Strengthening Debt Management Strengthening Debt Management Practices: Lessons from Country Practices: Lessons from Country Experiences and Issues Going Experiences and Issues Going

ForwardForward

A Joint Paper Prepared by the World Bank and IMFA Joint Paper Prepared by the World Bank and IMF

Phillip AndersonPhillip Anderson

World Bank TreasuryWorld Bank Treasury

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BackgroundBackground• 2001 “Guidelines for Public Debt Management” 2001 “Guidelines for Public Debt Management”

(Revised 2003)(Revised 2003)

• 2003 “Accompanying Document to the Guidelines 2003 “Accompanying Document to the Guidelines for Public Debt management”for Public Debt management”

• 2002 Launch 12 Country Pilot Program2002 Launch 12 Country Pilot Program

• 2007 Publication of “Managing Public Debt: From 2007 Publication of “Managing Public Debt: From Diagnostics to Reform Implementation” and Diagnostics to Reform Implementation” and “Developing Domestic Government Debt Market: “Developing Domestic Government Debt Market: From Diagnostics to Reform Implementation” From Diagnostics to Reform Implementation”

• 2007 Joint Bank-Fund Board Paper2007 Joint Bank-Fund Board Paper

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Risk reduced in many middle income Risk reduced in many middle income countries (MICs)countries (MICs)

Study of sovereign debt in 18 emerging market Study of sovereign debt in 18 emerging market countries:countries:

Reduced currency riskReduced currency risk• Average external debt fell to 10% GDP in 2004, from 16% Average external debt fell to 10% GDP in 2004, from 16%

in 1999in 1999• Latin America and Emerging Europe: share of external Latin America and Emerging Europe: share of external

declined from 40% to 30% of total debt stockdeclined from 40% to 30% of total debt stock

Reduced rollover and interest rate riskReduced rollover and interest rate risk• 13 / 18 saw short term domestic debt decline as a 13 / 18 saw short term domestic debt decline as a

proportion of total domestic debtproportion of total domestic debt• Latin America – medium-long term fixed-rate debt Latin America – medium-long term fixed-rate debt

increased from around 10% to 20% of domestic debt (Asia increased from around 10% to 20% of domestic debt (Asia over 80%)over 80%)

• International bond issues– average maturity increased from International bond issues– average maturity increased from 8 – 13 years between 2001 and 20058 – 13 years between 2001 and 2005

Source: IMF April 2006 Source: IMF April 2006 Global Financial Stability ReportGlobal Financial Stability Report

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Reduced share of external debtReduced share of external debt

Emerging Markets Sovereign Debt

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

1998 1999 2000 2001 2002 2003 2004 2005 2006F 2007F

% o

f G

DP

External Sovereign Debt Dom estic Sovereign Debt

Source: JPMorgan

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Progress in debt management in MICs, Progress in debt management in MICs, but challenges remain…but challenges remain…

• Developing medium-term debt management Developing medium-term debt management strategiesstrategies

• Coordinating with other macroeconomic policiesCoordinating with other macroeconomic policies

• Improving governance arrangements and Improving governance arrangements and capacitycapacity

• Developing the domestic government debt Developing the domestic government debt marketmarket

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• Concessional flows generally more important than market Concessional flows generally more important than market finance finance

• Borrowing space created by HIPC/MDRI must be managed Borrowing space created by HIPC/MDRI must be managed carefully to avoid reaccumulation of unsustainable debtcarefully to avoid reaccumulation of unsustainable debt

• Most countries remain at an early stage in defining Most countries remain at an early stage in defining comprehensive medium-term debt management comprehensive medium-term debt management strategies strategies

• Greater vulnerability and institutional and capacity Greater vulnerability and institutional and capacity constraintsconstraints

• Fewer tools to manage riskFewer tools to manage risk

Low-income country (LIC) context Low-income country (LIC) context and challengesand challenges

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• Country ownership and commitment to reform is Country ownership and commitment to reform is a preconditiona precondition

• Comprehensive diagnostics necessary prior to Comprehensive diagnostics necessary prior to undertaking reform – including links with undertaking reform – including links with macroeconomic frameworkmacroeconomic framework

• Embodying PDM reform in broader projects can Embodying PDM reform in broader projects can improve chances of success in implementationimprove chances of success in implementation

• Coordination with other organizations and Coordination with other organizations and governments have improved the quality of PDM governments have improved the quality of PDM technical supporttechnical support

Insights on designing and implementing Insights on designing and implementing a reform programa reform program

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The case of KenyaThe case of Kenya

• Failure to sustain capacity building efforts Failure to sustain capacity building efforts (1985-2003)(1985-2003)

• Turning point: Government request of World Bank Turning point: Government request of World Bank support (2003) and Anglo Leasing affair (2004) support (2003) and Anglo Leasing affair (2004)

• Reform implementation (2004-)Reform implementation (2004-) Staff increase from 5 to 24 officialsStaff increase from 5 to 24 officials Organized according to FO, MO and BO functionsOrganized according to FO, MO and BO functions Domestic and external debt database has been migrated and Domestic and external debt database has been migrated and

updated on CS-DRMS 2000+ updated on CS-DRMS 2000+ Debt data reconciled against loan contract and validated Debt data reconciled against loan contract and validated Back office and its internal procedures have been strengthenedBack office and its internal procedures have been strengthened A comprehensive Annual Debt Management Report has been A comprehensive Annual Debt Management Report has been

published, including an initial debt management strategypublished, including an initial debt management strategy Debt management department has its own websiteDebt management department has its own website

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• Treasury to continue focus of support for Treasury to continue focus of support for MICs, PRMED to support LICsMICs, PRMED to support LICs

Build on insights gained from the pilot program and Build on insights gained from the pilot program and other country workother country work

Work in close coordination with each other and with Work in close coordination with each other and with department responsible for domestic debt market department responsible for domestic debt market developmentdevelopment

• Regular coordination with IMF and other Regular coordination with IMF and other providers of assistanceproviders of assistance

Bank to focus on long term institutional Bank to focus on long term institutional development, capacity building, and knowledge development, capacity building, and knowledge transfertransfer

IMF to focus on its role in helping countries prevent IMF to focus on its role in helping countries prevent macroeconomic and financial crisesmacroeconomic and financial crises

World Bank support for public debt World Bank support for public debt managementmanagement

1010

• Support for MICs Support for MICs Country work– engagements in 28 countries over Country work– engagements in 28 countries over

past 5 years (policy of cost recovery for follow-up past 5 years (policy of cost recovery for follow-up work)work)

Training, research and outreachTraining, research and outreach Due diligence and support for countries using IBRD Due diligence and support for countries using IBRD

banking productsbanking products

• Support for LICs Support for LICs Program to measure debt management Program to measure debt management

performance through standardized PDM indicators performance through standardized PDM indicators (DeMPA)(DeMPA)

Jointly with the IMF, develop LIC capacity to design Jointly with the IMF, develop LIC capacity to design and implement medium-term debt strategiesand implement medium-term debt strategies

Training and outreach program to be developed Training and outreach program to be developed

World Bank support in debt management World Bank support in debt management – work program– work program