking of the instruments based on cost/risk characteristics

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IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Step 4: Macro and Market Environment

Objectives

• Identify the baseline projections for key fiscal and monetary policy variables, as well as market rates, the mains risks to this, and the relevant constraints and implications for MTDS formulation

Output

• Baseline projections for key fiscal, monetary policy and market variables

• A clear and comprehensive set of country specific risk scenarios to be tested

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IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Step 5: Review Key Longer-term Structural Factors

Objective• Review structural factors that will potentially influence

the desired direction of the MTDS over the longer-term

Output• Articulation of long-run structural factors that the MTDS

should take into account, e.g.,– Commodity price vulnerability– Macro vulnerabilities created by the debt composition– Change in access to concessional financing as income levels

grow

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Step 6: Analysis of Strategies

Objectives

• Identify and analyze possible debt management strategies, assess their performance, and chose a small number of preferred debt management strategies

Outputs

• Comparison of feasible debt compositions, identifying preferences relative to objectives

• Comparison of cost and cost-range implications of debt management strategies

• Identify the preferred, and a few alternative strategies

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Step 7: Review with Other Agencies

Objectives• Ensure that relevant feedback from the strategies

identified is provided by the fiscal and monetary policy authorities

• Review the potential debt market implications of the strategies

Output• A clear assessment that the candidate strategies are

consistent with fiscal and monetary policies, maintaining debt sustainability, and in line with plans for market development

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IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Step 8: Propose & Approve the Strategy

Objective• Present the preferred and alternative strategies to the

highest responsible authority• Propose the preferred strategy for approval

Output• A document describing the preferred strategy, as well as a

few alternatives (“MTDS report”) • A clear description of the key associated costs and risks, and

relationship with the broad objectives

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IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Disseminating the Strategy

• Once determined, the agreed strategy should be disseminated– Inform key stakeholders (e.g. Parliament, primary dealers,

creditors, investors, ratings agencies)• Secures (political) commitment to the strategy

• Reduces uncertainty, increases confidence

• Facilitates active decision-making by the DM

– Enhances transparency and accountability• Improves the quality of the debate

• Strengthens analysis and (consequently) improves outcomes

• Establishes a reference point to evaluate debt management performance

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IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Implementing the Strategy

• Separate process from strategy formulation• Operational focus, identify consistent borrowing plan,

more focused on precise characteristics and details of instruments

• Implementation will highlight key bottlenecks that constrain set of feasible strategies:– Shallow local debt markets– Weaknesses in primary market operations– Potential conflict with operating framework for monetary

policy– Limits on availability of (concessional) external finance

• Link to market development strategy

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IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Thank you